The new rule allows companies holding cryptocurrencies to record their peak and trough values, potentially encouraging more firms to consider crypto in investment decisions.
What Are FASB and Accounting Standards? How Do They Differ from Previous Rules?
Accounting standards are the rules used by U.S. companies (and widely adopted by international public companies) to establish a common framework for financial data reporting. The Financial Accounting Standards Board (FASB) is the organization responsible for setting U.S. financial accounting and reporting standards. Since the 1970s, these standards—collectively known as Generally Accepted Accounting Principles (GAAP)—have been widely applied by public companies and many other types of businesses.
GAAP provides a standardized approach to accounting practices and financial reporting, enabling investors, managers, analysts, and stakeholders to effectively compare financial statements across different companies. In simple terms, FASB’s rules define the uniform format and methodology for public companies’ financial reports.
Previous Cryptocurrency Accounting Treatment
Before this update, companies not classified as investment firms (e.g., Tesla) defaulted to guidelines from the American Institute of CPAs, which treated cryptocurrencies as intangible assets—a category including trademarks, copyrights, and brands. Unlike crypto, these assets are rarely traded.
Under this outdated approach:
- Companies recorded tokens at their purchase price.
- If the token’s value dropped below the purchase price, it was permanently written down.
- Price increases couldn’t be reflected in financial statements until tokens were sold.
This mismatch penalized firms like MicroStrategy, whose Bitcoin holdings’ unrealized gains were invisible in earnings reports unless sold.
The New Rule
Now, companies can measure crypto holdings at fair value, with changes recorded in net income. This means:
- Tokens appear on balance sheets at market value.
- Unrealized gains boost reported earnings without requiring sales.
After three requests from the crypto industry since 2017, FASB finally enacted this change.
Scope and Timeline
FASB narrowly defined eligible assets:
✅ Included: Bitcoin, Ethereum, and similar cryptocurrencies.
❌ Excluded: NFTs, stablecoins, issuer-created tokens (e.g., FTX’s FTT), and wrapped tokens (e.g., WBTC).
Effective Date: Fiscal years starting after December 15, 2024 (i.e., 2025 for calendar-year companies). Early adoption is permitted, meaning some 2024 reports may already reflect the new rules.
Implications of the New Accounting Standard
1. Encouraging Corporate Crypto Adoption
With the ability to report price appreciation, public companies are more likely to add crypto to investment portfolios during bull markets, enhancing their financial statements—and potentially stock prices.
2. Improved Transparency for Investors
Companies must:
- List crypto assets as separate line items on balance sheets.
- Disclose significant holdings and restrictions in footnotes.
- Reconcile annual opening/closing balances by asset category.
Reactions from Crypto Leaders
- Michael Saylor (MicroStrategy): “The updated standards will accelerate global corporate Bitcoin adoption as a reserve asset.”
- David Marcus (ex-Meta/PayPal): “This small accounting change is a big deal—it removes a major barrier to Bitcoin on balance sheets.”
- Edward McGee (Grayscale CFO): “A timely gift for the crypto ecosystem.”
Skeptical Views
Some remain unconvinced:
- PJ Theisen (Deloitte): “Fair-value determination can be challenging for certain crypto assets.”
- Rep. Brad Sherman: “Crypto is pet rock economics—it doesn’t belong on balance sheets.”
FAQ
Q1: Which cryptocurrencies qualify under the new rules?
A: Bitcoin, Ethereum, and similar decentralized assets. NFTs, stablecoins, and proprietary tokens are excluded.
Q2: When do companies need to comply?
A: Fiscal years starting after December 15, 2024 (typically 2025). Early adoption is optional.
Q3: How does this help companies like MicroStrategy?
A: Unrealized Bitcoin gains can now boost earnings reports without selling holdings, improving financial optics.
Q4: What’s the biggest criticism of the new standard?
A: Critics argue crypto’s volatility makes fair-value accounting impractical or misleading.
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