Should accountants worry about cryptocurrencies, or: what a waste!

Should accountants worry about cryptocurrencies? asks a recent edition of ICAEW Insights.

The article asked a few questions of “crypto entrepreneur” Mark Basa, whose comments include the following:

  • If a country considers any profit as earnings – even if a cryptocurrency doesn’t have enough liquidity for its owner to withdraw – that could lead clients to go more underground and conceal what they have. Accountants would then be faced with clients withholding their earnings to avoid being forced to pay tax on unrealized assets that have no value.
  • …If accountants want to be competitive on crypto while demonstrating best practices, they need to preserve their traditions while adopting new technologies such as blockchain. There is no stopping crypto – it’s either learn and help your clients with their crypto portfolios, or get left behind. There’s a world of money to be made for accountants who are prepared to understand crypto, how to store it safely and how to maximize savings for clients.

Academic Ross Thompson also contributed some perspective:

  • Until we receive more regulatory guidance, it is hard to assess how much will change. There are general risks – for example, cryptocurrencies’ volatile nature means that losses may occur, even if only temporarily. That would set the stage not just for an unfavourable accounting treatment of crypto-focused clients, but the potential for creating misleading information for readers of financial statements.

Despite their differences, the two commentators have in common an inclination toward special pleading. Basa’s commentary is only an extension of long-standing arguments against any form of fair value through profit and loss accounting (recently given a good airing in Canada, for instance, in the context of the cannabis industry), the implicit alternative seemingly being an essentially cash-based method. Thompson seems to be on the same general page with his comment that it would be potentially misleading for financial statements to reflect fair value based losses on cryptocurrency holdings. Basa’s first paragraph basically says that accountants should only blame themselves if crypto-companies engage in widescale reporting fraud; Thompson doesn’t seem far removed from the same conclusion.

Well, cry me a river. If financial statements essentially communicate that the fair value of a cryptocurrency holding as of a particular reporting date is particularly lacking in predictive value regarding its fair value at the time the statements are issued or subsequently, and that their particular form and degree of volatility strains the utility of traditional accounting standards, then that’s likely the right message. Both writers basically suggest that we fail cryptocurrencies and the people behind them if we expect them to operate within established frameworks and expectations. The reality though is the opposite, that the crypto crew perpetually fail us with their half-baked, self-serving claims and visions. Even the broader possibilities of blockchain technology seem likely to be less transformative than promised, as Paul Krugman recently set out:

  • … there was an alternative, more modest justification for using blockchain technology, if not necessarily for cryptocurrencies: It was supposed to offer a lower-cost, more secure way to keep track of transactions and stuff in general.
  • But that dream appears to be dying, too.
  • Amid all the sound and fury over FTX, I’m not sure how many people have noticed that the few institutions that seriously tried to make use of blockchains seem to be giving up.
  • Five years ago, it was supposed to be a big deal — a sign of mainstream acceptance — when Australia’s stock exchange announced that it was planning to use a blockchain platform to clear and settle trades. Two weeks ago, it quietly canceled the plan, writing off $168 million in losses.
  • Maersk, the shipping giant, has also announced that it is winding down its efforts to use a blockchain to manage supply chains.
  • A recent blog post by Tim Bray, who used to work for Amazon Web Services, tells us why Amazon chose not to implement a blockchain of its own: It couldn’t get a straight answer to the question, “What useful thing does it do?”
  • …It’s an amazing story, and also a tragedy. It’s not just the small investors who have lost much if not all of their life savings. The crypto bubble has had huge costs to society as a whole. Bitcoin mining alone uses as much energy as many countries; I’ve been trying to estimate the value of the resources consumed in producing fundamentally worthless tokens, and it’s probably in the tens of billions of dollars, not counting the environmental damage.
  • Add in the costs associated with other tokens and the resources burned up in abortive efforts to apply a blockchain approach to everything, and we’re probably talking about waste on an epic scale.

The stance of cryptocurrency boosters might duly be summed up as: keep the waste pumping. Is there really no stopping crypto, as posited above? Well, despite the dictates of rationality, it looks like there’s certainly no immediate stop to the hype or the whining…

The opinions expressed are solely those of the author

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s