The Favorable Impact of Corporate Cryptocurrency Holdings? The First U.S. Cryptocurrency Accounting Standard: Reflecting Currency Gains and Losses Based on Fair Value
The Financial Accounting Standards Board (FASB) has issued the first accounting standard for cryptocurrencies, requiring companies to calculate their holdings of cryptocurrencies such as BTC and ETH at fair value, reflecting the true gains and losses.
According to the FASB document, the new standard requires companies to calculate their holdings of cryptocurrencies at fair value, which is the latest market price, starting from December 15, 2024, for public and private companies with fiscal years after that date. This new standard will allow holding companies to more accurately reflect their financial condition.
Fund manager James Lavish explains how the new standard will benefit holding companies. 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 could not highlight this gain in its financial statements. The price of BTC on the balance sheet would still be $1 million. However, if BTC decreases by 50%, the company must recognize this decrease as an impairment and include the loss in its balance sheet. Even if the price of Bitcoin rebounds, the $500,000 worth of BTC will still be the book value on the company’s future balance sheet. The only solution is to sell Bitcoin and trigger a “capital gain,” which is the predicament that 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 the price of Bitcoin rises. When Bitcoin falls, MicroStrategy must acknowledge the impairment and record it as a loss. He said, “The mainstream media has repeatedly criticized Michael Saylor for using the term ‘impairment loss’ in headlines. This is why so many companies are reluctant to hold Bitcoin on their balance sheets, even though they still prefer BTC as a cash alternative.”
Lavish believes that this may indicate that more companies are willing to invest idle cash into Bitcoin, as accounting barriers have been eliminated. However, companies will 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 upgrade of accounting standards will promote the adoption of BTC as a reserve asset by global companies.
