The phone vibrated on the bedside table, once, twice, three times, waking Ankit Jain from what had been a restful sleep. Before he could reach the phone, three more text messages arrived. He knew who it would be: his boss, Thorsten Konig, the CEO of Ivory Tower, the world’s leading online education platform.
in sun valley talking about cryptocurrencies. is the time. payments + investment. how fast can we do it? please call as soon as possible to discuss. bring shira and paul.
ankit sighed. Thorsten was a brilliant technologist who had started and sold Daytradz, one of the first online retail platforms, before he was 30 years old. Ivory Tower was his second and also highly successful venture that was revolutionizing higher education by offering undergraduate and postgraduate courses to students around the world. Some, like the introductory economics class taught by a Nobel Prize winner who donated his time, were extremely affordable, while others, like the classes on personal branding with Kris Jenner and on M&A with Carl Icahn, they were obscenely expensive. the idea was that the richest users of the platform would subsidize the poorest. The impact that the ivory tower had made in the five years since its launch, and in the 13 months since its IPO, was staggering. But sometimes being the CFO of a fast-moving company run by a “mad genius” was exhausting.
for months, thorsten had been talking about integrating cryptocurrencies into the business. he was a huge proponent of bitcoin 1 and had put about 5% of his own portfolio into it. Several weeks ago, the CEO had asked Ankit that his team look into accepting tuition payments and keeping some of Ivory Tower’s cash reserves in crypto. in media interviews, thorsten had also started alluding to “our crypto future”, sparking speculation that he would build or buy a crypto trading platform.2 but ankit knew thorsten was committed to the ivory tower for at least the next few years; he just wanted to combine it with his new passion.
thorsten, charging fees and investing in bitcoins were simple matters, like doing business in euros and dollars, which ivory tower already did. adopting bitcoin could allow the US company to further hedge against dollar inflation.3
ankit knew things were much more complicated. Although cryptocurrencies were gaining mainstream appeal, even established ones like bitcoin were highly volatile, with changes in value making them more like speculative stocks. Sure, it was possible to accept payment in bitcoin and then convert it to dollars, but the company had to figure out whether it made sense to build the necessary in-house capacity or hire an outside vendor to handle the transactions. and investing profits in crypto was something else entirely. Ankit’s head ached just thinking about the challenges of financial reporting. Then there was the fiduciary responsibility of him as CFO: did shareholders really want ivory tower to go crypto if doing so could risk capital needed in the future to develop better technologies and courses and expand the company’s reach?
Unfortunately, Thorsten rarely took no for an answer. so ankit got out of bed and texted his teammates. “tomorrow. i’m not asking about crypto again. zoom in at 8 to discuss? will join at 8:30.”
Within a minute, he had received two thumbs up. Now everyone was used to Thorsten’s impromptu gatherings. ankit just hoped this didn’t end with an edict.
“I mean we can accept tuition payments in bitcoin.” paul abebe, controller of ivory tower, jumped right into the zoom call. Everyone had been working from home since the start of the pandemic, and the company had decided that it would not require anyone to return to its Manhattan headquarters. “It’s annoying, it’s not as liquid as non-digital currencies, obviously. issues of anti-money laundering compliance and tax reporting would need to be considered. but the question is: why should we do it?”
“Thorsten says it fits with our ethos: embracing the future, spearheading new technology, shaking up the boring education community,” said shira peretz, deputy at ankit. “edo loves the idea too.” she was referring to edo sanger, how from the ivory tower. “He thinks it will be good press.”
“And that will translate into more users and revenue?” Pablo asked skeptically. “what percentage of our students care about this?”4
“well, our blockchain and crypto courses are actually some of the most popular, but thorsten admits that, right now, most people probably won’t pay in bitcoin,” he said5 ankit. “He is more interested in investing our excess cash in it. thoughts?”
“That’s a terrible idea,” Paul said.
“okay”, said shira. “There is no general guidance yet on how to account for these things.6 But the aicpa says that bitcoin is not considered cash or a cash equivalent, inventory, or financial instrument, so it should be treated as an asset. intangible meaning if its value falls we have to write it down on our balance sheet but if it goes up we report those gains only when we sell so if we invest significantly we could take large random hits to our net income without any business-related reason Communicating company performance will be more complicated.”
“but if bitcoin goes up in the long run, could it give us gains that smooth or boost returns?” ankit asked. “Our shareholders are not looking for perfect quarterly results. they want us to invest wisely to grow the company.”
“sorry, but an asset that goes from a valuation of $60,000 to $30,000 in a month cannot be considered a prudent investment,” replied paul. “how do we know that bitcoin will be worth as much next year as it is now? and will we use only bitcoin or also ether or any of the thousands of other cryptocurrencies?”
“for now, thorsten only talks about bitcoin,” said ankit. “It has the largest user base and the longest history. and he is convinced that it will increase in value.”
“If our shareholders want to bet on cryptocurrencies, they can do it directly,” said paul. “When we submitted our s-1 for the initial public offering, we didn’t say anything about a bitcoin treasury.”
“well, we would disclose it and investors could sell if they’re not on board,” shira said. then she shook her head. “But I agree that it is too early, too volatile. I vote for accepting bitcoin payments, if feasible without too much compliance and hassle. investments, no.”
“I’m a no and a no,” Paul said.
At that moment, Ankit saw that Thorsten was in the Zoom waiting room. “Okay, guys, here comes t,” he said, letting the CEO in.
“Hello, friends!” thorsten said as his face appeared on the screen. “what a fabulous day to talk about the future. update me on our crypto plans.”
ankit took the lead. “We have evaluated our options and while we appreciate the potential benefits of bitcoin, we will advise against…”
“aha! I knew you guys would say this. your job is to worry about spreadsheets. I get it. but that’s why I’m here: to help you see the big picture. bitcoin is the future. there is no world where it will underperform major currencies over the next decade.7 we have so much cash in reserves. why not invest some of it in high-yielding assets that we could invest in the company? we could get an appreciation of up to 10 times what we would see otherwise. we will help boost bitcoin and democratize the movement of money, just as we are democratizing education. we must do this!”
ankit noticed that paul and shira were deflated, if not surprised. this seemed like a fait accompli. what thorsten wanted, thorsten usually got.
the board’s concerns
After putting his team to work figuring out how to accept crypto payments and spending a few hours modeling various levels of investment in bitcoin, ankit checked his email. Cindy Yu, the company’s new director and head of her audit committee, had sent him a message asking him to call her.
“cindy, hi! I just saw your message, what’s up?”
“hi ankit. thanks for coming back to me. I’m calling with some board concerns. can we talk off the record?”
“Thorsten has mentioned to several directors that he is interested in making bitcoin a larger part of ivory tower’s business. at the same time personally, and not insignificantly, invests in bitcoin. some of us are concerned that this at least has the appearance of a conflict of interest.” 8
“more importantly, some of us have questions about the wisdom of converting our treasure into cryptocurrencies. Obviously, I’m hoping we’ll discuss this at the board meeting next week, but I wanted to let you know. I suspect Thorsten has asked you to come up with a plan. however, we want his honest opinion. he has his allies, of course. but as non-executive directors, we have to make decisions in the best interests of the company, and we expect the finance team to make recommendations based on the same criteria.”
“I know thorsten is a force of nature and he doesn’t make it easy to disagree with him.9 but if he does, the board needs to listen to him and he will have our support. .”
case study lecture notes
pressure from CEO
at 7, ankit was out for a run when his phone rang: thorsten.
“ankit. I hope I haven’t caught you at a bad time. I wanted to reconnect with cryptocurrencies.”
“only in one race. no problem.”
“oh, keep running. I can talk on the fly,” Thorsten said. “I want you to know that I understand your hesitation. And we can take it easy but I have a history of knowing what’s next in business. first daytradz, now ivory tower, both great successes, although many did not believe that they could be. now you can trust me again. bitcoin has outperformed the dollar since its inception, is gaining popularity among our user base, and in my opinion will be more efficient and secure than regular currencies. other cutting-edge companies are already beginning to participate. now is the time for us to do it too. our support will help the crypto movement. We will take power from the big institutions and put it in the hands of the people. this fits perfectly with our mission.”
ankit wasn’t sure how to respond, but thorsten didn’t press any further. “Okay, continue with your exercise, my friend. and tomorrow we will run together into the future!”
After the call, Ankit picked up his pace and unsuccessfully tried to tune out to the music on his iPhone. it was thorsten right? if the currency exchange was going to move towards crypto, the ivory tower should certainly get ahead of the change. but what if governments clamped down on cryptocurrencies? if bitcoin lost all its value? the board members were right to ask tough questions. and ankit wasn’t quite sure how to answer them.
experts reply: should ankit support thorsten’s bitcoin plans or not?
amrita ahuja is square’s chief financial officer.
ankit should support the push into bitcoin, both as an accepted form of payment and as a balance sheet investment. At square, we believe there is a high probability that the internet will have its own native cryptocurrency, with bitcoin being the strongest competitor. it is the safest and most resistant, with a development model based on principles, decentralized, transparent and based on consensus. We envision a future where businesses won’t have to navigate fiat currencies and local rules and regulations that create complexity and high costs for consumer transactions across borders. inefficiencies in cost, time, and security will disappear, and businesses that accept bitcoin payments will be able to serve anyone in the world, including people who have historically been marginalized by financial systems or who mistrust federal banks (as in america America and some other countries). regions). This fits perfectly with Ivory Tower’s mission to bring quality higher education to underserved communities around the world, and the company must stay ahead of the game.
thorsten is also correct that having bitcoin on the balance sheet will demonstrate to customers, employees (present and future), shareholders and viewers that you have “skin in the game” and help make a more inclusive internet currency a reality. Additionally, bitcoin can provide attractive diversification and act as a hedge against inflation.
square invested 5% of its cash and cash equivalents in bitcoin. we believe that the long-term opportunity is worth any short-term volatility and that our investment will allow us to learn and help improve the system while increasing confidence in it. To that end, Square has established the Open Crypto Patent Alliance to increase access to crypto through a collaborative patent library; square crypto, an independent team focused solely on contributing to bitcoin’s open source work; a $10 million bitcoin clean energy initiative to incentivize miners to use renewable sources; and a $5 million endowment to fund bitcoin education and promote its adoption. Similarly, Ivory Tower could be at the forefront of network development, building good relationships with regulators to enable consumer protection and tackle bad actors while fostering innovation and figuring out how to master custody, insurance, exchange, accounting, payroll, tax filing and compliance.
ankit, of course, needs to address all the concerns that his team and cindy yu have raised. But with Thorsten’s support and a clear strategy and execution plan, he can demonstrate that the company has a chance to be at the forefront of this rapidly emerging trend. this is the time for him to really lead as CFO.
roxi wen is the financial director of invitae.
The case against ivory tower’s decision to accept and hold bitcoins is much stronger than its own. ankit should oppose the plan, but only after having a frank discussion with thorsten to outline the downsides and explore other ideas.
paul is correct that cryptocurrencies are too volatile to have balance sheet quality. If the ivory tower wants a hedge against inflation, many alternatives (gold and real estate, for example) are less risky. In addition, managing bitcoin transactions and custody will require the finance department to create entirely new capabilities, such as secure storage of bitcoin keys, and it is unclear whether this would be a good use of staff time. and the regulatory environment is extremely uncertain; Difficult disclosure rules or divestment requirements could arise at any time.
I also find it hard to believe that people want to pay tuition in bitcoin. Most cryptocurrency buyers want to hold them for capital appreciation and as a hedge against inflation, just like Thorsten. why would clients use their assets to pay for courses, recording taxable capital gains now?
thorsten believes bitcoin will be more secure and efficient than government-backed currencies. but that’s debatable, as fiat payments, particularly in developed countries, move securely and often faster than bitcoin blocks.
For sure, one day bitcoin will be able to trade as frequently and easily as dollars, euros and yen. ivory tower could derive useful marketing value from being ahead of the curve and cementing its reputation as a forward-thinking innovator. however, given the complexities surrounding bitcoin, I believe there are more effective ways to gain a competitive advantage.
ankit needs to cleverly manage thorsten. When you work with a smart, dynamic, and thoughtful leader, you often feel like his job is to constantly say no. but that is not a productive relationship. instead, she wishes to have candid strategic conversations.
The two men should talk about what Thorsten really wants. is it to embrace bitcoin? or become part of the blockchain revolution? And if it is the latter, is there another way to implement the technology in the business? for example, could it be used to set up an open, distributed operating system where users could create their own classes? could payment collection via blockchain happen even when customers pay in traditional currencies? These are much broader questions, and Thorsten’s answers might help Ankit find a way to honor the CEO’s wishes without doing exactly what he says.
At my company, my colleagues have lots of ideas about what to do with our substantial cash reserves, but no matter how far-fetched their suggestions are, I never turn them down. I sit down with people, ask them what they’re trying to accomplish, and brainstorm how to accomplish those goals, even if it’s different than what they’ve suggested. ankit should do the same for thorsten.
Of course, the CEO could put his foot down and persuade the board to back him. elon musk was able to do that with bitcoin tesla investments. But even then, ankit could launch a lower-risk experiment, perhaps creating a small separate holding company to test bitcoin.
The CFO has authority and credibility with Thorsten and the board. you shouldn’t be afraid to use it.
hbr’s fictional case studies present problems faced by leaders in real companies and offer expert solutions. This is based on the HBS case study “Accounting for bitcoin in tesla” (case no. 121074-pdf-eng), by charles c.y. wang and siyu zhang.