The cryptocurrency market has once again captured headlines for its dramatic fluctuations. Multiple factors, including fears over a looming U.S. economic recession and changing regulations, have contributed to a volatile period for cryptocurrency.
These rapid shifts mean businesses that interact with digital assets must stay updated on shifting regulatory frameworks and maintain a deep understanding of the evolving risks and benefits the industry presents.
Proposed Repeal of Staff Accounting Bulletin 121
The proposed repeal of the U.S. Securities and Exchange Commission's (SEC) Staff Accounting Bulletin 121 (SAB 121) seems to be an important regulatory change that could affect the crypto market. This change might indicate a shift in how organizations that safeguard crypto assets should account for these holdings.
Originally issued in March of 2022, SAB 121 required firms to report the fair value of crypto assets as liabilities, even when the entity did not control the asset. Many finance managers and crypto custodians found these requirements misaligned with the unique characteristics of the industry and to potentially inflate perceived risk. The issuance of SAB 122 on January 23, 2025, intends to completely repeal the SAB 121 customer asset reporting requirement which alters the requirements and reporting disclosures for changes in accounting principles for entities.
SAB 122 intends to benefit the crypto industry, as it reduces the complexity of digital asset accounting for SEC-reporting companies and makes it easier for banks to offer digital asset custody services.
Real Estate Tokenization and Real-World Asset Integration
A noteworthy development in asset digitization is the tokenization of real estate within the crypto ecosystem. Real-world assets (RWAs) are increasingly being tokenized and sold to investors, blending traditional investment models with digital frameworks.
For example, the Real Estate Metaverse (REM) is a blockchain platform that offers fractional ownership of property, for as low as $100 in some instances. Buyers receive passive income from real estate investments that are proportional to their holdings.
By leveraging blockchain technology, tokenized real estate offers enhanced liquidity and fractional ownership opportunities, presenting a transformative opportunity for investment firms and developers.
Regulatory Scrutiny and Corporate Adoption
The evolving regulatory landscape has become a defining factor in the crypto market's trajectory. Regulatory agencies worldwide are increasingly scrutinizing crypto firms, ensuring compliance with anti-money laundering (AML) frameworks and investor protection standards. Simultaneously, businesses are responding to these changes by adjusting their accounting practices.
The adoption of new accounting standards plays a pivotal role in this transition. The Financial Accounting Standards Board (FASB) recently introduced changes under ASC 350-60, requires businesses to measure and report certain digital assets at fair value which significantly improves transparency and enables clearer disclosure of gains and losses via net income.
Looking Ahead: Trends and Considerations for Business Leaders
In an ever-evolving industry, accurate forecasting can prove particularly challenging. However, we can expect certain cryptocurrency market trends to unfold this year, including the intersection of artificial intelligence (AI), selective venture capital funding and stricter regulations of crypto exchanges.
Artificial Intelligence in Crypto
AI tokens, or cryptocurrencies directly related to an AI venture, are beginning to flood the space and have surpassed $39 billion in value. This convergence promises new value and enhanced automation to businesses across a variety of industries.
Additionally, utilizing AI to make crypto trades has become increasingly popular as automation continues to revolutionize the finance industry.
Stable Funding and GENIUS Act
After crypto’s decline in 2022, funding has stabilized as investors gain renewed confidence in the industry, evidenced by a $485 million venture capital (VC) funding in blockchain startups. Although crypto VC deals fell from last year’s first to fourth quarter, funding rebounded in Q4. Investors are growing more selective, with capital flowing to a smaller number of stronger products.
Even if the market hits a recession, the industry could still see large investments or acquisitions as VCs need to deploy capital regardless of macroeconomic trends. An economic slowdown would likely continue the trend of VC selectivity or shift focus to more resilient sectors like healthcare.
The proposed GENIUS Act (Generating Equity for National Economic Support to Increase Stability) is proposed federal legislation establishing a comprehensive regulatory framework for pegged stablecoins issued by federal regulated entities. This legislation marks a significant step toward formalizing regulatory oversight of stablecoin issuers who will be expected to maintain 1:1 reserve backing, submit to independent audits, and provide transparent, verifiable proof-of-reserve reporting. These requirements echo the standards long established in traditional financial reporting and assurance, signaling a clear convergence between digital assets and regulated and traditional finance.
As regulatory clarity emerges, issuers will need to adopt institutional-grade controls, governance structures and compliance practices. Forward-looking firms that invest now in building audit-ready infrastructure and financial transparency will be best positioned to lead in a maturing market where trust, not just technology, is the differentiator. This Act marks a major step toward mainstream adoption and federal recognition of stablecoins, while demanding the same level of transparency and safety expected of traditional financial institutions.
Strategic Reserves
In Q1 the President signed an executive order to create the Strategic Bitcoin Reserve, positioning bitcoin as a national reserve asset, aiming to solidify the US’s leadership in digital assets. Alongside bitcoin, the administration announced plan for a broader stockpile encompassing cryptocurrencies such as Ethereum, Solana, Cardano, and Ripple further underscoring the government’s commitment to embracing a diverse range of digital assets.
The impact of the US government’s endorsement is expected to enhance the legitimacy of these tokens, further encouraging institutional investors to engage more confidently with digital assets. These initiatives are posed to significantly impact the adoption and integration of digital assets into both national and potential global financial systems.
Ramped Up Regulations
SEC Chair Paul Atkins created the Cyber and Emerging Technologies Unit (CETU) to develop clear guidelines for crypto token registration and disclosure. The Commodity Futures Trade Commission (CFTC) has also enhanced its oversight to better regulate the market with the launch of its digital asset markets pilot program, which covers tokenized non-cash collateral. These efforts mark a period of a more proactive regulatory approach, rather than relying on enforcement actions to retroactively define policies.
Strategies for Business Leaders
As the cryptocurrency landscape continues to shift, business leaders should remain proactive in adapting to crypto market trends. Key strategic actions include:
- Monitoring regulatory changes and ensuring compliance with emerging standards
- Exploring innovative opportunities in DeFi and tokenized assets
- Embracing accounting practices that prioritize transparency in crypto asset reporting
By staying informed and adopting robust strategies, business leaders can navigate the ebbs and flows of the cryptocurrency market while seizing growth opportunities in this rapidly evolving space.
Key Takeaways
- Despite fluctuating markets and the decline in bitcoin value, areas of growth remain in the cryptocurrency industry, decentralized finance and RWA tokenization.
- Regulatory frameworks continue to shift as the industry evolves and organizations must be aware of reporting and disclosure requirements when safeguarding digital assets.
- The proposed issuance of SAB 122 has intended to be beneficial to the industry and organizations looking to offer digital asset custody services.
- Fears of a looming recession could impact sizable crypto investments, as VCs grow more selective.
- Staying informed on market changes and adhering to industry-specific accounting practices can help businesses succeed in a rapidly shifting environment.
Your Guide Forward
Cherry Bekaert’s Accounting Advisory practice can assist you with complex reporting regulations and transactions to ensure regulatory compliance. Our experienced tax and accounting professionals serve as business partners in your organization, providing accurate financial information to accelerate decision-making and enhance profitability and growth.
Combined with our experience guiding clients in the tech industry, we are equipped to help you navigate the ebbs and flows of cryptocurrency and help leverage your organization’s digital assets.
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