Companies holding bitcoin and other cryptocurrencies must record these assets based on their fair market value, which is based on measuring the tokens’ most current value, according to the first set of crypto rules published by the Financial Accounting Standards Board (FASB).
This will allow companies to record profits when the value of their crypto holdings increases, and not just losses when the value of those holdings falls, as was previously the case.
The fair market value would reflect in a company’s balance sheet net income. The amendments will take effect after Dec. 15, 2024, although early adoption will be permitted. The FASB is a private, U.S. organization that sets standards for how companies report their assets.
“The amendments in this Update require that an entity measure crypto assets at fair value in the statement of financial position each reporting period and recognize changes from re-measurement in net income,” FASB said in its 47-page “Accounting Standards Update.”
FASB said that the changes would also require organizations to “provide enhanced disclosures for both annual and interim reporting periods” so investors would be able “to analyze and assess the exposure and risk of significant individual crypto asset holdings.”
In a note to Unchained, Joe DiPasquale, the CEO of crypto fund manager BitBull Capital, lauded the changes, writing they would make it “much easier for us to view the actual value of companies’ crypto holdings.”
“Rather than hold them at cost, in 2025 companies will record their crypto holdings at fair market value,” he wrote. “As more companies hold significant amounts of crypto in their treasuries, like MicroStrategy or even Coinbase, this will be a helpful standard to make their financial statements more straightforward.”
A Sore Spot
Accounting of digital assets has been a sore spot for the crypto industry. Previous guidance required companies to report losses when the price of their assets fell below the purchase point but did not allow them to record profits if prices rose above the level when they were acquired. In a section of the Rules Update, “stakeholders” said that “measuring crypto assets at historical cost less impairment created a barrier to acceptance of crypto assets.”
The crypto holders also noted that the previous guidance did not provide them with “decision-useful information.”
Last June, electric car manufacturer Tesla said that it had sold 75% of its bitcoin (more than $900 million at the then price), noting its earnings impairment connected to the sale.
In a post on the social media platform X, MicroStrategy Chair and bitcoin champion Michael Saylor praised FASB’s guidance. Saylor, who as CEO pivoted the software provider’s focus to acquiring bitcoin, has previously said that new accounting rules would make it easier for companies to acquire bitcoin.
“This upgrade to accounting standards will facilitate the adoption of $BTC as a treasury reserve asset by corporations worldwide,” he wrote.
FASB has officially adopted Fair Value Accounting for #Bitcoin for fiscal years beginning after Dec 15, 2024. This upgrade to accounting standards will facilitate the adoption of $BTC as a treasury reserve asset by corporations worldwide. https://t.co/4GOuji6cr0
— Michael Saylor⚡️ (@saylor) December 13, 2023