A Comprehensive Risk Mitigation Strategy For Digital Assets

A growing number of enterprises throughout the world are utilizing bitcoin and other digital assets for investing, operational, and transactional objectives. In the cryptocurrency industry, there are powerful incentives that stimulate business growth, as well as hazards that demand the attention of risk leaders who are experience in traditional finance. 

Although the cryptocurrency market cap has plummeted, it still holds a striking value of about $1 trillion. Volatility is relatively normal for crypto. “Buy the dip” is a technique that has encouraged crypto investors and HODLers to sponsor and adopt crypto in times of adversity. 

This adoption uncovers unique risks for banks, enterprises, tokenized businesses, digital asset exchanges, crypto natives, traditional financial services, and other companies approaching or investing in digital assets. How can enterprises mitigate the risks associated with it?

Adoption of Digital Assets

Each company has unique motives for engaging with digital assets. Among other rationales, the following elaborate on the state of crypto investment to a good extent:

• Diversification: The theory behind the diversification approach is that a portfolio comprised of a diverse range of assets is more likely to provide superior long-term returns while simultaneously lowering the likelihood of major losses.
• High risk and high reward incentive.
• Faith in decentralized finance (DeFi) and betting on the future: some visionaries believe that blockchain technology will cause a technological leap. Web3 and CBDCs are only the beginning.

Enterprise crypto risk management

Enterprise risk management encompasses several sorts of risk, such as Enterprise Governance, Risk and Compliance (EGRC), and cybersecurity. Within those risk themes, there are particular risks, such as:

• Reputational risk: an enterprise must preserve its reputation with its stakeholders, which include investors, workers, and, of course, customers. Organizational decisions, as well as situations for which they are accountable, can generate unfavorable headlines and have a substantial impact on brand perception.
• Compliance and regulatory risk: to contain the rapid growth of the crypto industry, government agencies have enacted a slew of industry rules, regulations, policies, and best practices. Non-compliance with these requirements can have serious financial and legal consequences for organizations, putting their goals and operations at risk. Arming the enterprise with the right compliance tools and capabilities is a necessity.
• Asset and fraud risk: money laundering, sanctions, terrorist financing, fraud and scams among other sorts of financial crimes create a menace to the assets of both the clients and the enterprise. The enterprise is held liable for any losses to the customer assets. A steadfast asset protection strategy that protects the business without compromising data privacy is a must.
• Cyber security risk: application vulnerabilities, internal and external threats including data exfiltration, loss of control of systems, software or data.
• Health and safety: risk of hazards or errors by employees.

Risk mitigation strategy

Managing risk from digital assets does not require alterations to your existing risk management systems. A comprehensive risk mitigation strategy for digital assets should have the following.

• Seamless integration into existing compliance and risk management systems currently in place. The duties of a Chief Compliance Officer at a crypto corporation will be comparable to those of a CCO in the traditional financial services industry. The fundamental distinction will be in the context in which they function. Traditional financial organizations are process-heavy. CCOs in a crypto-adopting companies will find themselves relying heavily on data to make educated decisions rather than referring to well-established laws and regulations.
• Blockchain analytics tools that perform due diligence on entities and monitor transactions in real-time while relying on open-source data and respecting your enterprise’s data and privacy. BitRank Verified^Ⓡ uses on-chain data to provide a risk score on transactions similar to a credit score.
• Active risk scoring to stay ahead of reporting requirements to authorities. By using BitRank Verified^Ⓡ, the entire process of on-chain crypto transaction monitoring can be automated and customized to ensure that if any customers from different jurisdictions are involved with any high-risk or illicit activities, the financial institution will be notified right away.

It may appear tough to cut through the complexity of blockchain technology to obtain actual, demonstrable advantages. By using capable and reliable blockchain analytics, the complexity of enterprise blockchain adoption can be simplified.

Build your digital assets risk mitigation strategy using Blockchain Intelligence Group’s blockchain analytics platform.