What was your journey into cryptocurrency like? What initially caught your attention and why?
Our cryptocurrency practice was developed by curious and creative entrepreneurs who looked beyond the realm of conventional possibility. As a firm we were built by embracing and supporting the alternative investment space – from futures and commodities in the late 70s to various hedge fund strategies in the early 90s and now cryptocurrency today. We coupled our military-trained in-house cryptography expertise with our dynamic, tech-savvy and young professionals to create thoughtful solutions for the crypto space. Being a nimble firm allowed us to be one of the first firms to issue audit opinions on crypto hedge funds. This meant that we were on the leading edge of bringing a traditional accounting product to an often misunderstood and sometimes untrusted space. We invested a significant amount of time and resources to research, learning and building. We now have a team of more than 100 professionals with in-depth expertise related to digital assets, ICOs and crypto exchanges.
When did your firm begin offering crypto accounting as a service? What specific services do you offer to crypto clients?
We began working with cryptocurrency hedge funds in 2015/2016 – offering audit, tax and operational controls consulting. Today we provide audit & tax support to over 140 crypto hedge funds, perform regular attestations for stablecoins, and enable SOC compliance for digital asset custodians, blockchain data providers and other vendors within the crypto space.
What are the top three mistakes you see crypto clients make when it comes to accounting?
1. Inadequate recordkeeping of all transaction data.
2. Inadequate controls over security of wallets and exchange accounts.
3. Inadequate understanding of valuation methodologies available and allowable under US GAAP and consideration of fund structure for fund’s trading highly illiquid assets.
4. Not talking to your fund administrator and auditor early enough about significant changes to trading strategy, asset types traded, or where they are traded.
What are the top three challenges when it comes to accounting for crypto?
1. Weak valuation policies, and especially related to valuation of illiquid assets such as SAFTs and SAFEs.
2. Exchanges with poor or incomplete reporting.
3. Auditing of privacy coins.
What's the future of crypto accounting?
We are confident that the crypto ecosystem will continue to grow. We remain actively involved with the SEC and various industry groups, including the AICPA’s Digital Asset Working Group and the Digital Chamber of Commerce, in order to help educate regulators and establish best practices relating to digital assets. The regulatory and accounting guidance may eventually catch up with the ecosystem as it stands today. However, as the space experiences dynamic changes, we believe the guidance should incorporate a principles based approach and allow for evolution without rules that would unintentionally put good actors in bad positions. It would be a shame to hamper innovation simply because the regulators cannot keep up with the rapid pace of this emerging asset class.