The (mostly unappealing) state of the bitcoin nation

“One of the world’s largest accounting firms, PricewaterhouseCoopers (PwC), has accepted its first ever bitcoin payment,” announced a recent story on cryptocurrencynews.com 

It went on:

  • PwC accepted bitcoin as payment for its advisory services, as it is currently working with multiple startups that deal in bitcoin and the cryptocurrency industry. PwC has also started to advise clients about various cryptocurrency related options, such as funds and investments, exchanges, and ICOs.
  • “This decision helps illustrate how we are embracing new technology and incorporating innovative business models across our full range of services,” said PwC Asia-Pacific chairman Raymund Chao. “It is also an indication that bitcoin and other established cryptocurrencies have now developed into more broadly accepted forms of settlement.” 

Of course, nothing about says that PwC wouldn’t have preferred cash, or that regular audit clients are likely to have the option of settling their accounts in anything more than that for the near future. Still, cryptocurrency seems lately to have been riding a wave of mostly positive news, including a large bitcoin purchase by Elon Musk. Addressing that development and others, the New York Times asked about the likelihood of other companies following his lead:

  • It doesn’t seem likely, said Naresh Aggarwal of the Association of Corporate Treasurers in London. “Gold is probably a more traditional form of alternative investment,” he said, yet few firms outside the financial sector hold it. “If they’re not tempted by gold, then I can’t see them being tempted by Bitcoin,” he added, likening it to “putting money on a horse race.” Keeping money in liquid, ultra-safe investments is particularly important during the pandemic, and many corporate finance chiefs remember being burned in 2008 by higher-yielding investments, whose volatility looks tame compared to many cryptocurrencies.

Against that backdrop, the Canadian Securities Administrators issued CSA Staff Notice 51-363 – Observations on Disclosure by Crypto Assets Reporting Issuers, based in large part on a review of 2019 annual filings. The observations aren’t limited to financial disclosure, but here’s an extract pertaining to an entity’s obligation to disclose additional information that is relevant to an understanding of its financial statements.

  • Staff are of the view that such relevant information, for example, would generally include:
    • the nature of the different types of cryptocurrencies held, including disclosure concerning the entity’s risk exposure to such assets,
    • the quantity and recorded value of each type of cryptocurrency that an issuer holds at the relevant financial reporting dates,
    • a continuity schedule for each type of cryptocurrency, differentiating between increases due to mining and due to acquisitions/dispositions in the market,
    • the source(s) of valuation information, including the name of the data aggregator, if applicable,
    • the entity’s basis for determining whether cryptocurrencies are accounted for as inventory or an intangible asset, as well as the method of valuation used (cost, fair value, revaluation), and
    • a breakdown of mining equipment by cryptocurrency that the equipment is capable of mining, if applicable.

That’s on top of information about the accounting policy, the basis of measuring fair value and so on. All good stuff, but depending on the relative magnitude of the cryptocurrency holdings within the issuer’s balance sheet, potentially disproportionate to its real significance (see in contrast my recent comments about the general paucity of disclosures relating to inventory). That is, you might wonder whether general readers wouldn’t often be just as well served by a big garish label saying “Don’t Trust this Number!” or words to that effect.

I have to admit that I view bitcoin and its cohorts mostly as a decadent abstraction, and their modishness in the eyes of a company like Tesla only goes to another point I’ve sometimes made here, about the flimsiness of corporate commitment to sustainability and environmental good practice. Another New York Times piece made that point:

  • At a time when companies and investors increasingly say they are focused on climate and sustainability issues, some of them may be about to collide with the reality of another financial trend, one currently worth about $1 trillion: Bitcoin.
  • The cryptocurrency has become inescapable, with big companies like Tesla and individual investors alike rushing to stock up on the digital token.
  • But depending on which study you read, the annual carbon emissions from the electricity required to mine Bitcoin and process its transactions are equal to the amount emitted by all of New Zealand. Or Argentina.
  • To put this into perspective, one Bitcoin transaction is the “equivalent to the carbon footprint of 735,121 Visa transactions or 55,280 hours of watching YouTube,” according to Digiconomist, which created what it calls a Bitcoin Energy Consumption Index. (Critics of this comparison point out that the average Bitcoin transaction is worth about $16,000, while the average Visa transaction is worth $46.37, but you get the point.)

The article does acknowledge that some commentators consider those numbers overblown, or else believe they can be reduced over time through greater use of clean power, or “(building) wind and solar in places that might not be perfectly situated for the technology and (using) the extra power to mine Bitcoin.” But even in the best interpretation, that hardly sounds like a forthright accounting of current societal benefits and costs, or an acknowledgment of how the former, if they exist at all, will (as always) be far more narrowly shared than the latter…

The opinions expressed are solely those of the author

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