The combined market capitalisation of cryptocurrencies may be growing exponentially – with the figure currently standing at c. $260 bn USD after Bitcoin’s historic breaking through of the $10k barrier – but compliance and reporting processes are desperately lagging behind.
Libra, an upcoming ICO which intends to platform blockchain-based tax and accounting software may prove to be a vital link, along with other similar players now emerging in the accounting and report space, to offer the kinds of solutions that will entice retail investors.
Cryptos Creating Interest but Compliance Creating Bottleneck
Traditional reporting and compliance processes are generally incompatible with cryptocurrency assets.
The problem is compounded by the fact that in within most legal jurisdictions, there is still a lack of clarity in relation to how cryptocurrencies should be defined – in the United States, for example, the IRS classifies Bitcoin as a capital asset for tax purposes whereas other government bodies, including the FBI, classify it as a currency for legal purposes.
Hedge funds have been among the first to flocked into the cryptocurrency and ICO space but while the front office has begun something of a revolution, middle and back office operations are simply standing still.
By law all funds must give investors accurate records of their transactions. Currently, some crypto investment houses are having to manage with software designed for traditional asset classes, whilst others are simply persevering by hand with tools as basic as an Excel spreadsheet.
The lack of real-time reporting solutions is holding back institutional involvement in cryptos even further. Several blockchain-based start-ups are now appearing on the scene to offer new options to established financial players who are proceeding cautiously.
Libra Targets Standardisation
ICO start-up Libra is now coming to market with its own set of solutions, Crypto Office, which is being designed specifically for cryptocurrency asset management.
One key feature that it plans to offer is the ability to standardise the data coming to a trader from dozens of different exchanges, each of which generally has its own reporting standards.
“Stakeholders need to have an efficient and scalable infrastructure,” explained Jeremy Drain, CCO of Libra in a recent press statement.
This standardisation of incoming data should have a knock-on effect for the ability of crypto asset managers and traders to generate the kind of coherent outbound reports that will ultimately satisfy regulators.
If customers, regulators and tax authorities can be kept happy then the sector will take a further step to mainstream acceptance.