Newly published accounting rules in the United States will require companies, including prominent names like MicroStrategy, Tesla, and Block, to account for the fluctuations in the value of their cryptocurrency holdings. The Financial Accounting Standards Board (FASB) introduced these rules, marking the first comprehensive accounting guidelines for cryptocurrencies.
Under the new standards, companies holding Bitcoin, Ethereum, or other cryptocurrencies will be obligated to record their holdings at fair value, a method aimed at reflecting the most current value of the assets. Changes in this fair value will be recorded in the company’s net income, providing a more dynamic representation of the cryptocurrency’s market value.
The previous accounting practice only allowed companies to record the lows, leading to one-sided accounting treatment, particularly criticized by businesses that held Bitcoin. The extreme volatility in crypto values often resulted in reduced valuations, impacting earnings negatively.
The implementation of these new rules is set to begin for both public and private companies with fiscal years starting after December 15, 2024, translating to the year 2025 for companies following a calendar year-end cycle. However, companies have the option to adopt these rules earlier if they choose.
The CFO of Grayscale Investments LLC, Edward McGee, expressed his enthusiasm for the “holiday gift of commonsense accounting.” Grayscale Investments has been actively engaged with US regulators in its pursuit of establishing a Bitcoin exchange-traded fund.
Prior to these guidelines, there was no specific US accounting rule addressing the recognition and measurement of digital currencies. Despite industry requests dating back to 2017, the FASB had not issued specific rules until now. In the absence of these rules, businesses not qualifying as investment companies had relied on an American Institute of Certified Public Accountants practice guide treating cryptocurrencies as intangible assets. This practice categorized cryptocurrencies similarly to trademarks, copyrights, and brands, resulting in the recording of coin values at the purchase price and permanent markdowns if their value decreased, with gains recorded only upon selling the holdings at a profit.
