At Loop Crypto, we work with a range of clients enabling them to accept crypto payments and turn on crypto autopay for their projects. In the process of engaging with our clients, we often come across questions about crypto accounting and how to approach tracking crypto transactions once you begin being paid or paying others in crypto. We decided to sit down with some of our crypto accounting friends and compile a list of best practices to help our clients and those exploring how to accept or make crypto payments.
Start by diligently tracking your crypto wallets by use case. A MetaMask wallet here, a Coinbase wallet there, a Gnosis Safe over there…it’s pretty easy for wallet management to get out of hand quickly. Whether you’re a four-person web3 startup in the early days or an established business accepting crypto payments, it’s essential to think about how you set up and manage all of the crypto wallets your team uses.
Depending on the nature of your business, you may require a range of custodial and non-custodial wallets. For example, your engineers may need multiple MetaMask wallets with minimal balances to conduct testing while the majority of your firm’s crypto assets live in multi-sig wallets (like Gnosis Safe) or custodial wallets at an exchange.
Matching wallet functionality to use cases within your organization is a good first step; however, it’s also important to think through what types of transactions each wallet will be used for. At a high level, you can split wallets by those used for receiving revenue and those for paying expenses. This will make it much easier to create transaction classification rules down the road. You can of course get much more granular. For example, you can designate certain wallets for paying contractors and others for paying operational expenses, like a subscription for a node provider. The optimal wallet setup will likely depend on the nature of your business, but the key takeaway is to start early and ensure there is organization.
An organized wallet setup makes transaction categorization much easier. If you’re receiving crypto payments, you’ll want to be able to track and classify those transactions. The same goes for the expense side; transaction classification is key. While you can try to be an Excel hero by downloading transaction data from block explorers and attempting to classify these transactions yourself in Excel, it’s probably not the best use of your time. There are now a variety of great crypto accounting tools that will do this for you and automate tons of work that used to be manual.
For example, every time you receive a transaction from a certain wallet, you may want to tag that transaction as revenue from Client A. Crypto accounting software like Bitwave, Coinbooks, Tactic, Tres, Integral and Mensari allow you to build automated classification logic unique to your business. This means less time scouring transaction hashes and more time managing your business. This software is built for scale, so as your business grows and your monthly crypto transactions are in the thousands, tens of thousands, or even millions, this type of classification automation is key.
For accounting purposes, tracking the fiat value of your crypto at the time that you receive or spend crypto is a must. While you can do this manually in Excel, it’s a pain. Again, accounting software will automatically integrate with pricing oracles to make it simple. For example, it will track the price of the ETH that you received on October 25th vs. the price on October 27th and then track your token inventories over time.
Another reason to consider crypto accounting software is that it enables visibility over all of your crypto assets. Do you know what percentage of your crypto assets are stablecoins? What is the current value of the ETH on your books? How much revenue are you generating in crypto? While Loop’s payment analytics provides you with complete visibility on the revenue side, it is useful to have a tool that gives you a holistic view of your crypto portfolio including the expense side of the house.
Again, you can pull a lot of this data using block explorers, but it will be difficult to decipher as it is not in a user-friendly format. Once you do the work to build transaction automation rules for classification, robust accounting software will offer dashboards and analytics to monitor your crypto assets. This puts you in control of managing your treasury and ensures you have a handle on all crypto flows into and out of your business.
Traditional accounting solutions like Quickbooks Online, Xero, Sage Intacct, Netsuite, and others are here to stay for now and are a mainstay of most accounting operations, especially among early-growth-stage companies. Even the most native web3 businesses often straddle the world of crypto and fiat. This means almost every business touching crypto needs to think about how their crypto activities will plug into traditional accounting tools.
As you evaluate crypto accounting solutions, it’s important to understand how they will interact and integrate with the rest of your financial stack. You can have the cleanest crypto books in the world, but unless there is an easy way to integrate your crypto ledger with your fiat books, you may still end up with a ton of manual work. If you bring on an accounting firm, they can help with designing your Chart of Accounts (COA) to incorporate your crypto transactions in a manner that makes sense for your business.
At Loop, we use Bitwave which integrates with Quickbooks, as shown below. This allows us to seamlessly map all of our transactions to specific accounts within our Quickbooks COA.
Our final piece of advice is don’t go it alone. While crypto accounting is a relatively new frontier, there has been much progress in the last several years. Beyond the numerous software solutions that have emerged, there are now thousands of professionals dedicated to this space and specializing in all the nuances of crypto accounting from Attivo Partners (who we work with) to Propeller Industries and Kruze Consulting.
You can certainly develop capabilities in-house, but if you’re newer to operating in crypto or want to make sure you stay up to date on all the latest developments, an accounting friend may help.
At Loop Crypto, we are deep in the world of crypto payments ourselves and have learned a lot along the way as we’ve built out our own accounting operations. We hope this list helps you get started, and we’ll be back with more content on crypto accounting soon.