How businesses can hedge their wealth against inflation with digital assets

The impact of inflation on small-to-medium-sized companies

Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of money. The economic phenomenon significantly impacts small-to-medium-sized businesses (SMBs) as it increases operational costs, squeezes profit margins and raises borrowing expenses.

Inflation harms the costs of a vast range of products

Higher prices for raw materials, utilities and wages, coupled with reduced consumer purchasing power, pose challenges for SMBs, which often have less financial flexibility than larger-scale corporations.

How do crypto and digital assets help hedge against inflation?

As a hedge against inflation, some businesses consider investing in cryptocurrencies and digital assets, like Bitcoin (BTC). Digital assets can serve as a hedge against inflation through several mechanisms:

• Scarcity: For example, Bitcoin has a capped supply of 21 million coins, mirroring gold’s scarcity and value, thus earning the nickname “digital gold.” The asset’s finite supply offers protection against inflation, contrasting fiat currencies that can be printed in unlimited quantities, potentially leading to devaluation.
• Decentralization: Digital assets operate on decentralized networks, where no single entity controls the system and decisions are made collectively by all participants, reducing their susceptibility to government or central bank policies that can cause inflation.
• Global Market: Cryptocurrencies are traded on a global scale, which means their value isn’t directly tied to the economic conditions of any single country, providing a buffer against local inflationary pressures.
• Portfolio Diversification: Because digital assets often move independently of traditional financial assets like stocks and bonds, they can offer protection against inflation-induced market downturns.

What are the main challenges faced by businesses regarding digital asset management

The shift to digital assets like cryptocurrencies and blockchain-based tokens represents an unprecedented opportunity and a complex challenge for businesses. Unlike traditional assets, digital assets require a nuanced understanding of technology, security and a constantly shifting regulatory environment.

Digital asset management steps in to help businesses in this transformation, providing sophisticated strategies and infrastructures to manage their digital holdings. However, this emerging field presents several unique challenges.

• Security risks: The digital nature of these assets makes them susceptible to cyber threats like hacking and phishing attacks. The irreversible nature of blockchain transactions amplifies the potential losses caused by security breaches.
• Regulatory uncertainties: Navigating the evolving regulatory landscape, which varies across jurisdictions, is a significant hurdle for businesses managing digital assets.
• Market volatility: The digital asset market is known for its high volatility, posing a risk to businesses’ financial stability.
• Integration challenges: Integrating digital assets into existing financial and accounting systems poses significant technical and operational challenges.
• Technological complexity: Managing digital assets requires a deep understanding of blockchain technology, which can lead to the mismanagement of assets, missed opportunities and a reluctance to engage fully with digital asset options.
• Client engagement and reporting: Maintaining transparent communication with clients and ensuring comprehensive reporting is essential yet challenging in the fast-paced digital asset environment.

What key features should businesses look for in digital asset management platforms?

ICONOMI Wealth, a comprehensive digital asset management platform, identifies these challenges and offers tailored solutions, exemplifying how businesses can effectively manage their digital assets.

The platform gives business owners access to the cryptocurrency market and digital asset portfolios through a corporate account. Businesses facing challenges from interest rate changes, fluctuations in the value of traditional currencies or looking to protect their excess cash reserves from inflation might think about opening a business account to invest in Bitcoin, which can provide a safeguard against these financial uncertainties.

Bitcoin can serve as a hedge against inflation. Source: ICONOMI Wealth

ICONOMI Wealth manages all back-office processes, from regulatory compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) processes to platform technologies, liquidity sourcing and secure custody, saving businesses time and money.

The digital asset wealth management platform enables small-to-medium-sized asset management firms and financial advisers to launch and manage multiple cryptocurrency portfolios through ICONOMI Wealth’s streamlined private dashboard, which enables users to support their own clients with alternative investments and integrates smoothly with existing business operations and financial systems.

For asset management firms looking to launch their digital asset strategy or cater to clients requesting alternative investments, the challenge often lies in the lack of know-how or resources to build the necessary infrastructure. ICONOMI Wealth bridges this gap by enabling firms to tap into the cryptocurrency market without the high costs and complexities traditionally associated with it.

ICONOMI Wealth streamlines digital asset management. Source: ICONOMI Wealth

By connecting to over ten global exchanges, ICONOMI Wealth provides superior price discovery and portfolio rebalancing capabilities, helping businesses navigate market volatility more effectively.

With its smart trading engine and multiple trading algorithms, ICONOMI Wealth simplifies the trading process by optimizing entry and exit points and minimizing exchange costs, making the management of digital assets more accessible.

ICONOMI Wealth provides personalized invoicing, trading and tax reports, ensuring comprehensive and transparent reporting for asset managers and investors. The platform also offers branded dashboards for investors.

How businesses can keep their digital holdings safe and secure

Protecting digital assets from unauthorized access and cyberattacks that lead to loss of funds is fundamental in digital asset management. Businesses can employ advanced encryption methods and secure storage solutions like cold wallets, which are offline digital wallets that store cryptocurrencies away from internet access, providing an additional layer of security.

Implementing multi-factor authentication for accessing digital asset accounts adds an extra layer of security beyond passwords. Businesses should also conduct regular security audits, helping identify and address vulnerabilities.

ICONOMI Wealth offers a secure custody solution with an option for transferring assets to and from cold storage based on client requests, which provides security against online vulnerabilities.

ICONOMI Wealth provides an all-in-one solution to businesses. Source: ICONOMI Wealth

The FCA-registered platform also boasts a dedicated SLA, a formal contract between a service provider and their client that outlines the specific services to be provided, giving businesses further peace of mind.

The future of digital asset management

Integrating digital asset wealth management systems in SMBs is not just a trend but a forward-looking strategy that aligns with the financial landscape. As SMBs increasingly adopt digital asset wealth management platforms like ICONOMI Wealth, they gain access to a broader spectrum of investment opportunities and integrate innovative financial practices into their operations.

The blend of digital and traditional finance facilitated by digital asset wealth management companies promises enhanced financial flexibility, better risk management and a democratized investment landscape, marking a significant stride toward a more interconnected and resilient global economy.