With the Trump administration in the midst of preparing to return to the White House, there is a range of issues and campaign promises that various stakeholders will be looking to see fulfilled. One notable item that has continued to gain momentum both in the media/social media spheres and policy circles, following a speech at Bitcoin 2024, is the idea of establishing a strategic Bitcoin reserve.
With the nomination of David Sacks to the AI and crypto "czar" role at the White House, as well as policymakers such as Senator Cynthia Lummis continuing to promote the BITCOIN Act, the likelihood of some policy action in this direction would appear to be significant. This is in addition to market actions by firms such as BlackRock and MicroStrategy, both of which continue to introduce new Bitcoin-affiliated products and/or purchase bitcoin, respectively. Lastly, with state-based Bitcoin reserves also a possibility following the submission of legislation by the statehouses in Pennsylvania and Texas, it would seem a distinct possibility that some government-level purchasing of Bitcoin is on the horizon.
The question facing CPAs and other financial advisors given these forces is two-fold. First, what are some of the topics and questions that financial professionals should be ready to respond to and advise on going forward? Secondly, with the accounting standard-setting process more deliberative and slower than either the executive order or state-based legislative processes, what accounting-adjacent changes might emerge from these policies? Let's take a look at that as the calendar prepares to shift to 2025.
Is there a business case for a Bitcoin reserve?
The proposal to establish strategic Bitcoin reserves by President-elect Donald Trump and various state governments has sparked considerable debate, and it is worth discussing both the potential benefits as well as drawbacks of such proposals.
First, many proponents are advocating for a Bitcoin reserve given that any significant value appreciation could be used to mitigate the U.S. national debt. For instance, Senator Lummis introduced legislation proposing that the U.S. government acquire up to 1 million bitcoins over the next two decades, aiming to reduce the national debt without taxpayer dollars. However, Bitcoin's price volatility itself poses a significant risk. Large-scale government investments could lead to substantial fluctuations in reserve valuations, potentially impacting overall financial stability. And while supporters note that over time and with greater liquidity, Bitcoin's volatility could diminish, critics warn that taxpayer exposure to any such volatility could be detrimental and economically harmful.
In addition, proponents note that incorporating Bitcoin into national reserves could diversify assets beyond traditional holdings like gold and foreign currencies, potentially enhancing financial stability. Bitcoin's decentralized nature offers a unique complement to traditional reserve assets. However, safeguarding substantial Bitcoin holdings requires robust security measures to prevent hacking or theft, and any breaches could result in significant financial losses and potentially economic damage.
Lastly, a Bitcoin reserve may position the U.S. as a leader in financial innovation, encouraging the development of cryptoasset technologies and related industries. This could attract investment and talent, fostering economic growth, but would require notable regulatory and legislative clarity progress before that could take place.
Stablecoin leadership will continue
Given the forays by multiple TradFi institutions into the crypto sector, accelerated via the announcement that PayPal will allow crypto transactions to be conducted by both merchants and individuals, the appetite for crypto transactions with lower volatility will continue to increase. Since these cryptoassets are purpose built to be used as a medium of exchange with little to no price volatility, this subset of crypto has proven to be an effective on-ramp for users seeking to gain exposure to crypto without the complications of higher volatility cryptoassets.
With the premise of a pro-crypto SEC, pro-crypto majority in Congress, and pro-crypto White House all but finalized, it stands to reason that crypto adoption will continue, with stablecoins playing a prominent role in this adoption. Even with talk and speculation about either a federal Bitcoin reserve or the possibility of Bitcoin reserves at the state level, the tokenization of the U.S. dollar will continue to gain supporters as TradFi institutions and policy advisors alike experience the benefits first-hand. With the vast majority of dollar transactions already virtual in nature, and competition from other currencies increasing, the technological upgrade that tokenization provides is reason enough to forecast an increasingly important role for stablecoins.
As the IRS continues to propagate and extend tax reporting rules originally applied to cash transactions and centralized broker dealers, and stablecoins continue to attract new users, CPAs will almost inevitably acquire new clients that are interacting with the crypto space for the first time. Remaining up to speed on both the specifics of stablecoins as well as the tax reporting and data collection changes will both be essential going into 2025.
Tax headaches are an opportunity
In the most directly accounting-focused changes in the crypto landscape, the IRS has continued to issue updates, pronouncements and guidance around crypto tax issues. The amending of both Sections 6045 and 6050 to include crypto transactions, the creation of an entirely new tax form with the launch of the 1099-DA document, the issuance of new guidance for both centralized and decentralized exchanges, and the potential delay of tax reporting changes are making the crypto tax landscape look even more uncertain. With interest and investment in crypto continuing to increase, propelled in no small part as a result of strong lobbying efforts by the crypto industry, the likelihood of CPAs with clients that are exposed to crypto will only increase.
While these tax changes and modifications remain the subject of debates and conversations, the fact remains that crypto tax reporting, data collection and payments are going to be substantially more complicated than in the past as these proposed changes are phased in over the next several years. To remain up to speed and able to provide effective tax services to clients, CPAs and other accounting professionals are going to need to remain proactive with regard to education and client engagement.
2025 looks to be a dynamic year for the wider cryptoasset marketplace, but with the dynamic changes there will also be opportunities for forward-looking and motivated accounting professionals.
