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FASB rules ‘eliminate the poor optics’ that shied firms from crypto: Analyst

“The change should help MicroStrategy and other companies that hold digital assets to eliminate the poor optics that have been created by impairment losses,” said analysts from Berenberg Capital.

The United States Financial Accounting Standards Board’s new rules for crypto accounting will eliminate the “poor optics” that plagued companies holding digital assets, according to analysts from Berenberg Capital.

On Sept. 6, the U.S. Financial Accounting Standards Board (FASB) approved new rules for cryptocurrencies with regard to how companies report the fair value of their holdings on their balance sheets.

In a follow-up analyst note from Berenberg’s senior equity research analyst Mark Palmer, the analyst argued the changes would be particularly beneficial for companies such as Microstrategy, who will soon be able to report their digital asset holdings each quarter without having to realize impairment losses.

“The change should help MicroStrategy and other companies that hold digital assets to eliminate the poor optics that have been created by impairment losses under the rules that the FASB has had in place,” it wrote.

Since it started accumulating Bitcoin in August 2020, MicroStrategy has racked up $2.23 billion in cumulative impairment losses.

Moreover, some of the quarterly reports the company has released during the past three years have included sizeable impairment losses on its BTC holdings that reflected downward moves in the asset’s price.

MicroStrategy impairment losses. Source: Berenberg Capital

This led to negative news coverage of the firm and its reports, “giving the impression that the company’s inherent value had been negatively impacted when such was not the case,” said Palmer.

Under the new rules, which will go into effect in 2025, firms that hold crypto will be able to report those holdings at fair value. Therefore, their quarterly reports will reflect the current values of the assets, including any price rebounds.

Currently, impairment losses must be included and cannot be adjusted even if the asset price recovers.

MicroStrategy is the world’s largest corporate holder of BTC with 152,800 coins as of July 31, currently valued at around $3.9 billion. The new rules can be applied in advance and Berenberg believes MicroStrategy will do so which will value its BTC holdings at $8.8 billion by April 2024.

Related: MicroStrategy returns to profit and now owns $4.4B worth of Bitcoin

According to Berenberg's note, MicroStrategy CEO Michael Saylor oncesaid that the primary reason more firms have not adopted a BTC investment strategy is because of the FASB's "hostile" and "punitive" treatment of crypto. He continued to state that the change is a positive outcome: 

“A change in the accounting treatment would be a significant positive catalyst for the price of Bitcoin, as it would spur adoption by tech companies.”

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7,800 jobs at IBM could be replaced by AI within years, suggests CEO

Arvind Krishna, the chief executive of IBM, said roughly 30% of their non-customer-facing positions could be covered by artificial intelligence over a five-year period.

International Business Machines Corp. (IBM) is expecting to put a “pause” on hiring for "back-office" roles that could be potentially automated by artificial intelligence (AI) instead.

IBM CEO Arvind Krishna explained in a May 1 interview with Bloomberg that many “back-office” positions such as those in the human resources and accounting departments will likely be the first to be automated by AI.

The IBM boss added he could "easily" see 30% of these positions replaced by AI over a five-year period.

IBM employs 282,000 employees globally according to LinkedIn and according to Bloomberg has around 26,000 non-customer-facing staff — meaning around 7,800 jobs could be handed over to AI.

“I could easily see 30% of that getting replaced by AI and automation over a five-year period.”

According to some reports, AI-based automation has already helped IBM save well over $1 billion in business expenses and maintenance costs.

Among the tasks that may be automated include providing employment verification letters or moving employees between departments.

However, Krishna thinks human resource roles that evaluate workforce composition, measure productivity and other tasks that benefit from human judgement likely won’t be replaced over the next decade.

Many industry pundits remain at crossroads on whether AI actually has the potential to leave humans without work on a mass scale.

Related: 5 high-paying IT jobs that do not require a degree

A recent study found that 62% of Americans think implementing artificial intelligence in the workplace will have a “major impact” on workers within the next 20 years, leaving many employees “wary” and “worried” about what their future holds.

The more tech-savvy employees however feel slightly more secure about their future.

Blockchain developer Salman Arshad recently explained to Cointelegraph that instead of AI coming in to wipe out the developer market, it’ll only serve as a tool to increase efficiency.

“You know what your company wants to do. You can tell ChatGPT, and it can perfectly transform your commands into a smart contract, auditing process, document or white paper.”

“ChatGPT and AI tools are a blessing; they are not our enemies and are not here to end the career of a developer,” he added.

Another blockchain developer, Syed Ghazanfer, explained to Cointelegraph that the combination of human input and ChatGPT offers much more versatility than a complete transition to AI automation.

On the other hand, Dominik Schiener, the founder of the IOTA Foundation, believes that AI will take away employment opportunities from humans but at the same time, AI and robotic process will create new jobs:

“We’ll see more and more humans being forced to pivot to new roles that may look nothing like anything they’ve ever done.”

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FTX Finds $7.3 Billion in Liquid Assets; Lawyers Consider Rebooting Shuttered Crypto Exchange

FTX Finds .3 Billion in Liquid Assets; Lawyers Consider Rebooting Shuttered Crypto ExchangeFTX debtors revealed during a hearing on April 12th that the restructuring team has collected $7.3 billion in liquid assets. The exchange is currently considering a relaunch, according to a lawyer representing the defunct cryptocurrency exchange. Following the announcement, the exchange’s token, FTT, increased by over 70%, rising from $1.30 to $2.35 per unit. Lawyers […]

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Lawyers’ picnic: FTX counsel and advisers rake in $34M in January

Millions have been invoiced from a host of law firms, investment bankers, consultants and financial advisers in FTX’s bankruptcy case.

The law firms, investment banks and consulting companies working with FTX on its bankruptcy case billed the crypto exchange a combined $34.18 million in January, court documents reveal.

FTX’s chief restructuring officer and new CEO, John J. Ray III, also received a hefty pay package, charging $1,300 an hour to a total of $305,000 in February according to a March 6 filing.

Fee breakdown of FTX CEO John J. Ray III over the month of February. Source: Kroll

Separate court filings on March 6 show United States law firms Sullivan & Cromwell, Quinn Emmanuel Urquhart & Sullivan and Landis Rath & Cobb invoiced $16.9 million, $1.44 million and $684,000, respectively, for their services and expenses in January.

Lawyers and staff of Sullivan & Cromwell billed a total of 14,569 hours for their work, which equates to over 600 days. Some partners received up to $2,165 per hour, while the firm’s paralegals and legal analysts were being billed out at $425 to $595 per hour.

The highest-priced billables were discovery ($3.5 million), asset disposition ($2.2 million) and general investigation work ($2 million).

Sullivan & Cromwell’s fee statement as counsel to FTX Trading for the month of January. Source: Kroll

It submitted another hefty $7.5 million bill to FTX for the first 19 days of February.

Ray played a crucial role in keeping Sullivan & Cromwell on board as legal counsel, having filed a court motion on Jan. 17 arguing that the white-shoe law firm had been integral in taking control over the “dumpster fire” that was handed to him.

His filing came in response to an objection to the retention of the law firm on Jan. 14 by U.S. Trustee Andrew Vara, who claimed that Sullivan & Cromwell had failed to sufficiently disclose its connections and prior work for FTX.

FTX special counsel Landis Rath & Cobb spent much of its working hours attending court hearings and litigation procedures. For its efforts, the firm billed the FTX administrators $684,000, including expenses.

Between the three law firms, over 180 lawyers and over 50 non-lawyer staff worked on the case, most of who came from Sullivan & Cromwell.

Forensics consulting firm AlixPartners billed $2.1 million for January. Almost half of the firm’s hours were spent on forensic analysis of decentralized finance products and tokens in FTX’s possession.

Consulting firm Alvarez & Marsal invoiced for $12.5 million for over 17,100 hours it committed to avoidance actions, financial analysis and accounting procedures.

A breakdown of Alvarez & Marsal’s monthly fee statement by project, hours and fees for the month of January: Source: Kroll

Related: Breaking down FTX’s bankruptcy: How it differs from other Chapter 11 cases

Investment bank Perella Weinberg Partners billed a monthly service fee of $450,000 plus more than $50,000 in expenses for planning a restructuring strategy and engaging in correspondence with third parties.

With FTX’s trial set for October, there are at least another six months of legal work to do for the law firms involved. Recent reports have estimated that the fees could reach in the hundreds of millions by the time the case is over, which could potentially rival the $440 million in fees that New York-based law firm Weil Gotshal made from the infamous Lehman Brothers bankruptcy in 2008.

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Marathon Digital bungles crypto impairment sums, will reissue financials

The Bitcoin miner received a letter from the Securities and Exchange Commission highlighting accounting mistakes it made on multiple financial disclosures.

Bitcoin (BTC) miner Marathon Digital will reissue a number of previous financial statements after the United States Securities and Exchange Commission pointed out some accounting errors the firm made.

According to a Feb. 27 SEC filing, Marathon will restate its unaudited Q1, Q2, and Q3 quarterly reports from both 2021 and 2022 in addition to its audited annual report from 2021.

Marathon noted that affected financial statements, related earnings releases and other financial communications during these periods “should not be relied upon.”

The issues highlighted by the SEC on Feb. 22 were Marathon’s method for calculating impairment on digital assets, as well as Marathon’s determination that it had acted as an agent while operating a Bitcoin mining pool rather than a principal.

A principal is an entity that has the legal authority for decisions, while an agent is an entity that can only act on behalf of a principal.

Marathon noted that by changing the determination of its role in operating the pool from an agent to a principal, revenues and cost of revenues will see minor increases but does not believe the change will impact its bottom line.

“The restatement of the Impacted Financial Statements is not expected to have any impact on total margin, operating income or net income in 2021 or in any of the interim periods in 2021 or 2022.”

As a result of the accounting issues, Marathon postponed its fourth-quarter 2022 earnings call, which was set to take place on Feb. 28, and will postpone the publication of its corresponding financial results.

Marathon intends to file its results for 2022 by March 16. It has notified the SEC it would take up to 15 days to make the necessary corrections to the report, which was previously due by March 1.

Related: Robinhood subpoenaed by SEC over crypto listings and custody

The miner announced on Feb. 2 that it had sold 1,500 BTC throughout January, marking the first time it had sold Bitcoin since Oct. 1, 2020, as it looks to build up a “war chest” of both cash and Bitcoin and ensure it can be flexible throughout 2023.

While 2022 proved to be a tough year for Bitcoin miners — leading to the capitulation of firms such as Core Scientific in December — an increasing BTC price and stable electricity prices have helped the industry rebound strongly so far in 2023, with production and hash rates generally up across the board.

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NYDFS Releases Guidance on Importance of Segregation and Separate Accounting for Customer Funds in Crypto Industry

NYDFS Releases Guidance on Importance of Segregation and Separate Accounting for Customer Funds in Crypto IndustryOn Monday, the New York Department of Financial Services (NYDFS) published guidance on custodial structures to help protect customers’ money if a crypto firm goes bankrupt. New York’s top financial regulator stressed that businesses should not commingle customer funds and that customer funds should be segregated with separate accounting. FTX Collapse Prompts NYDFS to Issue […]

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Leading Crypto Tax and Accounting Provider Ledgible Unveils New Design

Leading Crypto Tax and Accounting Provider Ledgible Unveils New DesignPRESS RELEASE. Ledgible, the leading digital asset tax and accounting solution for institutions, professionals, and investors unveils a newly revamped website and interface. Users can now quickly explore the company’s various digital asset solutions, connect with support, register and so much more all in one streamlined ecosystem. The announcement comes just in time for the […]

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USDC transfer volume hit 5X USDT’s in fallout from FTX collapse

Although it has a much smaller market cap, on-chain data shows that USDC has a much greater transfer volume compared to its main competitor USDT.

Stablecoin USD Coin (USDC) has grown in popularity since the collapse of FTX and now frequently reaches daily transfer volumes four to five times that recorded by major competitor Tether (USDT) according to data from blockchain analytics firm Glassnode.

That’s despite the market cap of USDT being $23 billion greater than USDC. As of Jan. 10, the difference was in USDC’s favor by a margin of four and a half times.

Both stablecoins recorded surges in transfer volumes following an infamous tweet from Binance CEO Changpeng Zhao on Nov. 6 announcing Binance would liquidate its entire FTX Token (FTT) holdings. FTX went into bankruptcy soon after.

Since then, USDC has been the preferred choice for crypto users averaging over $12.5 billion more in transfer volume compared to USDT per day according to Glassnode data.

Total transfer volumes for USDC (In blue) and USDT (In green) from Oct. 8 to Jan. 10. Source: Glassnode.

While each of the stablecoins is designed to trade as close to one U.S. dollar as possible and is backed by reserves held by its issuers, USDC is regarded by some in the crypto community as a potentially safer option.

Supporters point to USDC’s assets, which are backed by cash or short-term U.S. treasuries and its monthly audits by global accounting firm Grant Thornton.

Tether has faced criticism over a number of years for not providing a proper audit and for being less transparent about its reserves.

Cast your vote now!

The company behind USDT was fined $41 million in Oct. 2021 by the Commodity Futures Trading Commission, which accused it of only holding sufficient reserves 27.6% of the time between 2016 and 2018 despite claiming its tokens were fully backed by fiat currencies.

Tether has been reducing the commercial paper backing its issued tokens in favor of safer alternatives, with the latest asset breakdown on Nov. 10 showing that nearly $46 billion of its reserves consist of cash, bank deposits and U.S. treasuries.

Related: Crypto.com delists USDT for Canadian users following OSC ban

USDT briefly lost its peg to the U.S. dollar following the FTX collapse amid fears it was exposed to Alameda Research and FTX, which Tether denied.

On-chain evidence suggests the two firms were attempting to short the stablecoin.

USDT had been recording transfer volumes much higher than USDCs up until May 2021, after Tether had increased the supply of the token from $8.79 billion to $61.82 billion over the last year, representing an increase of 603%.

Market cap of USDT from May 2018 to Jan. 2022. Source: TradingView

Despite the subsequent change in consumer preferences, Tether had referred to the growth in market capitalization as an indication of “the market’s continued trust and confidence in Tether,” and noted every token can be redeemed for U.S. dollars on a 1:1 basis.

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Despite endless media appearances, SBF unlikely to testify on 13th

One observer suggested Bankman-Fried may be reluctant to discuss FTX due to the legal implication of lying under oath to the U.S. Congress.

Former CEO of FTX, Sam Bankman-Fried, has signaled he's unwilling to testify before the United States Congress until he’s “finished learning and reviewing what happened.”

Bankman-Fried was responding to a Dec. 2 tweet from U.S. Representative Maxine Waters inviting him to testify in a scheduled U.S. House Committee on Financial Services hearing on Dec. 13 to discuss "what happened" at FTX.

In a Dec. 4 response on Twitter, the former FTX CEO said he feels it is his “duty to appear before the committee and explain,” but only once he's “finished learning and reviewing what happened," adding he wasn't “sure” whether it would happen by the 13th. 

Some in the community pointed out the response appears out of line with his recent actions, including taking part in several media interviews and posting endless tweets about what led to the fall of FTX in November.

Blockchain Association Head of Policy and U.S. Attorney Jake Chervinsky suggested to his 120,500 Twitter followers that Bankman-Fried was reluctant to take part in the Dec. 13 hearing because '"lying to Congress under oath is less appealing."

On Nov. 30, Bankman-Fried made his first live public appearance since the collapse of FTX during the New York Times' DealBook Summit where he was questioned over the circumstances behind the crypto exchange's demise. A day later, he appeared in a Good Morning America interview, and also in a Twitter space hosted by IBC Group founder and CEO Mario Nawfal.

Most recently, Bankman-Fried was questioned by Coffeezilla in a Twitter Spaces interview on Dec. 3, which saw him leaving the interview around 20 minutes in. 

Related: Former FTX CEO Sam Bankman-Fried denies ‘improper use’ of customer funds

Meanwhile, Coinbase CEO Brian Armstrong has called out Bankman-Fried's purported narrative in recent days, stating on Dec. 3 that “even the most gullible person” should not believe Bankman-Fried's claim that FTX's transfer of billions of dollars of customer funds to its trading firm Alameda Research came from the result of an unintentional “accounting error.”

As for SBF’s recent media antics, Tesla and Twitter CEO Elon Musk “agreed” with a member of the crypto community SBF doesn’t deserve any more media attention until his court date, with Musk adding he needs an “adult timeout.”

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Celsius had ‘insufficient’ accounting and operational controls, says examiner

The examiner revealed that Celsius’ digital assets in its customer’s Custody wallets account officially became underfunded on Jun. 11.

The independent examiner in crypto lender Celsius’ bankruptcy case has alleged that the company failed to set up “sufficient” accounting and operational controls in its handling of customer funds. 

In an interim report released on Nov. 19, examiner Shoba Pillay made a number of stark observations in her court-appointed investigation into the bankrupt cryptocurrency lending platform.

One of the main revelations in Pillay’s report was that Celsius’ “Custody” program was launched “without sufficient accounting and operational controls or technical infrastructure,” which allowed shortfalls in Custody wallets to be funded from its other holdings.

“[...] no effort was made to segregate or separately identify any assets associated with the Withhold accounts, which were commingled in the Main wallets.”

When it was launched on Apr. 15, Celsius’ Custody program allowed users to transfer, swap and use coins as loan collateral. It was introduced after the firm was ordered by the New Jersey security regulators to create a product that was distinguished from Celsius’ “Earn” product, which receives rewards.

This co-mingling of wallets means that there is now uncertainty on which assets belonged to the customer at the time of the bankruptcy filing, said Pillay, noting: 

“As a result, customers now face uncertainty regarding which assets, if any, belonged to them as of the bankruptcy filing.”

The interim report has also shed light on what ultimately forced the lending platform to halt withdrawals on Jun. 12. 

Pillay said the breaking point came around on Jun. 11, when customers’ Custody wallets became underfunded. By Jun. 24, this fell a further 24% to $50.5 million in underfunding.

Celsius’ Surplus and Deficit of Digital Assets in Custody Wallets. Source: U.S. Bankruptcy Court.

The revelation comes as a filing with the New York-based bankruptcy court last week states that Celsius customers must file claims against Celsius by Jan. 3. 2023 in order to be eligible for distributions from the case.

However, customers who agree with Celsius’s scheduling of their claims do not need to submit proof of claim, according to a Nov. 20 Twitter post from Celsius.

Related: Celsius bankruptcy proceedings show complexities amid declining hope of recovery

Pillay said that Celsius’ Custody and Withdrawal programs were created on short notice following “intense regulatory pressure” from New Jersey’s Bureau of Securities, who started an investigation into whether Celsius’ “Earn” accounts constituted securities pursuant to U.S. securities laws in mid-2021.

Other accounting insufficiencies highlighted in the report include a revelation that Celsius, founded in 2017 by Alex Mashinsky and Daniel Leon, didn’t start tracking its balance sheet until after this confrontation with regulators in May. 2021, which it then used Google Sheets.

The collapse of the Terra ecosystem was one of the main factors that led to Celsius’ financial troubles in May. 2022, which saw its native coin, Luna Classic (LUNC), formerly LUNA, and the network’s algorithmic stablecoin TerraClassicUSD, USTC — previously TerraUSD (UST) — fall north of 98% in value.

Celsius also stated on Nov. 20 that its next court date is scheduled for Dec. 5, where they plan on advancing discussions around its Custody and Withhold accounts, among other matters.

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