Falling crypto markets could use a boost, and they’re poised to get one from an unlikely quarter: the Financial Accounting Standards Board. If you’re not familiar, the FASB is the group of accounting gnomes that set the rules for how companies prepare their balance sheets, including how they value different assets.
The crypto industry has for years pleaded with the FASB for rules on how to value digital assets since, in their absence, they have had to treat Bitcoin as an intangible asset akin to intellectual property. For all practical purposes, this means that companies that own crypto must record it at the price they bought it at and, if the price drops, record an impairment, or in layman’s terms, a loss. But if the price of Bitcoin shoots up, they can’t record a profit unless they sell it.
This arrangement does not make much sense for an asset that has a clear market value and is prone to regular price fluctuations. The accounting quirk has proven to be a nuisance for public companies like Tesla, Block, Coinbase and MicroStrategy, which own large chunks of Bitcoin that they have to write down when markets fall but can’t do the same when prices recover. This can affect earnings, credit ratings, etc.
Now the FASB appears to have turned around, with one board member telling the Wall Street Journal this week, “The only way to get any kind of real information about holding bitcoin or Ethereum is through fair value.” The body is expected to approve this deal later in the year following a vote on how companies should specifically notify investors of changes in the value of their crypto assets.
The new accounting clarity will not only come as a relief to large Bitcoin owners like Block, but will likely lead other large companies to consider adding crypto to their treasuries. The FASB’s decision is also part of a broader acceptance of cryptocurrencies by traditional institutions (other recent examples include Carnegie Mellon and Blackrock’s decision to hold onto Bitcoin) that will likely help pave the way for the next bull market.
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