The Financial Accounting Standards Board (FASB) has released its first cryptocurrency accounting standard, requiring companies to calculate the fair value of cryptocurrencies such as BTC and ETH, reflecting the true gains and losses from holding these assets.
According to the FASB document, the new standard requires companies to calculate the fair value of cryptocurrencies based on the latest market price, and will be effective for fiscal years beginning after December 15, 2024, for both public and private companies.
The new standard will allow companies holding cryptocurrencies to more accurately reflect their financial position.
Fund manager James Lavish explains how the new standard will benefit companies holding cryptocurrencies. In the past, if a company bought $1 million worth of BTC and included it in its balance sheet, even if BTC increased by 20%, the company couldn’t highlight this gain in its financial reports. The price of BTC on the balance sheet would still be $1 million. However, if BTC were to fall by 50%, the company would have to recognize this as an impairment and include the loss in the balance sheet. Even if Bitcoin were to recover, the $500,000 worth of BTC would still be the book value on the company’s future balance sheet. The only solution would be to sell the Bitcoin and trigger a “capital gain,” which is the predicament MicroStrategy faced before.
Michael Saylor, who purchased billions of dollars worth of Bitcoin, must hold Bitcoin on MicroStrategy’s balance sheet at the “purchase price.” When Bitcoin falls, MicroStrategy has to recognize the impairment and list it as a loss. He said, “The mainstream media repeatedly criticized Michael Saylor for using the term ‘impairment loss’ in the headlines. That’s why so many companies are reluctant to hold Bitcoin on their balance sheets, even though they still prefer Bitcoin as a substitute for cash.”
Lavish believes that this may indicate that more companies are ready to invest idle cash in Bitcoin, as accounting barriers have been eliminated. However, companies still have other considerations, such as tax regulations and investment risk conditions. Compared to many stocks and bonds, BTC is still an unstable asset.
Michael Saylor immediately retweeted this news on Twitter, believing that the accounting standard upgrade will promote global adoption of Bitcoin as a reserve asset.