We are at the half-year mark of 2020 and COVID-19 continuously wreaks havoc on different nations. It’s rippling effects have not only affected business owners and corporations but have entirely changed the global arena. It seems that we are in the age of the ‘new-normal’ and everybody is on the race to find the grail of economic security and prosperity. Investors are now searching for asset shelters to move their resources to avoid further losses and amidst the ongoing commotion, cryptocurrencies is again a very hot topic.
Whenever crypto exchanges are in mind, names such as Bitcoin, Ethereum and Litecoin always pop up, but what actually is a crypto exchange? Basically, crypto exchanges work similarly to stock exchanges. Instead of trading in the latter with assets such as shares or derivatives to profit from fluctuating rates, on crypto exchanges, traders use cryptocurrency – a digital medium of exchange which is based on blockchain technology and uses cryptographic functions to conduct financial transactions.
Why are cryptocurrencies popular?
A lot of investors have completely changed their portfolio exposure to crypto exchanges for many reasons.
- The technology behind cryptocurrencies have gained interest among investors because the process and recording system are decentralised and can be more secure than traditional payment systems.
- Crypto exchanges are not managed by central banks since these banks tend to regulate money and reduce its value through inflation. This can also be a double-edged sword since regulation is primarily concerned with investors’ security.
- Modern economists see cryptocurrencies as the currency of the future and will likely become more valuable as we are in the age of digitalisation and innovation.
- More and more businesses have accepted cryptocurrency payments including online merchants, restaurants, travel agencies and the likes.
Companies Tokenized Equity in Seychelles
MERJ, the national stock exchange of Seychelles, has become the first entity in history to publicly sell its shares through tokens as well as the first regulated stock exchange to list tokenised securities worldwide. Since then, Seychelles has rapidly emerged as the world’s cryptocurrency exchange hub. This initiative has widely influenced other security exchange institutions. Many companies have begun their move and resorted to listing their shares in the form of crypto tokens. The underlying blockchain infrastructure supports all necessary activities related to corporate functions such as dividends, acquisitions and even shareholder voting. In the long run, more cryptocurrency regulations will be in place as it has already reached a milestone and it won’t be too soon until it gains the world’s attention.
Valuation of crypto assets in the financial statements
Digital assets have also become a popular topic for debate in the accounting community. In the absence of the Financial Accounting Standards Board, responsible for creating Generally Accepted Accounting Principles, International accounting committees such as the Association of International Certified Professional Accountants (AICPA) have formed to address the concern.
According to AICPA, Cryptocurrencies with the help of the process of elimination, fall under intangible assets with indefinite life (FASB ASC 350, Intangibles – Goodwill and Other). They cannot be classified as cash or cash equivalents for the fact that they are not considered legal tender. For this reason, cryptocurrencies are recorded initially as cost, not subject to amortisation and should be tested for impairment at least annually or when circumstances indicate that the asset is impaired.
Cryptocurrency is an evolving topic and change in the regulatory framework, accounting and reporting is arguably inevitable, nevertheless, it has opened a gateway to the future in addition to the present-day means of buying and selling, trading and company acquisition and equity funding.