Accointing Weekly: October 21

Our weekly crypto newsletter is here! Learn more about Portugal’s plans to tax crypto, how fair-value accounting for crypto will look like, and BNY Mellon’s new crypto custody services!

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Portugal to Tax Cryptocurrencies for the First Time​​​

Located in the southwest of Portugal, “Bitcoin Beach” has long been a popular meeting place for many crypto investors from all over Europe. At the Bam Bam Beach Bar, like-minded people met and discussed the current market situation or new innovations around cryptocurrencies. Portugal, the much-vaunted crypto tax haven of Europe, attracted investors from all over the world, which was also one of the reasons for the rapid immigration increase of up to 40% between 2011 and 2022. 

However, the previous tax-free status now seems to be coming to an end soon. The Portuguese government has presented a new draft budget for the year 2023, which, among other things, foresees the taxation of cryptocurrencies. Accordingly, similar to Germany, realized crypto gains with a holding period of more than one year will remain tax-free and a capital gains tax of 28% will probably be due on all further realized gains of less than one year in the future.

Fair-Value Accounting For Crypto

According to a recent report by the Wall Street Journal, the Financial Accounting Standards Board (FASB) has stated that companies should use fair-value accounting to measure and report crypto assets.

This is relevant for any publicly traded companies that have to report their financial statements with the US Generally Accepted Accounting Principles (US GAAP). Up until this point, crypto assets have fallen within the indefinite-lived intangible assets framework. This states that companies have to report their crypto assets at historical cost and write down the cost of their assets if the assets are impaired. This means that if the value of the crypto assets decreases, a company must write down the asset on its balance sheet and take the loss on its income statement for the period in which the asset is impaired. Once the asset has been written down, it can’t be written back up even if the value of the asset increases. Moving towards fair-value reporting would mean that crypto assets would now be reported at fair value, ie. that it would be possible to write up the assets again when the price increases.

This is relevant as, due to the volatility of the crypto market, a company’s financials can become quite distorted from reality. Imagine a company purchased Bitcoin at $35,000, then the price goes down to $19,000 – under the indefinite-lived intangible asset rules, the Bitcoin would forever remain on the balance sheet at $19,000, even if the price of Bitcoin goes to $100,000. With fair-value accounting, a company’s financial statements would more accurately reflect the value of its crypto assets. The FASB is expected to make a decision on an accounting standard by the end of the year.

BNY Mellon New Crypto Custody Service

BNY Mellon, the world’s largest custodian bank and the oldest lender in the United States, wants to enter the growing cryptocurrency sector to offer services that meet the ever-increasing demands and needs of its clients and investors in digital assets. The Bank announced that it would add Bitcoin and Ethereum custody services, underlying a major shift in the traditional banking and financial sector.

Although cryptocurrencies allow transactions that do not depend on intermediaries, this doesn’t necessarily mean that banks will disappear. A major reason banking as an institution will not disappear is the convenience of custody services. While many value the freedom that cryptocurrencies give them in having custody of their own money without depending on a financial institution to access it, such freedom comes with huge responsibilities and fear of theft.

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