Crypto mega trends accountants need to watch in 2024

As the calendar rolls forward to 2024, and 2023 for good or bad recedes into the rearview mirror, the crypto sector and accounting professionals looking to work in the space are attempting to plan for the future.

Given the multiple negative headlines and the collapse of several entities in the digital asset space that dominated the sector in 2023 — including the fallout from FTX that led to multiple firms either being sued by the SEC or exiting the digital asset auditing space — practitioners are justifiably looking for a better year in 2024. Compounding the FTX and Binance-related fallout (does anyone still remember proof-of-reserves as a solution to crypto attestation problems?), the regulatory and tax environment continues to be murky at best. 

Despite these obstacles, there were also encouraging signs in 2023. FASB has finally issued its first authoritative guidance around the accounting and reporting of qualifying crypto assets, our partners at the AICPA continue to publish additional guidance and frameworks for the profession — most recently focused on stablecoins — and major financial firms are entering the tokenized payment world. Additionally, the AICPA is seeking feedback on its recently published framework for presentation of disclosures on stablecoins. Specifically, the moves by entities such as J.P. Morgan, Blackrock and PayPal have cemented the reality of tokenized entities for the institutional and retail spaces, respectively. These moves include the deployment of both blockchain payment rails and stable tokens at J.P. Morgan, the submission of a bitcoin spot ETF proposal by Blackrock along with other firms, and the launch of a native stablecoin by PayPal. Traditional finance (TradFi) firms may have been the initial opponents of bitcoin but have rapidly embraced the opportunities created by these innovations. 

In other words, 2024 is shaping up to be another busy year for the crypto space, and those accountants seeking to provide services to clients within it. Let's take a look at a few of the big picture trends that practitioners need to keep an eye on moving forward. 

2024 is the year of preparation

The recently issued FASB Accounting Standards Update takes effect for fiscal years ending Dec. 15, 2024, with options for earlier adoption, and the controversial changes to IRS Section 6045 and set to take effect starting with transactions that occur after Jan. 1, 2025. In both cases this means 2024 is an opportunity for practitioners to 1) educate themselves and their colleagues, 2) educate clients about what these changes will mean, and 3) develop plans to mitigate any unforeseen challenges that will emerge as these accounting and tax changes take effect. Several of the specific questions that practitioners should keep top of mind include:

1. Which clients have waded in the crypto space? Why have they done so?
2. If clients have exposure to crypto, does a policy exist around which crypto has been integrated and how fully crypto is involved with ongoing operations? Specifically which members of the firm can authorize crypto transactions, and what is the onboarding process for partner firms who choose to do so. 
3. Which crypto assets have been selected to be used at the organization in question, and why? 
4. Have internal controls and workflows been updated to account for the unique custody and control facets of crypto assets? 
5. Does the client in question have the reporting capabilities and/or personnel to handle the coming changes for both financial and tax reporting? Are they using available vendor solutions?

Section 6045 is going to cause more crypto tax headaches

With all of the discourse around the trial of Sam Bankman-Fried and the plea deal struck by Binance founder Changpeng Zhao (known in the industry as "CZ"), the massive changes coming to crypto tax reporting are sure to make tax preparation more complicated. Even though these changes, as currently written, will only take effect for transactions occurring after Jan. 1, 2025, these changes and their implications are going to be significant.

In addition to creating a new tax form and associated reporting processes via Form 1099-DA, these proposed changes impose several additional reporting requirements on exchanges. For one, the IRS is going be requesting large amounts of information connected to both trades and personal information of traders, for any entity that falls under the broad classification of a "broker." As currently defined, these proposed changes will include centralized exchanges and decentralized exchanges, as well as potentially other players in the space such as developers. Many, if not all, decentralized exchanges do not have the capability to easily collect and report these types of information. 

Additionally, a change in reporting requirements would codify that taxpayers will either have to use first-in first-out reporting for taxable income, resulting in large tax liabilities, or have to use the specific identification method. This would be a simple fix for TradFi firms, but even centralized exchanges in the crypto sector such as Coinbase do not readily have the functionality to collect and report this information. Resolving this would involve a very large amount of complex data collection on behalf of the investors and tax professionals; in any event the tax situation for crypto investors looks set to remain complicated in 2024. 

Tokenized payments are here to stay 

Even though crypto and crypto payments have been present in the marketplace for a decade at this point, 2023 saw a paradigm shift in how commonplace these transactions have become. With virtually every large financial institution in the world either implementing blockchain products and services for clients, the trend toward commercial payments leveraging this technology is clear. Adding onto this is the debut of the PayPal stablecoin (PYUSD), building on efforts going back to 2014 to allow and enable crypto payments on the platform. The retail pivot toward tokenized payments is also becoming apparent. U.S. dollar transactions are already mostly digital, with between 75-80% of all dollar payments being digital in nature, so the shift toward tokenized transactions is not as radical as it might appear. 

From an accounting perspective, practitioners are going to need to discern not only differences between crypto payments as they come to market but will also need to be able to advise clients as to which form of tokenized payments might work best for them. With 45% of millennials and Gen Z having either favorable views or an active desire to invest in crypto, the implications for accounting practitioners will be significant. Clients will start using tokenized payments, even if bitcoin remains an asset class in and of itself, and proactive accountants will educate themselves, colleagues and clients on the pros and cons that doing so creates. 

2023 was a dynamic year for crypto assets, and 2024 is shaping up to be an even more action-packed year; accounting practitioners should take note and prepare accordingly.