In one of the sessions of our recent training on October 23, 2024, Crypto Assets Refresher, we presented an update of recent developments in the Crypto space and a review of the new accounting guidance for Crypto assets in ASU 2023-08.
In the past year since the FTX scandal broke, there have been further developments in the evolution of Crypto assets, especially Bitcoin, in the regulatory and business environments.
Here is a brief summary of the relevant areas:
BRICS payment system
The five-nation BRICS group comprising Brazil, Russia, India, China, and South Africa will work on creating a payment system based on blockchain and digital technologies.
The effort is part of a specific task for this year to increase the role of BRICS in the international monetary system. For some time now, the BRICS grouping has been making efforts to reduce its reliance on U.S. dollars in settlement, also known as de-dollarization.
BRICS Pay, designed to operate on a blockchain network, is viewed as a critical project in the alliance’s strategy to challenge the dominance of the US dollar in global trade.
By some estimates, 47 nations are currently in discussions about adopting the platform once it is launched. Interesting developments!
Companies offering the option to purchase through cryptocurrency
Many retail & e-commerce sector companies offer the option to purchase through cryptocurrency. This includes clothing and accessory stores like Adidas, Yankee Candle, and H&M, as well as online shopping platforms such as Etsy.
SEC vs Coinbase litigation
The main litigation event seems to be the SEC vs Coinbase litigation. The SEC’s argument is that most cryptocurrencies are securities under U.S. law. SEC regulation could be an existential threat to the cryptocurrency industry. Few blockchain-based businesses that have registered with the SEC have survived the process of doing so.
Yet, the U.S. Securities and Exchange Commission recently approved applications for 11 spot bitcoin ETFs, investment vehicles for bitcoin that are easier to access, cheaper to own and more readily traded.
Wall Street offerings to investors
Morgan Stanley will offer bitcoin ETFs to some clients, a first among major Wall Street banks.
The offerings are products of BlackRock and Fidelity investment firms. The past year has seen market sell-offs, the collapse of crypto exchange FTX and criticism from established figures in finance and banking. Yet there seems to be continued evolution of the acceptance of crypto assets.
Large Venture Capital firm
Andreessen Horowitz, a venture capital firm headquartered in Menlo Park, California, has new plans to pour $3.4 billion into crypto and related industries.
This may provide a strong indication that the crypto winter might be over, as venture capital returns to the digital asset industry after briefly receding during the events of previous years such as the implosion of FTX.
Guidance of ASU 2023-08
Under the previous accounting rules:
Assets were classified as indefinite lived intangible assets. Cryptocurrencies were initially recognized at their acquisition date and measured at purchase price. However, entities could not write up the value beyond the initial carrying amount even if the market price eventually exceeded the carrying amount. The assets were subject to periodic impairment testing and valued at initial carrying amount less any impairment write off. Once an impairment write-off was recorded, entities could not write up the value.
The new accounting guidance, in the amendments in ASU 2023-08, issued in December 2023, applies to assets that meet all of the following criteria:
- Meet the definition of intangible assets as defined in the Codification
- Do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets
- Are created or reside on a distributed ledger based on blockchain or similar technology
- Are secured through cryptography
- Are fungible
- Are not created or issued by the reporting entity or its related parties.
An entity is required to measure assets that meet those criteria at fair value with changes recognized in net income each reporting period.