In a significant move that could boost institutional investment in Bitcoin, the U.S. accounting standard setters, the Financial Accounting Standards Board (FASB), have unanimously approved new rules that will require companies to report the fair value of their cryptocurrency holdings starting in 2025. Announced on Wednesday, these new regulations are expected to increase transparency and attractiveness of Bitcoin and other digital currencies as a treasury asset for businesses.
Under the current guidelines, companies that own or invest in cryptocurrencies must treat most cryptocurrencies as an intangible asset. This means they can only record the historical cost of their assets and lose value if the price falls. This accounting method does not accurately reflect the true market value of crypto assets, which are often volatile and can recover quickly after a decline.
The new rules, however, will require companies to report crypto assets at fair value, a measurement that captures the most current value of an asset. This will allow companies to recognize both increases and decreases in the value of crypto assets, providing more relevant information to investors and regulators. The FASB has stated that while the new rules will go into effect starting in 2025, companies will have the option to implement them early.
The new accounting treatment is expected to ease regulatory and compliance concerns that have previously made institutions wary of holding Bitcoin. By recording the value of Bitcoin assets more transparently, it becomes easier for institutions to justify holding the cryptocurrency as part of a diversified portfolio.
The new rules will apply to all types of crypto assets, except wrapped tokens, which are excluded from the scope of the standard. In response to this development, MicroStrategy founder Michael Saylor said on Twitter: “Fair value accounting is coming to Bitcoin. This update to FASB accounting rules removes a major impediment to institutional adoption of BTC as a treasury asset.”
Despite being anticipated for some time, these forthcoming standards represent an improvement over existing practices based on feedback received by FASB from companies and accounting professionals over several months. The board said it will continue to monitor the crypto market and take additional measures if necessary.
FASB had previously declined three separate requests dating back to 2017 to establish regulations for cryptocurrencies due to limited material use of Bitcoin by companies. However, with significant investments in blockchain-traded assets by major corporations like Tesla (NASDAQ:TSLA) and MicroStrategy, their stance evolved.
The board’s scope remained limited, focusing on assets generated or residing on distributed ledgers utilizing blockchain technology, secured through cryptographic methods. These crypto assets must presently fall under the classification of intangible assets per US accounting standards and must be fungible, allowing interchangeability with assets of the same type.
Notably, the regulations do not encompass non-fungible tokens (NFTs), unique digital tokens representing various items or stablecoins and wrapped tokens which enable the use of crypto across different blockchains. Despite pleas from several entities including the Big Four accounting firms to include wrapped tokens, FASB chose to exclude them from the final framework asserting that they serve similar purposes and trade at prices akin to their underlying crypto assets.
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