Crypto is the New Game in Town
By: Jeff Nazzaro
When cryptocurrency king Bitcoin revealed itself to the digital realm via the enigmatic Satoshi Nakamoto way back in 2009, it did so to a select group of techies, cybernerds, and other early adopters with little fanfare at Dollar Tree prices. By December 2021, when a single Bitcoin, still selling for less than five bucks seven years earlier, was going for an all-time high of $68,789.63 (less than half that as of this writing), anyone technically alive and not cryogenically frozen knew what they were—not least of all big corporations and banks, the very middlemen those crypto-pioneers sought to circumvent.
But while the cat is most certainly out of the bag when it comes to cryptocurrency, non-fungible tokens (NFTs), stablecoins (cryptocurrencies backed by a reserve asset) and other digital assets, it is something of a Schrödinger’s cat, with most people still wondering what to make of them, what actual value they possess and, for the accounting world, how to, well, account for them. Indeed, as the stratospheric rise of digital assets continues, so with it increase new challenges for accountants tasked with maintaining the books.
“As the stratospheric rise of digital assets continues, so do new challenges for accountants…”
Now, as major investment firms use digital investment arms to help get their clients into the crypto game and more and more “Main Street” companies (including more than 400 in California alone) accept Bitcoin for goods and services, one thing that is clear is that whatever else it is, the digital asset economy is upon us. In addition to cryptocurrency, many marketing departments are engaging with customers through NFTs or digital loyalty tokens. The prevailing thought is that such engagement will only become more normalized and increase exponentially, and rapidly at that, as Bitcoin’s value famously has. As such company financial departments should acclimatize themselves to this digital frontier, familiarizing themselves with how these assets will impact their taxes and their overall accounting practices.
This is probably easier said than done, given the youth of the digital asset economy and the fact that some 80 percent of Americans have no real connection to these emergent technologies. But where there are challenges there are always opportunities, and accountants who seize the digital day and learn how to make sense of these commodities in the company ledger will find themselves eminently more valuable to their firms. One of the keys to success, however, will be to keep up with the various changes to existing regulations that have been and will continue to come from different authorities. In particular, speculation is rife that the world of NFTs will be reined in, with the digital assets shifted from the world of collectibles (think stamps, baseball cards) to that of securities (stocks, bonds).
“Where there are challenges, there are always opportunities…”
As for NFTs, the only thing at the moment that’s hotter and getting more so might be the planet itself. American tennis phenom Coco Gauff, fresh off her appearance in the French Open final, just launched one via Tom Brady’s LA-based Autograph platform, joining other young sports stars like Sabrina Ionescu of the WNBA and the PGA’s Collin Morikawa. Crypto blog Decrypt notes that huge brands like Budweiser and Visa are buying and promoting the NFTs of others. NFTs related to video games and toys like Barbie are taking off, as well.
And, while the blockchains hosting these digital assets represent ownership thereof, they can now also create individual works of art while minting them. And yes, if they are complicated in a basic way, they are all the more so for today’s accountants, who must come to terms with whether or not these digital tokens represent ownership of underlying assets or if they are simply digital art pieces that are not themselves tangible assets. Tracking the sales of NFTs and assessing fair value for them are all things that need to be untangled by those manning the books.
“Today’s accountants must come to terms with whether or not digital tokens are tangible assets…”
These are just a few of the new challenges emerging through the digital asset economy for the world of accounting—again, a set of challenges that presents limitless opportunity for professional growth.