The accounting change that could precede Bitcoin’s next bull market

October 14, 2022, 2:06 PM UTC
A major accounting change could benefit Bitcoin.
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The slumping crypto markets could use a boost, and they’re poised to get one from an unlikely quarter: The Financial Accounting Standards Board. If you’re unfamiliar, FASB is the group of accounting gnomes that set the rules for how companies prepare their balance sheets, including how they value different assets.

The crypto industry has for years begged FASB for rules on how to value digital assets since, in their absence, they’ve had to treat Bitcoin as a so-called intangible asset similar to intellectual property. For practical purposes, this means companies that own crypto must record it at the price they purchased it and, if the price drops, record an impairment—or in plain English, a loss. But if the price of Bitcoin takes off, they can’t record a gain unless they sell it.

This arrangement doesn’t make much sense for an asset that has a clear market value, and that is prone to regular price swings. The accounting quirk has proved a nuisance for public companies like Tesla, Block, Coinbase, and MicroStrategy, which own large chunks of Bitcoin that they have to mark down when the markets dip—but can’t do the same when prices bounce back. This can affect earnings, credit ratings, and so on.

Now, FASB appears to have come around, with a board member telling the Wall Street Journal this week, “The only way to get any kind of real information on the holding of bitcoin or Ethereum is through fair value.” The body is expected to sign off on this arrangement by end of the year following a vote on how specifically companies should notify investors about changes in value to their crypto holdings.

The new accounting clarity will not only come as a relief for big Bitcoin owners like Block but is likely to lead other big companies to consider adding crypto to their treasuries. FASB’s decision is also part of a broader acceptance of crypto by traditional institutions—other recent examples include Carnegie Mellon and Blackrock deciding to hold Bitcoin—that is likely to help pave the way for the next bull market.

Jeff John Roberts


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