Cryptocurrency Accounting: Why Net Income and P / E Have Become Even More Useless

[@financialmodeling]

NOTE: I had no advance notice of the big Tesla / Bitcoin news announced the other day (May 12, 2021). The timing of this video was coincidental (I had planned it for the week before, but ran out of time to finish it). If you want all the files and resources referenced in this video, please see the links here: www.mergersandinquisitions.com/cryptocurrency-accounting/

[@andytolle4352]

I appreciate the 'neutral' standpoint. It's way more useful to know how these things work and how to take them into account as opposed of the bull/bear discussions. So thanks. This is really helpful knowing the account-side implications!

[@financialmodeling]

Thanks for watching!

[@kevinfrancis23]

Thank you very much, probably the only source that talks about this

[@financialmodeling]

Thanks for watching!

[@rushilkulkarni8858]

@ 14:17, can you elaborate on the fair value of crypto's?

[@financialmodeling]

It's based on the market prices quoted on exchanges. Not sure there is a "fair value," only market value.

[@rushilkulkarni8858]

@@financialmodeling Alright, thanks

[@stellamiller4268]

I'm not sure if this was mentioned in the video, but does GAAP say that certain industries need to record crypto as an investment or as an indefinite-lived intangible asset? Or is it up to the company to decide how to record crypto?

[@financialmodeling]

It's up to the company. There are no standards or rules from accounting boards yet.

[@joseteixeira6343]

Changing the values on the spreadsheet I noticed that if you have a dip in price followed by a recovery (in your example: $60.000,$45.000 and then $100.000) you end up paying a cash tax based on the $30000 gain in between years 2 and 3, instead of the $10000 gain looking at years 1 and 3. Should this happen? I'm not aware of the intricacies of the accounting rules, but intuitively I think it makes more sense if you had a prior loss due to $15.000 paper loss in the cash tax schedule in year 3 to make sure you end up only paying taxes on the $40.000 in realized profit, otherwise that would mean that the price fluctuations impact the amount of tax you pay even if the ending and beginning prices remain constant. In other words, from the IRS's POV the asset price remains "frozen" until you realize a gain or loss. Am I misunderstanding the rationale?

[@financialmodeling]

The company pays taxes based on $100,000 - $60,000 in this case because those are the actual cash purchase and sale prices. Without seeing the exact numbers you're entering, I can't really comment on what you're describing. This spreadsheet does not handle all scenarios because it's intended to be a quick, simple demonstration and is not necessarily robust for dozens of different price outcomes.

[@wtfisthis451]

Not sure how to phrase, How would you value a Crypto Coin or crypo marketplace as in means as market cap? Most common folks treat crypto market cap as it were stocks, but that seems way wrong, it has no earnings so no unexpected or excepted results are not possible, valuation can be skewed easily, trading activities in the coin based on value will be more then the market cap of the coin as a whole. I treat crypto as forex or as commodities. Would be awesome to see a vid on how you will value it, I am not looking for a right answer, i am looking for different output and different views in this matter.

[@financialmodeling]

I don't have views on how to value it because it doesn't appear to be linked to much of anything. With something like gold, you can at least look at the money supply and real interest rates and see patterns. With crypto, you're basically throwing darts at a dartboard. It has some correlation to the S&P and NASDAQ, more so than other indices, but it's still quite weak correlation.

[@rafikhovsepyan3713]

@@financialmodeling yeah, I guess we can price it at most...

[@whyamiwastingmytimeonthis]

Bublé.

[@financialmodeling]

Hey, I try to be fair and balanced here...