In a game-changing move, the Financial Accounting Standards Board (FASB) has announced a long-awaited rule change that is set to benefit companies holding Bitcoin and other cryptocurrencies. This shift will have a significant impact on corporate bookkeeping, particularly for firms like Tesla, Block, and the biggest winner, MicroStrategy.
Currently, under the existing accounting rules, companies holding Bitcoin, such as Tesla and Block, are required to report losses in earnings reports if the digital asset experiences a decline in value during a specific period. Surprisingly, they cannot record a profit if the Bitcoin price increases. This results in companies maintaining the lower value on their balance sheets, even if the Bitcoin price rebounds after a dip. For instance, a company that purchased Bitcoin at $25,000 and saw it drop to $20,000 must stick to the lower value on its balance sheet, even if the price subsequently surges to $40,000.
The recent price of Bitcoin, which reacted positively to the FASB news, was slightly over $42,000 on Wednesday. Tesla holds around 10,000 Bitcoins, while Block has approximately 8,000. As both companies acquired most or all of their Bitcoin holdings at lower prices, they are poised to experience gains once the new rules come into effect. FASB has specified that these changes will be implemented “for fiscal years beginning after Dec. 15, 2024.”
The major beneficiary of this rule change is expected to be MicroStrategy, a company that shifted from cybersecurity to accumulating significant amounts of Bitcoin a few years ago. MicroStrategy currently owns nearly 160,000 Bitcoins, acquired at an average cost of just under $30,000, potentially translating to a net value of almost $2 billion at current prices. While the impending rule changes were anticipated, MicroStrategy’s share price still surged by 5% on the news. In contrast, shares of Tesla and Block, with Bitcoin holdings constituting only a small portion of their value, experienced marginal declines.
Bitcoin’s price, known for its historical volatility, has surged by approximately 180% this year, signaling a potential recovery in the crypto market amid ongoing regulatory scrutiny. The FASB announcement is expected to incentivize other corporations to consider including crypto in their corporate treasuries. The ability to record crypto at fair market value is seen as a significant catalyst for corporate adoption.
MicroStrategy’s co-founder, Michael Saylor, emphasized the transformative impact of the accounting standards upgrade, stating that it will facilitate the global adoption of Bitcoin as a treasury reserve asset by corporations. This forthcoming update by FASB marks the first issued for crypto in nearly a decade. In its initial guidance for crypto, the FASB classified digital assets as “intangible,” placing them in the same category as trademarks and goodwill. Similar to these categories, the value of digital assets was marked down in the event of a decline but not marked up if the value increased.
