Cryptocurrencies: What Accountants Need to Know

man inflating bitcoin balloon
D-Keine_istock_cryptocurrencies

Wall Street has more gamblers than Las Vegas and speculative investments in cryptocurrencies exploit the same “fear of missing out” (FOMO) used by get rich quick scammers since the beginning of time. 

In fact, the Wall Street Journal recently quoted a former SEC commissioner who sits on the board of a blockchain company describing initial coin officers (ICOs) and the frenzy surrounding cryptocurrency investments as “the freaking Wild West – it is ‘Wolf of Wall Street’ on steroids.” In this article I am going to attempt to provide some information and background around cryptocurrencies and ICOs that could be relevant for accounting professionals to know.

The late, great, P.T. Barnum is rumored to have once said, “There’s a sucker born every minute,” and the birth rate of ill-informed babies must clearly be on an upswing because the same bad decision making which gave us no-documentation mortgage loans in 2007, pet supply startups with $300 million in venture capital in 2001, 20th century llama farms, and 17th century Dutch tulip bulb futures has led to cryptocurrencies and ICOs in 2018.

For the record, cryptocurrencies are a new kind of digital money which is not backed by a central banking authority and initial coin offerings (ICOs) are the unregulated sales where investors exchange real money for units of digital money. 

The market capitalization of the top 100 cryptocurrencies as I write this in early March 2018 is $382 billion and is fluctuating wildly from day to day.  The top 100 currencies as I write this include Bitcoin, with a market capitalization of $167.4 billion; Ethereum ($72.5 billion market cap); as well as some other “currencies” which strain the already thin credibility of the industry, including the following:

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About Brian Tankersley, CPA, CITP

Brian Tankersley

Brian Tankersley CPA CITP is a technology consultant, educator, writer and serves as Director of Strategic Relationships for K2 Enterprises, where he works with vendors serving the industry to understand their existing and new offerings.

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Mar 17th 2018 00:20

Great article, Brian. Nice to see an article that advises caution (or avoidance) of this highly speculative "investment". Personally, I wouldn't go near cryptocurrencies with a ten foot pole. I have a few clients who invested in this madness against my advice and are doing very badly. Surprising, as they are otherwise intelligent and successful people. FOMO, like you say.

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By bftcpa
to skinnyvinny
Mar 21st 2018 17:47

Thanks, @skinnyvinny. FOMO is the best tool in the scamster's toolbox, and it is everywhere these days. I have people asking about AI, machine learning, and Blockchain in accounting, and so far, the only people making money on it are the consultants exploiting the FOMO in the marketplace. Brian

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to bftcpa
Mar 22nd 2018 01:53

The consultants and those giving seminars are raking it in because they make money whether their clients/attendees win or lose. It's like the Levi Strauss Effect (as I believe it is called). Sell denim jeans and shovels to gold prospectors and you make money whether they go boom or bust.

Much like the real estate hucksters in 2006 with "Buy now, or be priced out of the market forever!", fear sells.

I had a client in the other day for her income tax return. Not a terribly sophisticated lady. Lost over $100k (most of her inheritance) in bitcoin. She has no other capital gains, so she'll be deducting $3k/year for a very long time!

People get giddy with things and ideas that are new, but what's new isn't always an improvement or even useful.

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