Another Huge Win for Bitcoin!
Cryptocurrency accounting rule
Fair-value reporting for crypto assets
FASB decision on digital assets
Oct 20, 2023
Previously written September 10th, 2023.
The Financial Accounting Standards Board (FASB) has approved a new accounting and disclosure rule for cryptocurrencies, addressing a long-standing gap in financial reporting for companies holding these digital assets. The new standard allows businesses to use fair-value accounting for bitcoin and certain other crypto assets. Public companies have to disclose their crypto assets, separating them from intangible assets like patents and trademarks, on a quarterly and annual basis. Private companies must do the same in whichever financial reports they compile. Businesses will be able to include gains and losses on their crypto assets in their net income, which they could not do prior to this new accounting rule. The rule is set to go into effect for 2025 annual resorts for calendar-year public and private companies which have the option to adopt the changes as early as January, 2024. Companies and accountants have repeatedly rallied for this change, as it would allow them to recognize losses and gains immediately, and treat digital assets as they would some financial assets instead of as indefinite-lived intangible assets that reflect net losses.
Until now, there were no specific accounting or disclosure rules in the United States regarding cryptocurrencies, specifically Bitcoin (BTC). Businesses classified crypto assets as indefinite-lived intangible assets, similar to intellectual property such as copyrights. Companies had to review the value of such assets at least once a year and write it down if it dropped below the purchase price. If the value was to drop below the purchase price at all during the year, the new recorded value for the asset was pegged to that value, even if the asset did a 10X later in the year. If the value were to rise, companies could only record a gain when they sold the asset, but not if they continued to hold it. Because of these ridiculous rules, companies have been avoiding putting digital assets such as Bitcoin on their balance sheet because the asset never increases in value which makes the company look like they are failing or losing money. This would have a negative impact on earnings and share/stock prices which would have a negative impact on shareholders as well. With the new changes, Bitcoin and other digital assets can be treated the same as other financial instruments on a balance sheet.
The FASB’s decision is poised to offer substantial benefits to companies while ensuring transparency in financial reporting. Vice Chair Jim Kroeker emphasized that the advantages of the rule likely outweigh the compliance costs for businesses. According to Michael Saylor, the Executive Chairman of MicroStrategy, he has welcomed the FASB’s decision to adopt fair-value accounting for cryptocurrencies. He believes that this change will eliminate a major impediment to corporate adoption of bitcoin as a treasury asset. Michael Saylor, a multi-billionare bitcoin expert, has been working with FASB for years to adopt these changes to Bitcoin accounting. This has been viewed as another major fundamental and legal win for Bitcoin long-term. A decision like this continues to allow and encourage major companies and investment firms to purchase Bitcoin as a long term investment within a diversified portfolio.