The major accounting change should benefit Bitcoin
The slumping crypto markets could use a boost, and they’re set to get one from an unlikely quarter: the Financial Accounting Standards Board. If you’re not familiar, the FASB is the group of accounting goblins that set the rules for how companies prepare their balance sheets, including how they value various assets.
For years, the crypto industry has begged the FASB for rules on how to value digital assets since, in their absence, they have had to treat Bitcoin as a so-called intangible asset similar to intellectual property. For practical purposes, this means that companies that own crypto must record it at the price they bought it, and if the price falls, record a decline in value – or in plain English, a loss. However, if the price of Bitcoin takes off, they cannot 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 exposed to regular price fluctuations. The accounting meltdown 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 rebound. This can affect earnings, credit rating and so on.
Now it seems the FASB has come around, with a board member telling it The Wall Street Journal this week, “The only way to get any kind of real information about the holdings of bitcoin or Ethereum is through real value.” The body is expected to sign off on this arrangement by the end of the year following a vote on how specifically companies should notify investors of changes in the value of their crypto holdings.
The new accounting clarity will not only come as a relief to major Bitcoin holders like Block, but will likely lead to other major companies considering adding crypto to their coffers. FASB’s decision is also part of a broader acceptance of crypto by traditional institutions – other recent examples include Carnegie Mellon and Blackrock deciding to hold Bitcoin – which is likely to help pave the way for the next bull market.
Jeff John Roberts
[email protected]
@jeffjohnroberts
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