In the years leading up to the introduction of formal accounting standards for cryptocurrency reporting, companies adopted inconsistent approaches to disclosing their involvement with the emerging digital asset. Rather than being able to rely on consistent numerical data, investors were often left to piece together the significance of a firm’s crypto activities from contextual narrative explanations.
A review of disclosures from five major corporations—GameStop, Tesla, MicroStrategy, Coinbase, and PayPal—traced against the volatile swings of cryptocurrency markets between late 2018 and the “crypto winter” of late 2022, revealed a striking pattern. Firms tended to increase both the frequency and readability of their disclosures during boom periods, when cryptocurrency was ascendant, but pared back and obscured them when markets turned sour.
“Firms may intentionally simplify or ‘dumb down’ complex information in order to ‘sell’ investors on contentious issues such as cryptocurrency,” explained Ramy Elitzur, Professor of Accounting at the University of Toronto’s Rotman School of Management. “When conditions are favourable, companies are eager to highlight or promote their involvement. In contrast, during downturns, they strategically distance themselves to avoid scrutiny or negative associations.”
Professor Elitzur, along with his colleague Professor Wendy Rotenberg of Rotman’s accounting and finance faculty, applied advanced artificial intelligence techniques to examine how these companies communicated about cryptocurrency. Tesla, for instance, primarily treated cryptocurrency as a financial asset or medium of payment. At the same time, Coinbase and PayPal were more involved on the supply side—providing trading platforms or selling cryptocurrency to customers.
To deepen their analysis, the researchers compared corporate disclosures with broader measures of public interest, using Google Trends to track curiosity about cryptocurrency and individual companies, alongside data on Bitcoin’s fluctuating price. They then applied recognised readability tests, supplemented with machine-learning tools, to assess the quality of the disclosures themselves. GameStop consistently emerged with the highest-quality reporting, offering detailed explanations throughout. MicroStrategy, by contrast, regularly scored lowest for readability—an outcome that has taken on greater significance given the company’s involvement in a recent class action lawsuit alleging false or misleading statements and a failure to disclose negative information. “It is not surprising that poor or opaque disclosures can feed into legal disputes or investor mistrust,” Professor Elitzur observed.
Until late 2023, companies received little clear guidance on how to account for cryptocurrency activities, which left significant discrepancies between the reported book value of digital assets and their actual market value. That gap was narrowed by the U.S. Financial Accounting Standards Board’s issuance of ASU 2023-08, which required firms to report crypto holdings at fair market value, with changes reflected directly in income statements. While the standard improved transparency, it also introduced greater volatility into earnings for companies with significant cryptocurrency exposures.
Even with these new rules, the Rotman researchers argue that further regulatory refinement is necessary. “Our findings indicate that reporting standards should go beyond ASU 2023-08 by mandating more concrete and explicit disclosure requirements,” said Professor Elitzur. “Investors need clearer, higher-quality information in order to make sound decisions about companies engaging in this fast-moving and often opaque market.”
More information: Ramy Elitzur et al, Text Analysis of Corporate Cryptocurrency Disclosures in Varying Market Conditions, Journal of Alternative Finance. DOI: 10.1177/27533743251349221
Journal information: Journal of Alternative Finance Provided University of Toronto, Rotman School of Management