FASB Approves Mark-to-Market Accounting for Cryptocurrencies, Enhancing Corporate Adoption
Summary:
The US Financial Accounting Standards Board (FASB) has approved the use of market-to-market accounting for businesses holding cryptocurrencies. Previously, companies needed to list cryptocurrencies as intangible assets and could only report depreciation but not appreciation. This change, set to take effect in 2025 (but with early adoption permitted), is expected to encourage more corporate investment in digital assets. The new regulation coincides with the expected SEC approval of Bitcoin or Ethereum spot ETFs, broadening the scope of potential investors in the digital asset market.
The US Financial Accounting Standards Board (FASB) gave the green light in early September 2023 to the widely used accounting method of market-to-market accounting for cryptocurrencies held by businesses and corporations. Earlier, companies such as Microstrategy and Tesla were required to list cryptocurrencies as intangible assets like goodwill and intellectual property. When the valuation of these intangible assets fell, a loss had to be reported, but an increase in value could not be recorded as a gain. Michael Saylor, the face of Microstrategy and a highly public Bitcoin proponent, championed the cause for this change in FASB. Previously, his company had to record a loss every time Bitcoin's spot price fell during the accounting period, but was not allowed to declare an increase when the price skyrocketed, a practice Saylor found unjust in reflecting the true balance sheet. The newly approved FASB regulation now categorizes cryptocurrency as a separate digital asset, enabling businesses to report their gains or losses on the basis of the acquisition cost in a market-to-market technique. The rule comes into effect in 2025 officially, but early adoption is permissible. The implications of this shift in accounting norms are profound for Bitcoin and cryptocurrency acceptance in the corporate treasury domain. Prior to this adjustment, CEOs and management feared that digital assets acquisition could impact their quarterly reports negatively. Now, finance executives in corporations can assess suitable portfolio allocation, considering both the potential returns (alpha) and volatility (beta) of the digital asset. FASB's announcement appears to coincide with the expected approval of a Bitcoin (or possibly Ethereum) spot ETF by the Securities and Exchange Commission (SEC), broadening the market audience beyond just crypto enthusiasts and daring individuals. The spot Bitcoin ETF will offer corporate holders legal protections courtesy of the SEC. The SEC previously requested that the party selling the ETF (for example, Blackrock or Fidelity) be separate from the custodian (such as Coinbase) and trading monitor (like the Chicago Mercantile or NASDAQ). In a recent courtroom victory against the SEC, Grayscale convinced a three-judge panel that a spot ETF, commonly linked to futures prices, should be approved given the prior approval of a futures ETF. With institutions like corporations, family offices, sovereign wealth funds, hedge funds, and other institutional clients increasingly venturing into Bitcoin and cryptocurrency adoption, the traditionally high price volatility may see a reduction, given these bodies aren't known for sudden selling. The large-scale investments they bring will also affect the market fluctuations, as their input ranges in millions and billions, unlike the smaller investments from individual traders who constitute the majority of current market participants. The prospect of a spot Bitcoin ETF offering investor protections by the SEC, coupled with the recent change in accounting norms, may drastically increase the market cap and widespread use of digital assets in the coming years. Note, the details given here do not serve as investment, tax, or financial guidance. Seek advice from a professional for advice relating to your specific situation. Zain Jaffer, CEO of Zain Ventures, focusses on Web3 and real estate investments. This article was released via the Cointelegraph Innovation Circle, an exclusive group of high-ranking executives and specialists in the blockchain technology sector, striving for future innovation through connections, cooperation, and thought leadership. Opinions given do not necessarily correspond to views held by Cointelegraph.
Published At
10/11/2023 4:00:00 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.