Michael Saylor’s demand for changes in Bitcoin accounting has arrived

Bitcoin-loving billionaire Michael Saylor has spent months pushing for rule changes surrounding cryptocurrencies and their accounting procedures. On Wednesday, his wish was finally granted.

The Financial Accounting Services Board (FASB) has agreed to adopt fair value accounting procedures for digital assets. This would theoretically make assets like Bitcoin more attractive for companies to hold on their balance sheets.

The new accounting model

As reported of the Wall Street Journal, the FASB said during its last meeting that fair value accounting “best captures the economics of cryptoassets.” In fact, they are determined to make the standard a requirement, rather than an option.

“We’ve heard from investors that they want transparency through disclosure, and the only way to get that is fair value,” said board member Gary Buesser.

Fair value accounting simply involves calculating a company’s assets based on the current market price. In other words, accountants can immediately react to the often volatile movements in the crypto market.

Prior to this change, Bitcoin was treated as a “long-lived intangible asset”, the price of which was assessed only once a year when reported in financial statements and earnings reports.

Under this system, companies could not increase the value of Bitcoin on their balance sheet if the price went above the original purchase price – unless it was sold for fiat currency beforehand. In contrast, they were still obligated to write down the value of their holdings if Bitcoin fell below the original purchase price.

In other words, Bitcoin’s value could only go down on balance until it was sold. This rule contributed to a number of revelations from high-profile Bitcoin whales – including Tesla and Micro strategy – of write-downs in the hundreds of millions in the worst quarters of the bear market.

As such, MicroStrategy has advocated for a change in Bitcoin’s accounting rules to something more appropriate for the crypto market. Former CEO Michael Saylor showed enthusiasm in May when the board confirmed that it would begin considering fair value accounting for the asset class.

“I can understand that accounting under the intangible model does not necessarily produce meaningful results,” FASB board member Marsha Hunt said at the time.

A boon for institutional adoption

MicroStrategy’s new CEO and former CFO, Phong Le, told the WSJ that the incumbent approach forced companies to prepare their financial statements inaccurately regarding Bitcoin.

“We expect the disconnect between the reported book value on our balance sheet and the fair market value of our bitcoin holdings to grow significantly over time,” he told the FASB in a letter last year.

Deniz Appelbaum — assistant professor of accounting and finance at Montclair State University — said the fair value system could make companies less reluctant to add Bitcoin to their balance sheets. “Without these standards for accounting and valuing crypto-assets, companies are reluctant to hold them,” she said.

Poor accounting rules were one of the ten barriers listed by Saylor in June that supposedly prevents Bitcoin from reaching mainstream adoption. Others include “fear and ignorance” surrounding the coin and its impact on environmentand the lack of one Bitcoin spot ETF in the United States.