Has the crypto winter thawed? While 2022 was a rough year for the crypto markets, things rebounded in 2023, and blockchain use is poised for significant advancement across multiple industry sectors. As regulators struggle to fine-tune digital asset guardrails and a growing number of enforcement actions, a growing body of guidance can help accountants understand and make important contributions in a quickly transforming landscape.
That was the high-level conclusion at the end of the sixth annual AICPA and CPA.com Blockchain in Accountancy Symposium, hosted in collaboration with the Wall Street Blockchain Alliance, which brought together thought leaders, developers and accounting firms deeply engaged in the blockchain ecosystem. Through shared experiences and thoughtful discussions, participants explored the implications of recent and potential developments in the accounting and finance profession. Below are several pivotal insights from the symposium.
Major financial players aren’t shying away.
Amid the current shift, veteran financial institutions are putting blockchain to work. Earlier this month, the U.S. Securities and Exchange Commission (SEC) approved 11 bitcoin ETF proposals from groups like Grayscale, BlackRock and Fidelity. The funds track the underlying cryptocurrencies’ current trading price, are regulated and can offer indirect cryptocurrency ownership to retail and institutional investors in accounts such as 401(k)s or IRAs. Speculation around the eventual approval of these ETFs may be the driving force behind bitcoin’s more than 150% rebound during 2023.
Meanwhile, financial institutions are also making greater use of blockchain. For example, J.P. Morgan is employing a blockchain-based platform in wholesale payment transactions, while its Tokenized Collateral Network can enable investors to use assets as collateral, allowing for ownership transparency and real-time transfers. Other financial institutions around the world are likewise looking at strategic opportunities for blockchain technology use.
The range of guidance is growing.
There are also efforts underway to enhance transparency and clarity in this space. In its proposed accounting standards update, Crypto Assets (Subtopic 350-60), Accounting for and Disclosure of Crypto Assets, the Financial Accounting Standards Board (FASB) responded to requests from stakeholders who asserted that improving accounting and disclosure in this area should be a top board priority. Those stakeholders argued that the existing practice of accounting for these resources as indefinite-lived intangible assets did not provide sufficient decision-useful information.
In response to the need for greater perspective and guidance in this area, the AICPA developed a practice aid on Accounting for and Auditing of Digital Assets. The AICPA will continue to update this resource regularly as new guidance and regulations are finalized. The profession can also help the AICPA in developing guidance through measures like the call for public comment on a new Stablecoin Framework. Meanwhile, to answer questions on forensic considerations related to cryptocurrencies, accountants can turn to AICPA tools like the podcast on Crypto assets and crypto currencies.
Regulation is advancing.
Once largely unregulated, the digital assets markets are slowly undergoing a transformation. The challenge lies in establishing regulatory frameworks that foster innovation without imposing undue constraints, and regulators are encountering resistance in their pursuit of this delicate balance. For example, the SEC’s controversial Staff Accounting Bulletin (SAB) 121 was criticized by an SEC commissioner when it was issued, and the Government Accountability Office (GAO) ruled that SAB 121 is a “rule” under the Administrative Procedures Act (APA) and should have been reviewed by Congress before it was issued. How this ruling might impact SAB 121 implementation is unclear.
In ongoing developments, the federal government is considering taxation of digital assets. The AICPA took a proactive role, providing feedback to the IRS on the tax treatment of losses of digital assets and on virtual currency reporting. The AICPA tax team is also tracking activity at the state level, where over 100 pieces of legislation have been introduced in 2023, with more expected next year. In addition, the AICPA is following the recently reintroduced Lummis-Gillibrand Responsible Financial Innovation Act, which would establish a regulatory framework for crypto assets.
Upholding thought leadership.
Looking ahead, the experts and industry contributors underscored the growing market comprehension of the value of digital assets and digital security tokens, highlighting the market's capability to swiftly transfer value globally on a peer-to-peer basis. The past year witnessed notable market setbacks, including the conviction of Sam Bankman-Fried, the former CEO of FTX, once the world’s second largest digital asset exchange, now in bankruptcy proceedings due in large part to his fraudulent activity. That said, these incidents should serve as cautionary tales rather than determinants of the future of crypto assets. Ron Quaranta, Chairman of the Wall Street Blockchain Alliance noted, “All groundbreaking innovations bring out bad actors who seek to exploit new capabilities and markets for their own ends. The fall of FTX was not necessarily a crypto story, but a story of greed and malfeasance. In the wake of such industry shaking events, builders in the crypto and blockchain industries continue to build and look to a future where these technologies are an integral part of global markets.”
The AICPA and CPA.com are committed to maintaining the accounting profession’s thought leadership and advocacy role in this area, ensuring CPAs have the requisite resources and guidance to recognize the related opportunities and risks.
About the authors:
As CPA.com’s vice president of Strategy & Innovation, Kacee Johnson manages the technology ecosystem to identify emerging trends that are driving change in the profession and works collaboratively with the vendor and thought-leader community to develop thought leadership content and events for C-suite leaders.
Ron Quaranta is the current Chairman and CEO of the Wall Street Blockchain Alliance, the world’s leading non-profit trade association promoting the comprehensive adoption of blockchain technology and cryptoassets across global markets. Ron has edited and contributed to multiple books on blockchain and digital assets and is a frequent guest on major media outlets.
