As crypto exchanges gain mainstream popularity, the need for crypto asset management continues to rise. And with it, a relatively new term – crypto accounting – finds itself on the verge of becoming a buzzword. Already, we’re witnessing increased investments in crypto asset management technologies, indicative of an optimistic growth story for the crypto asset management market.
Simultaneously though, it’s essential to recognize that crypto accounting is a sector in its infancy relative to cryptocurrencies themselves, let alone conventional accounting. Crypto accounting professionals are a small (but rapidly growing) demographic. As a community, we continue to learn on the go and explore new regulations, best practices, and more as part of an exciting shared experience where everyone participates – corporations, service providers, professionals, and more.
Let’s take a closer look at how it stands, and where it’s headed.
Crypto Accounting Market Size
How big is the crypto accounting market? According to a report, global crypto asset management’s market size is estimated to be 0.4 trillion USD. It is expected to increase to 1.1 trillion USD by 2025, with a CAGR of 23.8 percent.
Source: Based on data from MarketsAndMarkets
Looking at region-wise estimates and forecasts, North America should count for the highest market share during the forecast period. It’s home to vendors such as Coinbase, Coinstats, Binance, Mintfort, CoinTracker, Crypto Finance, Gemini, Koinly, and more.
While industry associations such as the Accounting Blockchain Coalition help organizations navigate accounting issues, follow best practices, and develop expertise, accounting firms still face certain challenges. Cryptocurrencies are a different ball game, and traditional accounting practices are visibly insufficient for their unique demands.
#1 Accounting Complexities
Cryptocurrency transactions exhibit significant differences from other digital transactions. Encryption makes it challenging for accountants to confirm receipts and senders. The volume of data generated is immense, and accounting can get extremely tedious, time-consuming, and complicated.
Moreover, crypto environments are volatile. Static tools like spreadsheets will not be effective in capturing the volatility in accounting. There’s a clear need for sophisticated software to deal with it efficiently.
#2 Legal Challenges
For a young and rapidly evolving field, navigating legal regulations, compliances and taxations can be tough. For example, laws regarding capital gains tax for crypto assets vary to extreme degrees across regions and time. Ambiguities discourage, or at the very least, delay adoption.
#3 In Sync with DeFi
The DeFi movement continues to grow to impressive levels of popularity, with some even going to the extent of saying that DeFi now defines Ethereum. As of August 2020, CoinMarketCap already lists at least 60 DeFi projects, while the total value of assets locked in the DeFi ecosystem has already exceeded $4 billion.
As Ethereum fees soar to a 2-year high due to the surge in transactions, it becomes increasingly challenging to track the secure and immutable crypto transactions and manipulate and convert the data into the right formats. Currently available tools don’t make this an easy process. As the volume of transactions increases, scaling too will become a much bigger issue over time.
Source: DeFi Pulse
Crypto Accounting: Challenges & Opportunities
As crypto accounting continues to gain in adoption, expect some exciting trends to dominate. Traditional accounting solutions like Xero, SAP, and Quickbooks continue to be in extensive use. However, there should be a gradual shift away from these across industries since the need to integrate crypto tracking tools will be increasingly felt.
Syncing or importing crypto data into accounting software is currently a challenge. Transaction data needs to be pulled from various blockchain networks and exchanges, something that traditional software has not been able to achieve optimally. Third-party solutions are required to achieve such integration.
But integration is only a temporary solution. With time, businesses will need to involve themselves in varied and complex financial activities around DeFi. This will generate large amounts of data and consequently demand accurate and efficient tracking capabilities.
A more robust, holistic, and unified solution will be crucial to tackle all these challenges. Enterprises will desire a comprehensive solution that tracks data for both fiat and cryptocurrency transactions in one place.
In the relatively distant future, the advent and increased integration of artificial intelligence in crypto accounting is inevitable. AI and machine learning will be crucial to both professional accountants and retail users in navigating the complexities of the field. Enterprise customers, in particular, are likely to seek automated tools that can manage the unique challenges crypto accounting brings – in terms of bookkeeping, reporting, auditing, and more.
Over time, crypto accounting as a specialized field of study should find its way into educational curriculums, too, paving the way for a new generation of accounting professionals. The combination of automation and crypto education will not only elevate efficiency across the sector but also drive the evolution of the very role of accountants.
The Need For An All-In-One Crypto Accounting Solution
Crypkit offers a comprehensive toolkit for crypto-asset tracking, fund management, and accounting. The idea is to help businesses, investment funds, asset managers, DeFi power users, and professional investors not only enjoy a seamless user experience, but also automate the administrative work required for crypto accounting and tracking processes.
As is expected of such a solution, Crypkit’s toolkit is robust, powerful, and secure. It not only helps track and create accounting charts, but also:
- Exports data and financial reports,
- Manages your crypto treasury,
- Audits trails and more.
A feature-rich, complete toolkit in one place helps execute operations with minimal effort. Organizing your accounts, portfolios, and assets, as well as automation, was even listed by Forbes as best practices for crypto accounting.
The Future of Crypto Accounting
The term crypto accounting became relevant only a few years ago. But within a short span, it’s established itself as a sector deserving of attention, and even participation. Its emerging and rapidly evolving challenges get a fair amount of attention, as many rush to innovate and offer effective solutions to increase adoption, reduce scams and fraud, and improve current tech.
Over time, crypto accounting should become as crucial to any business or individual as traditional accounting. Tools such as Crypkit will only accelerate this adoption, automate processes, assist with data tracking and compliance. Exciting times.