Despite lack of standardized guidance for cryptoasset holdings, the majority of the Canadian public companies applied a principles-based approach
TORONTO, Dec. 12, 2019 /CNW/ – With the rapid proliferation of the cryptoasset market, there is still significant ambiguity in professional financial communities regarding this new asset class. Today, Chartered Business Valuators Institute (CBV Institute), the business valuation professional organization that establishes standard practices, educational requirements, and ethical guidelines for Chartered Business Valuators (CBV), published a research paper in its Journal of Business Valuation that investigates valuation approaches and trends among Canada’s 32 publicly traded companies with cryptoasset holdings or crypto-related revenues.
The 32 publicly-traded Canadian companies featured in the study have an estimated combined crypto holding value of more than CAD$100M.1 The following provides a detailed look at trends in industries with cryptoasset holdings, a breakdown of the stock exchanges the companies are trading on and a review of their financial recordings:
Trends in Industries with Cryptoasset Holdings
Companies in the financial services industry (25% of the 32 companies) tended to have higher cryptoasset balances and market capitalization, primarily in asset management and investment banking and brokerage. This finding is consistent with a 2018 Cryptocompare study that found “cryptoassets in the finance and insurance sectors typically had higher market capitalization compared to other industry classifications.”
Materials, or utilities made up 6 per cent of the publicly-listed companies, highlighting a potential shift of focus for some companies away from physical resources and towards digital assets
The majority of the companies (69%) were information technology companies that generally provided software and services in the blockchain and/or cryptoasset space
The Stock Exchange Breakdown
Only two (6.3%) of the identified companies traded on the Toronto Stock Exchange (“TSX”)
The remaining companies listed on alternative exchanges including TSX Venture Exchange “TSXV” (53.1%), the Canadian Securities Exchange “CSE” (37.5%), and the Aequitas Neo Exchange “NEO” (3.1%), which caters to junior and emerging companies not yet meeting the rigorous listing requirements of larger exchanges
Breakdown of Financial Recording For Cryptoasset Holdings:
The majority (85%) of the companies recorded their cryptoasset holdings within the “Current Asset” account
15% of companies recorded cryptoasset holdings as “Non-Current Assets” or simply as “Assets”
The majority of companies described their cryptoasset holdings using general terminology such as “Digital Assets” or “Cryptocurrencies”
Less frequently, identifiers such as “Inventory”, “Investments”, or “Intangible Assets” were used to describe cryptoassets
One company operating in the financial sector disclosed a sizable ‘off-balance sheet’ cryptoassets interests held on behalf of clients
The research found that during the period of study, there continues to be a dearth of reporting guidance for this emerging asset class. However, the study did find a general alignment in the treatment of cryptoassets for financial reporting purposes. The majority of Canadian public companies appear to have applied a principles-based approach to financial reporting for cryptoassets, meaning these companies sought direction from a number of different reporting standards in an effort to classify cryptoasset holdings according to the anticipated use-case in their respective business operations.
In addition to an in-depth look at Canada’s 32 publicly traded companies with cryptoasset holdings, the study provides a primer to cryptoassets, select valuation methodologies, and factors that should be considered when investigating and valuing cryptoassets.
QUOTES FROM STUDY’S RESEARCHERS
“There’s a growing interest in blockchain technology across a number of industries, and cryptoassets will likely be an important part of valuation — and of business communities in general — in the foreseeable future. Our goal with this research paper is to close the knowledge gap between the small group of early adopters and the wider business community.” – Tylar St. John, CPA, CA, CBV, CFF, Senior Manager, Cohen Hamilton Steger & Co & Lead Researcher.
“The extraordinary pace of innovation in cryptoassets makes it challenging to keep up with this industry, but the fluidity that makes this space so difficult to grapple with is also what makes it so exciting. While we can’t predict the trajectory of cryptoassets in the long-term, we hope the findings of this study will alert professionals to the evolving valuation practices as a result of this new asset class — and ultimately help position Canada as a thought leader in this emerging space.” – Tara Singh, CBV, CFE, Senior Manager, Cohen Hamilton Steger & Co & Lead Researcher.
QUOTE FROM CBV INSTITUTE
“One of CBV Institute’s mandates is to continually adapt and evolve the CBV profession to the forefront of business change; understanding cryptoassets and valuation approaches is now imperative in our industry. We look forward to releasing this study and mobilizing our professionals in Canada and internationally to start considering important valuation approaches for this new asset class.” – Mary Jane Andrews, President & CEO, CBV Institute.
ABOUT CHARTERED BUSINESS VALUATORS INSTITUTE
Chartered Business Valuators (CBV) Institute is a not-for-profit valuation professional organization that establishes the practice standards, educational requirements and ethical guidelines within the CBV profession. CBV Institute members include over 2,000 highly qualified CBVs across Canada and internationally. It promotes the integrity of the CBV profession for the benefit of the public interest and continually adapts and evolves the CBV profession to the forefront of business change.