Interpreting the U.S.'s First-Ever Cryptocurrency Accounting Rules: A Springtime for Large Companies Holding Crypto?
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Interpreting the U.S.'s First-Ever Cryptocurrency Accounting Rules: A Springtime for Large Companies Holding Crypto?
This new rule allows companies holding cryptocurrencies to record the highs and lows of cryptocurrency prices, potentially encouraging more companies to include cryptocurrencies in their investment decisions.
Navigating Web3 tides with focused insightsAuthor: jk, Odaily Planet Daily
On Wednesday, December 13, U.S. local time, the Financial Accounting Standards Board (FASB) released its first-ever cryptocurrency accounting rules. Companies will now be required to calculate the value of their held cryptocurrencies at fair value and include this information in their publicly issued quarterly and annual financial reports. This new rule allows companies holding cryptocurrencies to record both gains and losses, potentially encouraging more firms to include crypto assets in their investment strategies.
What are FASB and accounting standards? How is this different from before?
In simple terms, accounting standards are a set of rules adopted by U.S. companies—and widely used by international public corporations—to establish a common benchmark for financial data reporting. The Financial Accounting Standards Board (FASB) is the organization responsible for setting financial accounting and reporting standards in the United States. Since the 1970s, the standards it has developed have been broadly applied to public companies and many other types of organizations. These standards are known as Generally Accepted Accounting Principles (GAAP).
GAAP consists of a set of accounting principles, standards, and procedures used to prepare and report financial information. These guidelines provide a consistent framework for financial reporting, enabling investors, managers, financial analysts, and other stakeholders to effectively understand and compare financial statements across different companies. In short, the rules established by FASB define standardized formats and methodologies for public company financial reporting.
Prior to this new cryptocurrency accounting rule, non-investment-qualified enterprises—such as Tesla, whose core business is not asset management—have generally followed guidance from the American Institute of Certified Public Accountants (AICPA). Under that guidance, cryptocurrencies were classified as intangible assets, a category that includes trademarks, copyrights, and brand names. Unlike these relatively static assets, however, cryptocurrencies are frequently traded.
This approach meant companies recorded their tokens at the original purchase price and permanently wrote down their value if prices fell below cost. However, when cryptocurrency values rose, they could not recognize those gains on their balance sheets unless they sold the holdings and realized the profit. Clearly, this accounting treatment was ill-suited for highly volatile and actively traded digital assets. For example, MicroStrategy—the public company with the largest Bitcoin holdings—has often seen its reported earnings constrained by this practice, as Bitcoin's appreciation cannot be reflected in financial statements unless the company sells.
Now, under the new rule, companies can measure their token holdings at fair value. Because changes in fair value will be reflected in net income, digital assets can be reported at current market prices, and increases in the value of cryptocurrencies on a company’s balance sheet can be recognized as income—even without selling them.
The crypto industry has requested FASB to establish such rules three times since 2017, but standard-setters only now confirmed implementation.
Scope and Effective Date
According to Bloomberg, FASB intends to keep the scope of the new accounting rules narrow. NFTs are excluded, as are stablecoins and tokens created by issuers (such as FTX’s own FTT). Wrapped tokens generated via bridges, such as WBTC, also fall outside the rule’s coverage and cannot be included in financial statements. FASB members indicated they may address additional crypto-related issues in the future if these become more prevalent in practice.
The new rules will take effect for both public and private companies in fiscal years beginning after December 15, 2024—meaning calendar-year companies will adopt them starting in 2025. However, companies may choose to apply the rules earlier. As a result, during an upward market cycle, we could see cryptocurrencies being reported at market value in financial statements as early as this year’s reports.
What impact will this new accounting standard have?
The most direct impact of this new standard is that public companies are now more likely to begin investing in cryptocurrencies. Under previous accounting rules, companies could record losses when crypto prices dropped but could not reflect gains when prices rose—effectively allowing bad news into financial statements while excluding good news. This imbalance was detrimental to stock prices, which are closely tied to financial performance. Now, during bull markets, companies are more inclined to add cryptocurrencies to their portfolios and can report the appreciation of these assets directly in their financial statements.
Additionally, investors will gain clearer visibility into corporate crypto holdings. Under the new rules, companies must create a separate line item for crypto assets on their balance sheets. They must also disclose significant crypto holdings and any related restrictions in footnotes for each reporting period. In annual reports, they will be required to reconcile or disclose changes in opening and closing balances of crypto assets, categorized accordingly.
How have crypto KOLs reacted?
As previously reported by Odaily, Michael Saylor, founder of MicroStrategy, posted on X stating that the upgrade to U.S. accounting standards will promote global corporate adoption of BTC as a reserve asset. David Marcus, former president of PayPal and former head of cryptocurrency at Meta, commented that this seemingly minor accounting change is actually highly significant—it removes a major barrier preventing companies from including Bitcoin on their balance sheets. For Bitcoin, 2024 will be a landmark year.
"Getting this accounting gift at this time of year is fantastic," said Edward McGee, Chief Financial Officer at Grayscale Investments, according to Bloomberg.
PJ Theisen, a partner at Deloitte & Touche LLP, noted that determining fair value may still be challenging for certain types of cryptocurrencies. "It sounds straightforward," Theisen said. "But one thing to remember is that it could be challenging—especially for crypto assets—to accurately determine what their fair value actually is."
Of course, criticism remains: "I think cryptocurrency is just a pile of pet rocks," Democratic Congressman Brad Sherman said during a related hearing. "It doesn’t belong on a balance sheet."
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