# How do you handle volatility on crypto payments? Shorten the time you hold a volatile asset: take a dollar stablecoin or convert on receipt, cap any balance you keep, and write the rule in a one-page policy. --- A business handles volatility on crypto payments by shortening the time it holds a volatile asset: it either accepts a dollar stablecoin, or converts each payment to its own currency on receipt or on a fixed schedule, and it caps whatever balance it chooses to keep. The exposure is the amount held multiplied by the time it is held, so every tool on the list works on one of those two terms. Hedging with a forward or an option exists for large exposures, but most businesses never need it, because a conversion rule and a cap do the job without a derivative contract. Your costs are owed in ordinary currency and your margin is a fraction of revenue, while a volatile crypto asset can move by more than that margin between the day a client pays and the day you convert. This article measures that move at several assumed volatility levels, sets it against a margin, goes through the tools in order of simplicity, and ends with a treasury policy that fits on one page. Every volatility figure below is a labelled assumption chosen to show the arithmetic, not a measurement of any asset and not a forecast. Nothing here is investment advice, and the accounting and tax remarks are general information only.
3.14%typical one-day move of an asset at an assumed 60% annual volatility
14.6 daysholding time after which that typical move equals a 12% margin
78%of a month's margin put at risk, in a typical month, by converting only at month end in the worked example

Computed from assumed figures: 60% annual volatility, a 365-day year, a 12% margin and the illustrative business described below. Assumptions, not market data.

## Where does the volatility exposure sit on a crypto payment? The volatility exposure on a crypto payment sits in three stretches of time: between the quote and the payment, between the receipt and the conversion, and on any balance the business keeps afterwards. Each stretch has a different owner and a different remedy, so the first step is to know which one you are looking at. The first stretch runs from the moment a price is stated to the moment the payment arrives. The usual remedy is to price in your own currency and fix the crypto amount only at the moment of payment, for a short window. That is the subject of pricing in crypto and the quote window, which this article leaves aside: everything below starts once the price is set and the payment is on its way. The second stretch runs from receipt to conversion. The payment has arrived, its value in your currency at that moment is known, and it is now an asset on your books. Until you convert it, its value moves. Nothing forces a decision in this stretch: the invoice is marked paid and the coins sit in the wallet. At an assumed 60% annual volatility, an invoice worth $25,000 on receipt has a typical one-day move of $785 and a typical thirty-day move of $4,300, in either direction. The third stretch is the balance kept on purpose. Some businesses hold crypto to pay crypto costs, to avoid converting twice, or because the owners want to. A deliberate balance is not a mistake, but it is a position, and it belongs in the accounts as one: a stated amount, a stated cap, and a person responsible for it. ## How big is the move you are exposed to? The size of the move scales with the square root of time: the typical one-day move is the annual volatility divided by the square root of 365, and the typical thirty-day move is the annual volatility multiplied by the square root of 30 over 365. "Typical" here means one standard deviation, the size of move that is exceeded, up or down, in roughly one period out of three under the usual simplifying assumptions. Annual volatility is the standard deviation of an asset's yearly returns. Because crypto trades every day of the year, the year counts 365 days rather than the 252 trading days used for shares. At an assumed 60%, the one-day figure is 60 divided by 19.1, which gives 3.14%. For thirty days, 60 multiplied by 0.287 gives 17.20%. The table works the same formula at five assumed levels and adds the column that matters to a business: how many days it takes for the typical move to equal a 12% margin. That column is the margin divided by the annual volatility, squared, multiplied by 365. | Assumed annual volatility | Typical one-day move | Typical thirty-day move | Days until the move equals a 12% margin | | --- | --- | --- | --- | | 20% | 1.05% | 5.73% | 131.4 | | 40% | 2.09% | 11.47% | 32.9 | | 60% | 3.14% | 17.20% | 14.6 | | 80% | 4.19% | 22.94% | 8.2 | | 100% | 5.23% | 28.67% | 5.3 | Three cautions keep this table honest. First, a typical move is not a worst case: moves of twice the typical size happen, and crypto assets have shown larger jumps than the bell-curve assumption allows for. Second, volatility is not constant; an asset that has been calm for months can stop being calm in a week. Third, the move goes both ways. The table measures uncertainty, not loss: over thirty days at an assumed 60%, a gain of 17.20% is as typical as a fall of 17.20%. A business that holds is not certain to lose. It is certain to have a result it did not choose. To apply the table to your own case, replace the assumed volatility with a historical figure for the asset you receive, taken over a long period rather than a quiet month, and revisit it. ## How fast does the exposure grow with the time you hold? The exposure grows with the square root of the holding time, which means the first days cost the most per day and waiting never becomes safe. Holding four times as long doubles the typical move; it does not multiply it by four, but it never stops growing either.
Typical move by holding timePercent of the amount held, one standard deviation, at an assumed 60% annual volatility
1 hour 0.64% 1 day 3.14% 7 days 8.31% 30 days 17.20% 90 days 29.79%

Annual volatility multiplied by the square root of the holding time over 365 days. The 60% level is an assumption, not a measurement or a forecast.

At this assumed level, a business that converts within the hour carries a typical move of 0.64%. A business that converts at the end of a quarter carries 29.79%, more than twice the 12% margin used in this article. This is also why a conversion rule beats a conversion decision. A rule fixes the holding time in advance, so the exposure is known and small. A decision taken each time ("the price is down today, let us wait for it to come back") turns the holding time into an open question, and the square root keeps counting while the question stays open. ## Which tools reduce the exposure, from simplest to most involved? Six tools reduce the exposure, and the simplest two remove nearly all of it: accept only a dollar stablecoin, or convert every payment on receipt. The four others (a conversion schedule, a capped working balance, matching crypto income to crypto costs, and hedging) are for businesses that have a reason to hold something for a while. | Tool | What it does to the exposure | What it asks of you | | --- | --- | --- | | Accept only a dollar stablecoin | Replaces market volatility with the stablecoin's own risks | Naming the token and network on every invoice; a business not based in dollars keeps a currency exposure | | Convert on receipt | Cuts the holding time to minutes or hours | A venue account or a processor that converts automatically; a spread or fee on every payment | | Convert on a schedule | Fixes the holding time at a known maximum | Discipline: the conversion happens on the day, whatever the price | | Keep a capped working balance | Limits the amount held, not the time | A cap in your own currency and a rule for sweeping the excess | | Match crypto income to crypto costs | Removes the part of income that is spent in the same asset | Real costs in that asset, known in advance | | Hedge with a forward or an option | Fixes or floors the conversion price for a future date | A counterparty, documentation, collateral or a premium; suited to large exposures | With a stablecoin-only rule, the client, not you, sells the volatile asset before paying, which most holders can do in one step. Converting on receipt is the equivalent for a business that accepts volatile assets: many payment processors do it for the merchant and settle in ordinary currency, and a business that receives in its own wallet sends the payment to a trading venue and sells. The spread or fee is known in advance and can be built into the price, in exchange for a risk that could not be priced at all. A schedule (every day at a set hour, every Friday, every time the balance passes a threshold) suits a business with many small payments, where converting each one would multiply fees and bookkeeping entries. A capped working balance accepts some exposure on purpose and limits its size. With a cap of $10,000 in a volatile asset at an assumed 60%, the typical thirty-day move is $1,720 and twice that is $3,440: a number the owner can look at and accept or refuse. Without a cap, the balance is whatever happens to have accumulated. Matching works when you truly have costs in the asset you receive: a contractor paid in the same stablecoin, network fees, a supplier who invoices in crypto. Income that leaves in the same asset never needs converting, so it carries no conversion exposure, provided the amounts and dates are close. Matching income in one asset to costs in another is not matching. ## When is a forward or an option worth the trouble? A forward or an option is worth the trouble only when the exposure is large, has a known date and cannot be removed by converting sooner. The typical case is a business that will receive a large crypto amount on a future date and must not convert earlier, or a holder who is bound to keep an asset for a period. A forward is an agreement to sell a stated quantity at a stated price on a stated date. It removes the uncertainty in both directions: if the price falls you are protected, and if it rises you have given up the gain. An option, in this use a put, gives the right but not the obligation to sell at a stated price until a stated date; it sets a floor and leaves the upside open, and that asymmetry is paid for up front through a premium. Both are contracts with a counterparty, usually a trading desk, and both come with documentation, onboarding checks and often collateral. OTC crypto options and forwards are explained in a separate article on this blog, including how they are quoted and documented. For a business whose crypto receipts are a few invoices a month, the simpler tools above remove the exposure before a hedge would have anything left to cover. A hedge on an amount you are not certain to receive also creates a new exposure, because the contract still binds you if the client never pays. ## What does a one-page treasury policy contain? A one-page treasury policy states what the business holds, how much at most, who converts, when, at which type of venue and how the position is reported. Its value is that the conversion stops being a judgment call made under the influence of that day's price. A workable version is a plain list: - **What is accepted.** The assets and networks the business takes in payment, named exactly, and the statement that anything else is refused or returned. - **What is held.** The assets the business may keep after receipt, and for what purpose (paying named crypto costs, a working balance). Everything not on this line is converted. - **The cap.** The maximum held in each asset, expressed in the business's own currency, and the rule for the excess: swept at the next scheduled conversion, or the same day above a stated threshold. - **Who converts.** The named role that executes conversions, the named role that approves anything outside the rule, and the stand-in for absences. Where the amounts justify it, two people for any transfer out of the wallet. - **When.** On receipt, or on a stated schedule with its hour and time zone. The rule states plainly that the price of the day is not a reason to delay. - **Where.** The type of venue used (a regulated exchange account in the company's name, a payment processor's automatic conversion, an OTC desk above a stated size) and the bank account that receives the proceeds. - **How it is recorded.** For each payment, the value in the business's currency at receipt, the value obtained at conversion, the fee, and the difference, booked as a separate line. - **How it is reported.** A short periodic report to the owner or the board: balances held against the caps, conversion gains and losses for the period, and any exception to the rule with its reason. - **Review.** The date on which the policy is reread, and the events that trigger an earlier review: a new asset accepted, a change of venue, a balance that passed its cap. The separate line for the difference matters most: a business that records only the cash that finally arrived can no longer tell whether a weak month came from the work or from the wallet. ## What changes when the payment is a dollar stablecoin? A dollar stablecoin removes the day-to-day market volatility and replaces it with a smaller set of specific risks: the token can trade away from one dollar, the issuer can fail or restrict redemption, the token can be frozen, and the version on one network is not the version on another. These risks are low-frequency rather than daily, which is why they belong in the policy and not in the price. In general terms: - **Price away from par.** A stablecoin is designed to be redeemable at one dollar, but its market price can move below that when holders doubt the reserves or cannot redeem quickly. On a month of $84,000 in receipts, a 2% discount at the moment you sell is $1,680. - **Issuer and reserves.** The token is a claim on an issuer. What backs it, who holds the reserves, who may redeem directly and under which law are the questions that separate one stablecoin from another. - **Freeze.** Several issuers can freeze tokens at a given address, for instance on a legal order. A recipient who has done nothing wrong can still be affected by funds that passed through a flagged address. - **Network and version.** The same ticker exists on several networks, sometimes as a native token and sometimes as a bridged copy that depends on the bridge. The policy names the network as well as the token. - **Currency.** A dollar stablecoin held by a business with costs in another currency is a dollar position, with ordinary exchange-rate risk. How to know a stablecoin payment will hold its value is covered in its own article, with the checks to run on a token before accepting it. Billing a client in a currency that holds its value is also treated separately on this blog, from the invoicing side. ## What does volatility do to a margin under three policies? On an illustrative business with a 12% margin, converting on receipt leaves the margin untouched by price moves, converting weekly puts about 18% of it at risk in a typical month, and converting only at month end puts about 78% of it at risk. The example below is fiction built to show the arithmetic, and every input is an assumption. Take a small studio that bills $84,000 over a four-week month and is paid entirely in a volatile crypto asset, $3,000 a day for 28 days, each payment worth its invoiced dollar amount at the moment it arrives. Its costs in dollars are $73,920, which leaves a margin of $10,080, or 12% of revenue. The asset's annual volatility is assumed at 60%, a daily figure of 3.14%, with no trend assumed in either direction. Under the first policy, each payment is converted when it arrives. Under the second, the week's payments are converted together at the end of every seventh day, so the oldest has been held six days and the newest not at all. Under the third, everything is converted at the end of day 28, so the first payment has been held 27 days. The typical monthly result from price moves is the daily payment multiplied by the daily volatility and by the square root of the sum of the squared numbers of payments exposed each day. | Policy | Typical monthly swing | Margin after a typical adverse month | Margin after an adverse month twice as large | | --- | --- | --- | --- | | Convert on receipt | $0 | $10,080 (12.00%) | $10,080 (12.00%) | | Convert every seventh day | $1,798 | $8,282 (9.86%) | $6,485 (7.72%) | | Convert at month end | $7,843 | $2,237 (2.66%) | −$5,606 (−6.67%) | The swing is symmetrical: the month-end policy is as likely to add $7,843 to the margin as to remove it. The studio's work earned $10,080 in each row; what changes is how much of the month's result is decided by something other than the work. Under the third policy, an adverse month of twice the typical size turns a profitable month into a loss of $5,606, with every client having paid in full and on time. The table leaves out the cost of converting, which exists under all three policies and is roughly the same total, since the same $84,000 is sold in each case. Converting 28 times instead of once can cost more where a venue charges a fixed fee per withdrawal, which is the usual argument for a daily or weekly schedule over a strict on-receipt rule. The weekly row shows what that convenience costs in exposure: a typical swing of 2.14% of revenue. The figures use a linear approximation and a constant volatility, so they rank the three policies and give an order of magnitude; they do not predict any month. ## What happens when one crypto payment is owed to several parties? When one crypto payment is owed to several parties, the party that receives it first carries the volatility on everyone's share until each one is paid on. A broker who collects a client's payment and forwards a co-broker's share three days later has held the other party's money as a volatile position for three days, and any shortfall becomes a discussion about who bears it. The remedy follows from everything above: shorten the time. Either the shares are fixed as dollar amounts and paid out of converted proceeds, or the payment is divided at the moment it is made, so nobody holds anybody else's share. Shaka is a payment router that does the second: each party's share is set as a percentage and can be signed before the client pays, the client pays once, and every party receives their share at the same moment, in one transaction, without the funds being held in between. It routes a payment; it does not convert it, so each recipient still applies their own conversion rule to what they receive. ## What do conversions do to the accounts and the tax return? A conversion is an accounting event and, in many countries, a taxable one, so a conversion policy also fixes how many of those events you create and how cleanly they can be documented. In the United States, the Internal Revenue Service treats digital assets as property: a business paid in a digital asset records income at the asset's dollar value when received, takes that value as its basis, and recognises a gain or loss for the difference when it later sells for dollars. On the accounting side, the treatment of the balance between receipt and conversion depends on the framework: under US accounting standards, the Financial Accounting Standards Board's 2023 update requires in-scope crypto assets to be measured at fair value with changes in net income, while the IFRS Interpretations Committee concluded in 2019 that a holding of cryptocurrency is not cash and falls under the inventories standard when held for sale in the ordinary course of business, and under the intangible assets standard otherwise. Rules differ by country and by the nature of the token, so the classification of your own holdings is a question for your accountant. A business that converts on receipt has a gain or loss close to zero on each payment and a simple record: value at receipt, value at conversion, fee. A business that holds creates a difference on every payment and needs the receipt-time value of each one to compute it. Converting a crypto payment to cash, including the choice of venue and the path to the bank account, is covered step by step in a separate article; the record-keeping described here is what makes that conversion explainable a year later. ## How do you choose the rule for your own business? The rule follows from three numbers you already have: your margin, your longest acceptable holding time and the volatility you assume for the asset you receive. Divide the margin by the assumed annual volatility, square the result and multiply by 365: that is the number of days after which a typical move equals your whole margin, and your holding time should be a small fraction of it. A business with a thin margin that receives a volatile asset has one sensible rule, which is to convert on receipt or to ask for a dollar stablecoin. A business with many small payments and a comfortable margin can accept a daily or weekly schedule and know what it costs. A business with real crypto costs keeps a working balance sized to those costs and capped in its own currency. A business with a large, dated exposure it cannot convert talks to a desk about a forward or an option, with its amount, its date and its tolerance written down first.