Pitfalls and Prescriptions with Matthew May
Randy welcomes Matthew May for episode 83 of The Unique CPA. Matthew also appeared live at the Beer Temple with Randy, where they touched on some issues surrounding cryptocurrency and accounting, but in this episode, they dive into the details. Whether you’re just learning about how crypto works, both from a layman’s and an accounting perspective, or you’re well versed, you’ll find Matthew’s insights into this new frontier very useful.
Today our guest is Matthew May. Matthew is one of the co-founders of Acuity, which is a cloud accounting service. I’ll let him expand on that a little more. But here today, we’re going to mainly talk about crypto. Crypto’s a huge topic—crypto, everybody has questions about, not many people have answers. Matthew is the guy with the answers. So we’re gonna talk about crypto today with Matthew. Matthew, welcome to The Unique CPA.
Oh, thanks for having me. I sure appreciate it.
Yeah, no, this is a topic I’ve been asked a lot about getting a podcast done on. In fact, I got some—oh, the producers just asked me two days ago, I think, or three days ago, and then your name came up, I go, “Okay, let’s get this recorded,” and you were gracious enough to get this set up right away. So I appreciate it.
Before we get into crypto, why don’t you give me a little background on you and Acuity just so we know what you’re all about?
Well, I’m a recovering auditor. Started out, you know, big four—it wasn’t big four back at the time, it was big six. So you always date people by what they say, right?
Yeah, I started in the Big Eight area. So you’re even younger than me.
So I beat you by a nose there. And then you can really always get it when they say the “Big Five” because that’s like, you can guess people’s age within like two years, because it was all a year and a half that it was the big five. But I started in the Big Six, made it all the way to Partner at a top 25 firm on the audit practice, and then I jumped off that train about nine years ago and joined Kenji [Kuramoto] at Acuity.
Acuity had been a CFO advisory practice for the first nine years, and had a couple controllers, and Kenji and I talked about converting it into also, a cloud accounting business. So I bought out, functionally bought out his partner, and we kind of launched what is now the new Acuity about nine years ago, and we’ve been doing it nine years.
About five years ago—you know, we specialize in SAS and technology—about five years ago, one of our technology clients was like, “Hey, we just made this new cryptocurrency, and we don’t know what to do with it.” They had done a token sale. So they raised 25 million bucks by printing money, but, you know, part of that, they didn’t issue all the tokens they had—they kept 80%. So they had this huge treasury, they had a bunch of cash in the bank, they had a bunch of Bitcoin, bunch of Ethereum, a bunch of cash, a bunch of their own crypto and, and they’re like, “Here you go. What do I do now?”
So the nice thing is they had money, and they had good intentions. So we used Deloitte from a tax perspective, and I functioned as their CFO for almost four years. Deloitte from a tax perspective, Perkins Coie from a legal perspective, and I really cut my teeth and got like the best minds, you know, to kind of come together to understand all the consequences. And then we dealt with all kinds of fun stuff like, how do you get your W two wages on a Gusto, like they’re using Gusto for payroll—how do you get your W two wages stated correctly? And then we had that and several other things. How do you create treasuries so people don’t get kidnapped because you have a half a billion dollars? And you don’t want people to get kidnapped? Like, how do you deal with that issue?
Lots of fun issues. Got some great travel stories to about the British Virgin Islands and the Cayman Islands and having to hand my passport to a ship boat captain because customs was closed, and he needed us to go through with that kind of stuff. So it’s kind of like the wild wild west, like people say.
I know, yeah. So you’ve already confused me on everything. I have no idea what’s going on here. Because crypto in general confuses me—I own some crypto, I don’t get it. I don’t understand. Let’s start there. Because you started talking about, “They created this token. They didn’t sell everything.” I mean, what’s a token? How there’s any value to that? I don’t even understand this. Can you give me some basics on what Crypto is?
Yeah, so that’s a great question. And the answer to that question is like, there’s like, you know, probably, like a thousand meaningful cryptocurrencies, but like, there’s probably 10 or 20,000 cryptocurrencies out there, but a thousand have any merit, maybe even 150 have any merit. You can look at CoinMarketCap if you want to see all of them, and you can see all the pricing and stuff like that, and the first kind of 150 have some validity.
But the interesting thing about cryptocurrency, when you’re trying to explain it to people, is that it’s not all the same thing. So that’s the first thing I’ll tell you. Like a cryptocurrency is not all the same thing, and it’s dynamic. So we hired an economist, at this client, and he advised the Federal Reserve, and he wrote a white paper about cryptocurrency, and he talked about how it would behave differently. There’s kind of a 50% rule.
So cryptocurrency is basically, people will talk about the 50% rule on the control side, like you can control a cryptocurrency if you own 50% of it, but there’s also a behavior—if 50% of the people are using cryptocurrency for a certain thing, it becomes that certain thing.
So let’s talk about what thing people think a cryptocurrency is about, because there’s like a couple of categories.
Firstly they talk about it like you think of dollars.
Like a payment mechanism. We’ll call it a payment mechanism. So there are some cryptocurrencies that are attempting to be payment mechanisms. There’s USD Coins, so there’s coins that mimic the US dollar, and then they call them like stablecoins, because they don’t fluctuate. There’s coins like Bitcoin Cash, a version—it originally started as Bitcoin, but it’s a version of Bitcoin. There’s a couple of other ones, but Bitcoin Cash and the stablecoins are primary ones that I think of as ones that are trying to mimic currencies or payment mechanisms. And what they focus on is low transaction fees, and speed to delivery, right? So they’re trying to mimic, try to beat—because their competition is credit cards, right?
The second major category is what most people default to because Bitcoin is in this category is a store of value. So think of a store of value, an example of that is gold.
So in our economy, gold is a store of value. So you don’t go to the store and pay for stuff with gold, usually, right?
Theoretically, you could—theoretically with Bitcoin, you could pay with stuff, but its function, what over 50% of the users are doing with it, is holding it as a store of value, right?
Is that fair?
It’s fair, I just don’t know where the value is. What created the value?
Well, the same thing could be said for gold, right?
The utility of gold is not really driving the value of gold. Like how people use gold is not driving the value of gold, because people are using it more for storing value than they are for its utility.
Okay, right. Yep.
Is that fair?
Yes. See, a big part of the show is just educating me—all The Unique CPA shows. So this is good. You’re educating me.
Let’s keep going. So we’ve got a currency, we’ve got a store of value, then we have some that are just technology solutions. So one that came out called Ripple, is trying to replace the SWIFT system in the banking.
Wasn’t Ripple a while ago? I think I remember hearing that eight years ago or something?
Yeah, it was real popular a few years ago. Then the other biggest category I see is on these tokens, they mimic gift cards, basically. They’re almost like gift cards, or the other thing they are similar to is Kickstarter campaigns.
Here’s their ultimate use, is to buy the product that they’re trying to fund, but it’s kind of like a Kickstarter / gift card campaign, right?
And that’s what they can start out as. Now if anybody starts using them for something else, then that’s what it is. So cryptocurrencies in general, over 50% of users for the last, like I would say, up until about two years ago, were using them solely for speculation.
So they were just speculative assets at that point. Now, some of them are starting to emerge, where more people are using them to store value. Like Bitcoin, when the institutionals came into Bitcoin, that gave Bitcoin more characteristics of a store of value than a speculative asset, even though I don’t know what you consider the institutionals—they’re pretty, they’re crazy-as people too, if you look at the stock market. But Bitcoin is now behaving more similar to a stock in the stock market or a store value, like gold, than they are like a really, really speculative asset. It still has a high beta, but you’d have to give to me that it’s behaving that way.
So that’s how I start with people. It’s not all the same thing.
From that perspective. And the weird thing is, it has the characteristic, if the people who own it, the most of them change how they use it, it can change between those categories.
Okay. I’m catching up. It’s gonna take a while, but I’m catching up.
So let me ask a question about Bitcoin then. Because at one point, Elon Musk—the car company—why is my mind blank?
Tesla was accepting Bitcoin for payment for cars. I think they just did that for a short time. So they were using Bitcoin as a cash then—they weren’t using Bitcoin Cash, or were they? Were they using Bitcoin?
They were using—they were accepting Bitcoin as payments.
But that’s not really like, if you look at what Tesla owns Bitcoin for, is for a store of value. It’s a hedge against government currencies, it’s a hedge against US inflation, all those kinds of things.
So you can and people do try to use it as a payment mechanism, but it’s just like trying to pay for something, like if you went to a Tesla store and said, “I want to buy something in Apple stock.”
Right. That’s what I was thinking.
They might do it.
They might be like, “Sure, give me 12 shares,” but it’s gonna be like a one off. There’s not gonna be a system for it. There’s gonna be some work around random [stuff] right?
Yep. So, okay. Alright.
So that gives me an idea. I appreciate that information you gave there because that helps me get my mind around it, and I’m guessing listeners, as well. Or listener—I think we have one listener so that one listener, it’s helping them as well.
Well, you’ve got two because my mom will listen, for this one episode.
That’s nice, alright! Hi, Mom. Thanks for listening. I’ll get my mom to listen too, so we’ll have three. Look at this!
Actually, seriously we’ve added a ton of listeners, so I think we do have more than one, which is really nice. And thank you, everybody for listening. Alright, on with the show.
So now we’ve got the base idea, okay? This is what’s out there. There’s obviously still a lot of questions in my head right now. We’ve got tax and accounting issues—I think tax to me seems pretty straightforward. If it’s a, you know, an investment, I sell it for gain, I’ve got capital gains, I sell it for loss, I’ve got a capital loss. Are there tax issues within this I’m not thinking of?
Well, that kind of takes us to a kind of tangential topic—is kind of the regulatory ecosystem. Nobody believes me that they can be different things. So the regulatory agencies consider these different things as well, so that’s where a lot of the complexity is where people get scared about them. The CFTC calls these “commodities”—cryptocurrencies. The SEC calls them “securities.” FinCEN was trying to call it “currency.” And the IRS calls it “property.” But other than that, it’s really straightforward.
Alright, so this is an evolving thing.
So but like, at the end of the day, for the tax folks out there, you know, they already know this, because they’re familiar with the 8949. Or anybody. cryptocurrency is like, if you want to take on a cryptocurrency client, it’s like taking on a day trader in the 90s and 2000s.
Like, it’s the same kind of problem, except the day trader can pay for stuff with his stock, and it still has the same accounting. Or they could trade stock for stock, and that creates a cap gain and loss and you don’t get carryover basis. So you get all these transactions with people that are like, “No, I just converted Etherium to Bitcoin. I didn’t sell my cryptocurrency.” Well, that’s a sale in the eyes of the IRS, so you’re hosed.
Right. Alright. So from that standpoint, how about all these regulatory authorities? How’s that affected it? Everybody has a different idea of what a crypto is? How do you deal with that? Is that an accounting issue, is it a tax issue? Is it an “all” issue?
It tends to be an operational issue for your clients that want to deal with, right? So especially if you issue a cryptocurrency, like there’s just no guidance, because the regulatory authorities in the U.S. just don’t agree with each other—and that’s just the U.S.
Because most of these companies that issue cryptocurrencies are global. It’s kind of funny, but that’s why I spent some time in Cayman and BVI—
—and some of the other countries just because you have to, if you’re going to have… Well, I mean, if you have half a billion dollars worth of assets, it’s worth expanding in a kind of international way.
Right. That’s great. What about financial statement reporting of this or accounting of it? What do we have to deal with there?
So, from a financial statement perspective, it’s just very similar to inventory accounting. So you’re doing, usually first in, first out, inventory kind of style of accounting, on each asset individually. Tons of tracking issues, tons of problems, because if somebody, like all the reporting isn’t built for this, so if somebody sends it from their crypto wallet to their Coinbase account, there’s no system that allows you to have a carryover basis—[well], one system claims to be able to track it.
You have to track the carryover basis, you’ve got to do FIFO. What I’ve found with my clients, what we’ve done, we focus a lot on focusing on business rules, like accepting crypto in one specific location, so we can report and have a good FIFO, and then transferring it to the Treasury accounts, sending crypto for different purposes out of different wallets. And these are big volumes, so one of my clients is a couple hundred thousand payments a month, you know, and they need to track. They were like “Okay, I’ve got 175,000 transactions over here that I put out that are micropayments, right? And then we want to track those in COGS,” and we’re like, “Well, you combined those with all your other payments—we’re gonna have to go through them onesie twosie.”
So we created a separate address that those come out of, so anything that goes out of that address—and we use a tool that we’ve been using for a long time called Legible—and it auto syncs to QuickBooks or Xero, based on where the payment came from. Like, you can track it and say, “Okay, all these kinds of expenses, all payroll expenses come out of this address.” And an address in crypto is like an account number. You can think of it from a bank. It’s like having a payroll bank account. You know, like those old school ways we used to do that too, with like having a payroll bank account and a savings bank account, right?
So yeah, so we’ve created those kinds of mechanisms for people, because you lose the bank feed data that we have in accounting. Most of us I think, are using lots of the bank feeds to pull data in right now—well you lose the vendor information and some of the other information, the data from the transaction—so we replace that with designated accounts, and you can track counterparties as well. But at the volume you’re talking, it depends—they have to be pretty rigorous, depending on how much their counterparties change if they want to track that.
Okay, so in this scenario, you just said you were tracking these micro transactions, and it was COGS, so it was payments they were making for something. So every time there’s a transaction, not only are you making a payment, but you’ve got a capital gain or loss too, right, or am I right on that?
That is correct. So that is one of the nuances that happens. So for our book accounting for folks, what we do is we go ahead, because of the expense transaction, or that COGS, transaction is supposed to be recorded at that point in time at fair value. What we do is, we record that, and we don’t try to record the GAAP gain and loss in each transaction. And then we do a balance sheet reconciliation to bring the balance sheet values back to FIFO.
And then we flush the difference through crypto gain and loss instead of tracking it on a transaction-by-transaction basis. This is for people with more than a hundred transactions a month, or really more than fifty transactions a month.
If you have ten transactions, you can do the gain and loss. If you got 200,000 transactions, you’ve got to make some modifications. So we do the, “Record the expense when it goes out,” and then at the month end, we go back and do the FIFO reconciliation for the balance sheet accounts. So how much is in Bitcoin, and we do that, we figure out the units that are left, and then we go find out their cost basis based on the blockchain. And then some other data, we have a pricing tool that one of the tools legible helps us. It has it in its tool, so we can run a report. And then we go from there.
Okay, well, that’s I was gonna say, are you creating an Excel spreadsheet for this, or there’s some behind the scenes technology that helps?
There’s some behind the scenes technology, but I do heavy, heavy—for the balance sheet reconciliations, they still end up in spreadsheets a lot of the times.
Because people don’t always follow the business rules. They’re like “Oh, yeah, I bought this other one over here. So that’s a one off, right?” So, and because there’s no lot tracking and a lot of the systems, it’s just, there’s no silver bullet system yet.
Okay. In the flow, you mentioned FIFO, that you have to do that, can I go and just pick the highest cost basis and show that I’m doing a loss then or how—what’s the FIFO for?
So, there’s lots of discussion around in the tax community about that. But for Book, I think it’s pretty clear, it has to be FIFO.
So if you’re a GAAP reporter, the way I read the AICPA practice aid, is you kind of got to do FIFO.
Now, the tax people, as you know, like to get cute.
Like, I don’t know how people do it, but some people do Last In First Out, some people do Highest In First Out, some people do First In First Out, and some people do specific identification in the tax realm. I think, since we’re trying to do it at scale, I think it’s nuts to try to pick on a client-by-client basis. So we do FIFO for ours.
Because we’re trying to scale it and do it for multiples. Like, sure, if you’re doing one or two of these, you can kind of get, I’ll call it “getting cute with it,” and some people will say, “Well, that’s just good tax planning.”
But at some point, you’ve got to build a system, right? Rather than manually putting this together. So I’m a big proponent of FIFO. I think it’s the safest thing from a tax perspective, as a policy election. But the aggressive people are definitely doing—I mean, Highest In First Out, like to me, I’d rather be on that side of an audit where I’ve got FIFO than Highest In First Out. I’m just saying. I’m sure somebody will say “Oh, but you can.” I’m like, tax people, do what you want to do, I’b trying to build a scalable process.
No, I understand. That makes sense. The funny thing is, you know, my son and I were just talking about this yesterday or two days ago, because he’s got a lot of crypto, and I know he’s got some in Coinbase but he also has some in his own wallet or whatever it is. But he did get a report, and I know it was from Coinbase or it’s a subset of Coinbase, it was called Coinbase something else, that was showing a loss on the sales for the year. And if it was FIFO, it would have shown a significant gain. So my guess is they were almost doing a LIFO version of this. Have you seen that?
They might. I’ve seen a LIFO version, I’ve seen a specific identification version, too, where like they lot track, so they know which one you sold.
So Coinbase has that data, but it’s only for the Coinbase stuff. Usually clients that come to us have Coinbase, plus this, plus this over here, and then they bought it over here, and transferred over here, and like Coinbase can’t run any reports. But Coinbase can’t do crap for our clients.
No? Well didn’t they have a big, went public last year or something? Was that Coinbase, or?
Yeah, but they’ve got six different exchanges that don’t even talk to each other.
They probably have more than that actually. I know this because one of the platforms, Coinbase Commerce, doesn’t talk to most of the tools right now, and that’s the one a lot of the eCom[merce] and the other people that are trying to use it in business, are trying to use. It doesn’t talk to any of the crypto tools, so it doesn’t even help.
Okay, so it sounds to me like there’s confusion in accounting. Well, you’ve got the accounting part down, it sounds like pretty well. The tax, you know, there’s a little bit of Wild West, maybe.
I’ll put this in accounting terms—Coinbase in accounting terms. Coinbase is like QuickBooks. So when somebody tells you they have a Coinbase account, they could have a Coinbase Prime account, they can have a Coinbase Exchange account, they could have a Coinbase Commerce account. They could have, just like QuickBooks, could have a QuickBooks Enterprise account, QuickBooks Online Advanced account, a QuickBooks Online Essentials, like—
—So this is not, I’m not going to learn this overnight. There’s a lot of complexities going on.
Well, there are more versions of Coinbase than QuickBooks—I will say that.
Alright. So then, okay, so we talked a little tax, we talked a little accounting. What did we not talk? You mentioned the economics of this, is there things we need to discuss on that end?
If you want, we can do that. Everybody’s like, “Should I buy it? Should I buy it?”
Right? It seems very volatile.
So the only thing that I’ve been able to tell people that I can say with confidence, is that I talked to some—because I get this question all the time, “Should I buy crypto? Should I buy crypto?” So what I did to answer that question, I went to like really good wealth managers, right?
And they said, “You know, what we tell our clients for assets that are this volatile, it’s okay to put in between 0.5 and 1% of your net worth, is like, if you’re crazy aggressive, it’s 1%. So between 0.5 and 1% of your net worth in assets like this.” So it’d be like, they consider this like, angel investments, cryptocurrency, like highly volatile, swinging things, that are like—so that’s my best advice to people. When wealth managers say, if you consider this an investment, I’ve gone so far as to call it an asset class, but not an investment, because it’s like, because not all of them are investments, right?
So if you consider it an investment, a really sophisticated good wealth manager would say, half a percent to one percent of your net worth is your ceiling. So and if you’re just an average everyday person, my advice to them is, however much your limit at Vegas is should be your limit in crypto.
Alright, well, I’m apparently super aggressive, then. I don’t have a ton, but it’s a decent amount. My son would be considered ultra aggressive, I guess, in this.
Yes, he would, he would.
So that actually helps me. I got a couple of questions on top of that. And then I want to get into a scenario you and I talked about the beginning, and you kind of mentioned the Gusto a little bit with payroll. So we’ll save that to the end, because I’m curious about this.
But in addition, so my son’s probably going to be going, “Dad, stop talking about me!” He’s a validator. Do you know what that is? You know, he set up a computer that validates transactions? I think Ethereum, Ethereum, I think.
Okay. Yeah. So, the way several of the major chains work—Etherium, Bitcoin—is that somebody has to authenticate that you had what you had, and then you’re sending it to somebody else. So typically, a transaction isn’t considered, like a protocol that you have to have from a business perspective, on when you receive payment. It’s like, “Did it clear the bank after three days for cash?” Typically, people say, “Does it have 20 validations?” So there’s people like your son, confirming like the actual cryptocurrency or the amount in their account that they say are enough to cover the transactions, and that they used the right, what they call a private key, which is like a password, to authorize the transfer. And what most people say is once 20 of those validations occur, they feel like they have no money.
And so if you deposit money in Coinbase, for example, you will see that it’s not available to you immediately, because it’s waiting for those validations, and Coinbase is probably like 60 validations. So they’re gonna need 60 of your son’s stuff to do it. So validation, and it’s very similar to mining. Mining also creates new cryptocurrency and Bitcoin.
Yeah, I don’t understand that either.
Well, why they call it “blockchain” is like, the validation is the creation of the new block, and the new block, all it does is say who the new owner is.
So they talked about using cryptocurrency for title insurance. Because if you think of how your thing passes, like that discrete unit would then pass and the new block would be the ownership change, and you would have a chain, and you could always, you could see the whole history of title for like properties. Then you’re like, well, what happens if it’s subdivides and stuff like that, then you would just have partial units that you would have to track and stuff like that. So all kinds of crazy problems.
Alright, as long as we’re talking about that, what’s an NFT?
An NFT is stands for non-fungible token. But my analogy for NFT, is, if you want to buy an NFT, like, that’s the equivalent of paying for a mural in your community, right?
Because right now, I haven’t seen very many places where you can monetize it. So you’re like, “Okay, at the local park, there’s a wall, and we’re gonna pay for a mural.” If you’re the kind of person that would pay for that mural, you’re the kind of person that it’s okay, I would advise to buy NFTs, because that’s just kind of a public thing out there.
But an NFT can be a lot of things. The use case that people talking about most is some kind of art, or like you’ve seen people do snapshots of tweets and stuff like that. I was reading today, like one of the tweets, the first tweet ever, like one time sold for $18 million, or something, I can’t remember. 80 million or something. Doesn’t matter. Well, the other day, the highest bid for it was $240. So that just like supports my—not 240 million, 240 dollars.
Not a great investment!
So an NFT is similar to that. There are some great platforms out there that artists are using to monetize their artwork, and a second place where they can do their artwork, and then some of the platforms I’m seeing are able to display NFTs, and that could potentially lead to monetization for the users, of those people like that. Like there could be some value to owning it. But right now, it’s so new, there’s no monetization strategy. So you’re just kind of buying the mural, that can’t be yours, really, because everybody else can see it still, because it’s public on most of these things.
Yeah. Well, somebody I work with, was in Seattle last week, and there’s like an NFT museum there now or something, have you heard that?
I haven’t been to an NFT museum. I’m not surprised. Now a use for a non-fungible token could be the title insurance thing.
So you could say, the non-fungible token you get represents the title for the property you live on. So it’s non-fungible, it means it’s not changed, it’s unique, it doesn’t change, and you own it, so like we could, that could be a record for that. So one of our not-for-profit clients is using NFTs as a charity receipt, basically. Like you know how you used to get, like, who was it that they had the starving kids in Africa commercial, and you could send a dollar, and you’d get a picture of a kid? Remember that?
Well, you can do the same thing. Now as a not for profit, you could say, instead of saying a picture of kid, you could send the NFT of the kid or in this case, this client of ours builds houses, and you actually buy the NFT, and you get the NFT of the house, and they build the house for somebody.
Right? So that’s a cool use of an NFT. But that’s like a, that’s like synthesizing a receipt, right? It can be used, like that’s using the NFT as a receipt and not as like a investment, right? So when people think of NFT’s as investments, that’s a different thing.
Right. So an NFT as an investment, which would be the tax and accounting side, the other side is just “Okay, this is fun,” or potentially.
Yeah, technically, it’s an asset. But a lot of times I’ll tell people that it should be an expense because of what they’re doing.
But Kenji bought one, and he tried to buy me one—he was unable to—he only bought himself one. We just did an episode on our podcast—sorry, for the listeners, Kenji’s my business partner. But he bought one from Bud Light Next.
So Bud Light next issued NFTs, and it was like this picture, but it also entitled you to swag or merchandise down the road. So the holder of the NFT, whoever the holder of record is, in the future, theoretically is going to get, I don’t know, probably just email spam, but something in the future. So you could use NFT for that. So they could send him swag or registering for a Super Bowl pass, like all the NFT holders could go into a lottery and whoever they picked, like, so they would have a record of that. So that’s an interesting use for that.
So corporations are getting into this too. So NFT’s are in their early, early stages, but just like cryptos, like whatever they’re used for, is what they are going to be. Like, they could be a receipt, or they could be a piece of artwork, or they could be a mural, you know? So be careful. They’re not all the same thing. And they’re not all investments, for sure.
Alright. Yeah. Well, I was just for some reason, looking this up yesterday, and I was seeing this, you know, Eminem bought this NFT for millions of dollars and some other you know, celebrity bought this one. And I’m like, “I don’t get it.”
That markets in a different [place] now. I talked to we have several clients in the space in the marketplace space. And after Q1, there was a big dip, but it’s going to stabilize. So it’s not a crazy time to look at them if you’re looking at them.
Okay. Alright. So let’s do a fun story of something that you’ve had to deal with accounting or tax wise with cryptos. Is there any interesting anecdotes or stories you could share?
Well, we talked about that Gusto, which in my mind—
Identity theft. I had my cell phone stolen by AT&T employees that were conspiring with bad guys for six times once I lost it—the SIM card swap, have you heard of it, where they take over your cell phone?
‘Cause they think I’m using my text as my—instead of two factor authentication—like they think I’m using text instead of like a authenticator app. So I got SIM card swapped six times in a two year period.
Trying to get into your wallet or something, your crypto wallet?
Yeah. So they would break, they would take over my cell phone, and then they would try to break into my emails. And then the one email that I had, which I left vulnerable, I had fake Coinbase and Gemini accounts, because I wanted to make sure it was people, that’s what they were trying to do, and then they would try to break into that because I can look at their search history when I got it back.
So yeah, so now I’m a VIP at AT&T and have the office of the president on speed dial and they have like, the people when they read my notes on my account, laugh out loud.
The service people are usually like, “Let me read some notes,” and then 20 minutes later, they’re like, “Ahhhh!” Like, but so that’s kind of the downside of crypto.
The downside of crypto, we’re really worried about getting kidnapped, because people were assuming that we held a lot of crypto for our clients, and people were getting kidnapped back in ‘17 and ‘18. So the way we dealt with that, so like anybody with over 100 million in treasuries is going to have this issue. Our engineers came up with a way to use smart contracts. And we haven’t talked about smart contracts. But on Ethereum, you can build a computer program—a smart contract. So what we did, we built a cash management strategy. So we split the treasury into eight chunks, and we put them on rolling two years locking. So they locked, unlocked, each every quarter, on a two year rolling average. We figured, “We don’t need that for two years.” So then each tranche comes unlocked every two years on a staggered basis, these eight tranches.
And we decide whether to relock it or not in the smart contracts. And then we’re real public about it, so people wouldn’t try to kidnap us. So, but it was a great treasury management solution, right? If you think about it? Like it sends a good message to the market that this is like you at least have two years of visibility, because you can publish the smart contract, they can see where it is, they can track it, like anybody that’s a stakeholder in that token can track it. So that was one of the things I was proudest of.
The other fun one was when one of my clients said, “Okay, I want to pay my people in cryptocurrency,” and they were using Gusto for payroll. And we were like, “Oh ——, we gotta get the W-2 right.”. So then we were like, trying to figure out different ways to hack Gusto to get that into Gusto correctly, and then we had to decide whether we’re going to take taxes out net or gross, and then we had to figure out… So we came up with this formula for people that were accepting crypto, and then we figured out, and the punchline is we ended up using the pay by check feature in Gusto and doing special payroll runs for every employee during those payroll runs.
So was the employee receiving cash or was the employee receiving crypto as their payment?
Oh, I see, I thought the crypto was being converted to cash, and then paying the employee. So the employee was receiving crypto. Oh, that is confusing.
So what we would pay them, what we ended up doing is doing the payroll calculation, paying the employees net in crypto, and remitting to Gusto the cash amounts, and then tricking Gusto into thinking we wrote a check to the people. So by doing the pay-by-check, don’t take it out of our account, and then Gusto would only take out the cash fiat from the company’s thing, and we would remit it. Because we didn’t want to get—I had been lived through the stock option days where people got busted where they had all these taxes that they owed, so I was like, I was just committed to like, “They’re gonna get these net of tax, so if they go to zero, they’ve already paid the tax, they’re not gonna be hurt,” right?
So we did that for all their employees, and then it just became a tracking nightmare for those people. Their basis was in their pay stubs, though—that’s what I decided was the best thing to do. So they have their pay stubs, and they could bring their pay stubs and do that. And then that was their lot tracking.
So when they get paid, then did they have like, their own wallet that they would go to? Or how… Yeah, is that what you would do? Okay.
That’s exactly what you do. And then you had to make sure that they were checking it, because you’d have people come back later and be like, “Well, I thought I set this up right, and I didn’t have my password.” And we’re like, “Dude, you’re screwed!” because like, crypto, like if you lose your password, if you’re custodying it yourself, you’re like, there’s no help desk guys. Like, it’s not if you put it in Coinbase, you have this counterparty risk, like, what happened, why most of us don’t custody in Coinbase or places like that, is early on exchanges would go out of business.
They don’t have any regulations.
Like, they don’t have to keep your crypto. They can go do just like banks—lend it or do whatever. There’s just, it’s wild, wild west. So exchanges went down all the time. So most of us, like the old school people, people back in ‘16, ‘17, ‘18, we self custody, we call it. But if you self custody, if you lose your password, you’re like that guy in England that’s trying to dig up a dump, trying to figure out where the half billion dollars is.
Yeah, that’s… I would not feel comfortable with forgetting my password. Yeah, I bang my head and my password’s gone.
I have a great white paper on it. And for corporations, and there’s a way to do it.
Yeah, because you write down your recovery password for most of the devices you use. It’s like a 20 word string, usually. And we have people put them in their safety deposit boxes and stuff like that.
Right. Okay. And I know there’s like even these metal things that you can, not engrave it in, but punch it in or something as well.
So those are the people that that have don’t like paper, you can etch it into the—yeah, that’s just the 20 words, you can etch it in. They’ll pay, they have some great…
Well, now you can use an NFT to save your password for your, uh…
Well, an NFT’s public and then anybody can recover your password. I don’t advise that.
Not a good, uh…
My client that we just set up, we have no electronic records. None of the passwords are in any digital format, saved anywhere. So they’re all old school, saved somewhere in safety deposit boxes that we don’t even have a record of who has what, and what safety deposit box.
Is this going to change at some point? Are we gonna have more security around this, and we don’t have to worry about that?
Well, we already do. We have, see Coinbase is in a different place than it was in 2017, right?
Like, Coinbase has some insurance on some of your products, like it’s getting closer to kind of bank regulations, Gemini’s the same way.
So like, average users can just have a Coinbase account or a Gemini account. I would say if you have less than 100 grand in crypto, like, there’s no real need to self custody at this point. I used to tell people it’s 10 grand, several years ago. I’m kind of up to 100 grand now. You know, if you have a million dollars, like I would probably self custody, but like 100 grand or less, like you could use Gemini or Coinbase. Those are fine solutions in the U.S. right now.
Okay. Alright. Well, any final thoughts on the crypto discussion before I ask you one last question?
Yeah, don’t be scared of it. Come on, man! I tell accountants everywhere, like let’s not be scared. Let’s be on the cutting edge. It’s fun. Like, it’s not boring.
Yeah, it’s you definitely, in tax and accounting, you have to know what’s going on because it’s not going away. And so don’t be scared.
It’s not going away.
Alright, final question. This is like what the—the Final Jeopardy round? So we talked about all this stuff. You helped me a lot. Crypto, I still am confused. I think a lot of people are confused. But you—I have more understanding right now than I did fifteen minutes ago or whenever we started. So I appreciate that. The one question I have—nothing to do with crypto now—because you are not Mr. Crypto. That’s not the only thing you do. Give me an idea of what you do outside of work and crypto. What’s your passions? Where do you have fun doing?
The most random thing that people find entertaining is that I own eleven chickens. I decided to be a chicken farmer during COVID.
And I built a chicken coop with eleven chickens in my side yard so that the kids and the neighbors could come see. And then I have eggs for the whole neighborhood now. So that’s the most random thing I would tell you. That’s probably the most interesting.
Alright. You don’t have neighbors because I’ve heard this story before where neighbors are not happy with the sounds coming out of the chicken coop. You’re okay with that?
Well, the roosters, we agreed, we got rid of the roosters as soon as we identified them when they grew up. And then the only bad thing we did have a fly—the “fly issue of 2021.” And, you know, if you have a fly issue, it’s like three weeks to recover.
But we have it under control now. I made my mistake.
One of the neighbors paid the price. And I’m forever apologetic to them about that.
“The great fly infestation of 2021,” huh?
Yeah, it was three weeks of hell for one of the neighbors.
Alright. But overall, everybody’s happy with it?
Overall, I recommend chickens. It’s nice and therapeutic.
Alright. So these are your—you’re Mr. Crypto and Mr. Chicken. We got two titles for you now.
There you go.
Alright, well, I appreciate you being on—this was great. I think everybody’s gonna enjoy it. And so if anybody wants to find out more about you, or crypto help, or anything, how do they get ahold of you?
Well, connect with me on Twitter or LinkedIn, I’m TheTechCPA on both—on all the social medias. TheTechCPA, it’s pretty easy. If you want to go to our—I have a blog series in our resources on crypto and on the Acuity blog, and Acuity is just acuity.co. Come and check that out. Then, if you want to hear my ramblings with Kenji on the other podcast, Drink While You Think is our podcast and then YouTube series over there. And we’d love to have more listeners. I mean, we have 12 listeners now, so…
We were trying to get up into the 20s.
So that’d be awesome.
That’s great. And, and rumor has it I’m going to be able to be on Drink While You Think with you guys. I’m looking forward to that.
Yes, we’re going to talk craft brewing.
Yep, I’m actually going to—I’m sending you some beers for that episode, so…
Okay, well, I’m porter and stout, and he’s IPA, just so you know. if I could put a request in, I’m a stout drinker. And I never get—everybody always sends the IPAS and Kenji is like, “This is awesome,” and I’m like, “This sucks.”
Well, I am doing both. Are you a—are you any kind of style? Are you a pastry style? Do you like the thick, heavy, sweet ones, or?
I like the heavy, sweet ones.
Alright, so I know what to do.
I’m pretty unassuming with any of the stouts. I like to try all the stouts. But the pastry stout, it’s a good, solid—good, safe bet.
Alright, so now we know three things: the crypto, the chickens, and you like stouts. So we’re good. Alright, Matthew. Well, thank you again for being on. I really appreciate this.
Thanks. Appreciate it.
About the Guest
Matthew May is the co-founder and VP of Sales and Marketing at Acuity, a virtual accounting solution for entrepreneurs backed by the expertise of CFOs. Matthew works to translate accounting for entrepreneurs, by helping navigate tax and accounting rules and speaking the language of entrepreneurs instead of the language of accounting.
He has a great deal of experience with cryptocurrency and blockchain, and he runs the sales and marketing teams at Acuity. Launched in 2013, Acuity also released a process-based, remote accounting solution, offered at guaranteed fixed monthly pricing, and built on the latest accounting technologies, financial best practices, and the support of accounting experts.
Matthew volunteers in the Georgia technology community and serves on the board of the Atlanta Technology Angels, as well as the Venture Atlanta Advisory Board. He earned his BBA in Accounting from Baylor University in 1997 and is a Certified Public Accountant in Georgia.
Meet the Host
Randy Crabtree, CPA
Randy Crabtree, co-founder and partner of Tri-Merit Specialty Tax Professionals, is a widely followed author, lecturer and podcast host for the accounting profession.
Since 2019, he has hosted the bi-weekly “The Unique CPA,” podcast, which ranks among the world’s 5% most popular programs (Source: Listen Score). You can find articles from Randy in Accounting Today’s Voices column, the AICPA Tax Adviser (Tax-saving opportunities for the housing and construction industries) and he is a regular presenter at conferences and virtual training events hosted by CPAmerica, Prime Global, Leading Edge Alliance (LEA), Allinial Global and several state CPA societies. Crabtree also provides continuing professional education to top 100 CPA firms across the country.
Schaumberg, Illinois-based Tri-Merit is a niche professional services firm that specializes in helping CPAs and their clients benefit from R&D tax credits, cost segregation, the energy efficient commercial buildings deduction (179D), the energy efficient home credit (45L) and the employee retention credit (ERC).
Prior to joining Tri-Merit, Crabtree was managing partner of a CPA firm in the greater Chicago area. He has more than 30 years of public accounting and tax consulting experience in a wide variety of industries, and has worked closely with top executives to help them optimize their tax planning strategies.