On March 31, 2022, the staff of the Securities and Exchange Commission (the Staff) issued Staff Accounting Bulletin No. 121 (SAB 121). SAB 121 applies to businesses that provide  an operating platform that allows users to transact in crypto-assets coupled with a service to safeguard the platform users’ crypto-assets, including maintaining the cryptographic key information necessary to access the crypto-assets, crypto-asset trading platforms. The SAB provides that a company responsible for safeguarding crypto assets held for its platform users should record a liability on its balance sheet for its obligation to do so, measured at fair value, and should record a corresponding asset, measured at fair value, at the same time as it records the liability.

SAB 121 defines a crypto asset as a digital asset that is issued and/or transferred using a distributed ledger or blockchain technology and applies regardless of whether a company: (i) safeguards crypto assets for platform users directly; or (ii) uses an agent to safeguard such crypto assets on its behalf.

The guidance contained in SAB 121 applies to crypto-asset trading platforms that are also:

• Companies that file reports pursuant to the Securities Exchange Act of 1934 (Exchange Act);

• Companies that have submitted or filed a registration statement under the Securities Act of 1933 (Securities Act) or the Exchange Act that is not yet effective;

• Private operating companies that are going public through a business combination transaction with a special purpose acquisition company (SPAC); and

• Companies that are submitting or filing an offering statement under Regulation A.

As a result of SAB 121, such companies should review their current financial statement disclosures and revise as necessary to:

• Address the nature and amount of crypto assets the company is responsible for holding for its platform users, with separate disclosure for each significant crypto asset;

• Address any vulnerabilities due to any concentration of such activities;

• Include fair-value disclosures related to the crypto asset safeguarding liabilities and corresponding assets;

• Include a description of the accounting for the liabilities;

• Consider disclosure about who (e.g., the company, its agent, or another third party) holds the cryptographical key information, maintains the internal recordkeeping of those assets, and is obligated to secure those assets and protect them from theft or loss; and

• Include a description of recently pronounced or recently adopted accounting standards, as applicable, related to SAB 121.

Outside of financial statements, companies should also review disclosures regarding the risks and uncertainties associated with holding crypto assets (including any risk factor, description of business, and management’s discussion sections).

Current reporting companies are required to comply with SAB 121 no later than the first interim or annual period ending after June 15, 2022. All other companies affected are required to apply the SAB 121 beginning with their next submission or filing with the SEC.