BitGo: Crypto Water Cooler — Dec 20
GM. It’s Wednesday, December 20. This is our last issue of 2023. Thank you for reading.
The Water Cooler will resume on 1/10/24. Happy Holidays from all of us at BitGo!
Newsmakers
FASB’s Holiday Gift: New Tax Standards for Crypto Holdings
As 2023 draws to a close, the U.S. hasn’t yet figured out how to regulate crypto. However, there are now rules on how to tax it when held by private and public businesses. After resisting doing so for years, the Financial Accounting Standards Board (FASB) last week released rules instructing companies to report digital asset holdings at their fair market value at the end of each reporting period. The initial response seems to be positive with the CFO of Grayscale Investments calling them a “holiday gift of common sense accounting.”
Up until now, businesses other than investment companies had to default to the American Institute of Certified Public Accounting practice of treating them as intangible assets — a category that includes brand equity, trademarks, and copyrights. Since these aren’t actively traded, crypto didn’t necessarily lend itself to that treatment. For example, if the price of holdings dipped, companies needed to put an impairment charge (a permanent reduction in value) on their books — even if they didn’t sell the asset. But, if assets increased in value, the increase couldn’t be recorded until assets were sold, often resulting in an undervaluing of company assets.
With the newly granted ability to report appreciation, companies may be more willing to add crypto to their holdings. The system should also reduce accounting costs and complexities. Investors and regulators can get more accurate and timely information about the financial status of a company.
One challenge companies will face: developing solid valuation methods for accurate reporting. Also, the new rules don’t apply to NFTs, stablecoins, issuer-created tokens, and wrapped tokens. FASB has stated a willingness to consider rules for these if it becomes necessary.
The rules take effect December 15, 2024 although companies are allowed to apply them earlier. Note that, though the FASB establishes accounting and financial reporting standards in the U.S., it does not have enforcement authority.
Read more →Bloomberg ($)
Meme Coins: Harmless Fun, Menace, or Integral to Crypto?
The resurgence of meme coins has been a key storyline in 2023. In early May, trading volume hit a two year high; as of this writing, 1,300 meme coins collectively accounted for an estimated market cap of over $23B. As with the original meme coin, Dogecoin, which was issued to make fun of Bitcoin, meme coins have yielded many a good laugh, but not everyone is smiling. In a new editorial for CoinTelegraph, Lucas Kiely, the CIO of Yield App, argues that they are “a menace to crypto” and that most are “unabashed scams” that tarnish the industry’s credibility.
So what accounts for their resurgence and the staying power of some meme coins? Narrative and community, according to one meme creator. The narrative is the catalyst, and the sense of community — of being in on the joke or early to a new idea and profiting from those things — drives buying.
In that sense, meme coins are similar to Bitcoin; its current rally arguably started when the banking crisis this past March evoked its founding narrative of being an antidote to the ills of centrally-controlled financial systems. An enduring narrative and a strong online community can give a meme coin similar staying power — albeit at a much smaller market cap; a few have even managed to evolve from joke to serious project.
It remains to be seen what the long term holds for meme coins, especially as they intersect with one of the other top storylines of 2023: regulation. The ability for anyone to mint and market a coin without proper disclosures seems unlikely to survive emerging regulatory regimes. On the other hand, the disclosure portion of the Securities Act of 1933, which governs the sale of securities in U.S. markets, requires issuers to provide certain information. Investors must then decide the merits of a particular investment on their own. In a world where narrative and community have increasing power, many may find that a compelling investment opportunity.
Read more →CoinTelegraph
Web3 and the Universal Right to Privacy: Navigating the Digital Age
Today’s Web2 platforms prioritize data collection and use (and sometimes abuse) over the fundamental right to privacy. User privacy and control of one’s own data is one of the core tenets and differentiators of Web3. But even before there was Web3, there was the United Nations’ (U.N.) groundbreaking 1948 “Universal Declaration of Human Rights,” which included the right to privacy. Since then, the U.N. has adopted multiple related resolutions, including a September 2019 resolution stating that people are entitled to the same privacy rights online as offline.
Now several Web3 projects have formed the Universal Privacy Alliance (UPA) to protect digital privacy in alignment with the U.N.’s stance. The UPA, which is incorporated in Switzerland, is calling for anonymity and informed consent online, saying interactions should be secure and free from “undue surveillance or commercial exploitation.” They are advocating for privacy by design and hope to influence relevant policy and regulatory decisions.
The group is spearheaded by Nym Technologies — which collaborated with NEAR Foundation on their layer-1 blockchain to incorporate end-to-end encryption (E2EE) and metadata privacy. Other members include Aztec (a privacy-first, zero-knowledge Ethereum rollup); the Filecoin Foundation (which supports open source software and protocols); Oasis Network (specializing in customizable confidentiality); and Protocol Labs (connecting Web3 organizations). Each founding member contributed $15,000 toward the $150,000 initial fund.
Initially, the UPA will join the E2EE debate in the EU, which centers on striking the right balance between individual freedoms and crime fighting per eIDAS (electronic identification, authentication, and trust services) regulation and the Digital Services Act. EU member states can’t agree upon the appropriate usage of E2EE technology because, currently, the same mechanism that provides user privacy also keeps criminal law enforcement from accessing messaging.
Read more →BlockTelegraph
News In Brief
Regulation and Security
Recommended by LinkedIn
Business of Crypto
DeFi and Web3
Midweek Market Pulse
Total Market Cap: $1.59T — 7 day change as of Tuesday 12/19/23 Noon EST: +1.9%
The crypto market bounced back from last week’s dip with the global market cap climbing by 1.9% to $1.59T. Bitcoin (BTC, +2.4%) dipped during the week but recovered at the time of writing as the back and forth between the SEC and spot Bitcoin ETF applicants continued to stoke hopes of a January approval. Meanwhile, debate about Bitcoin Ordinals rages on as resurgent interest in Ordinals inscriptions caused transaction fees to hit a twenty-month high, averaging nearly $40. Some complained that the high fees made smaller transactions impractical, and others called for layer-2 solutions. One group not complaining: miners, whose revenue is hitting its highest level since November 2021.
Ethereum (ETH, -0.6%) was quiet while major altcoins like Solana (SOL, +8.5%), Avalanche (AVAX, +6.0%), and Cardano (ADA, +1.5%) continued to chug along, but less-discussed coins took center stage this week.
Internet Computer (ICP, +75.7%) is having a week, driven by its launch of a new GDPR-compliant European subnet and integrations with Bitcoin. Injective (INJ, +45.4%) gained momentum based on increased perpetual futures trading volume and its association with artificial intelligence. The AI narrative also drove Fetch.ai (FET, +25.8%) and Render (RNDR, +7.3%) higher.
Elsewhere in the top 100, Sei (SEI, +52.0%) hit a new all-time high as open interest and social volume surged. Woo Network (WOO, +73.7%) soared on the announcement that its Woo X decentralized exchange will partner with Wintermute.
The Last Word
Perpetual Futures
Noun
: a type of derivative contract with no expiration date
/ Perpetual futures allow traders to speculate on the future price of an asset indefinitely.
About BitGo
BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.
Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.
Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.
BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.
Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 1500 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.
For more information, please visit www.bitgo.com.
©2023 BitGo Inc. (collectively with its affiliates and subsidiaries, “BitGo”). All rights reserved. BitGo Trust Company, Inc., BitGo Inc., and BitGo Prime LLC are separately operated, wholly-owned subsidiaries of BitGo Holdings, Inc., a Delaware corporation headquartered in Palo Alto, CA. No legal, tax, investment, or other advice is provided by any BitGo entity. Please consult your legal/tax/investment professional for questions about your specific circumstances. Digital asset holdings involve a high degree of risk, and can fluctuate greatly on any given day. Accordingly, your digital asset holdings may be subject to large swings in value and may even become worthless. The information provided herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. BitGo is not directing this information to any person in any jurisdiction where the publication or availability of the information is prohibited, by reason of that person’s citizenship, residence or otherwise.
Founding Engineer @ Entendre Finance
1yThe new FASB tax rules are a great step forward in accounting for digital assets because as losses piled up during the most recent downtrend many companies reported losses that were recouperated through the past few months which can now be reflected accurately in their PnL.