What challenges does the update to U.S. cryptocurrency accounting standards bring?
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What challenges does the update to U.S. cryptocurrency accounting standards bring?
The release of ASU 2023-08 is a result of the rapid development of the crypto market and the need for industry standardization.
Navigating Web3 tides with focused insightsAuthor: Fintax
On December 13, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-08: Accounting and Disclosure for Crypto Assets (hereinafter ASU 2023-08), marking a significant shift in the accounting treatment of crypto assets under U.S. Generally Accepted Accounting Principles (U.S. GAAP). The standard introduces a fair value measurement model for qualifying crypto assets, replacing the traditional cost-less-impairment model, and mandates more detailed disclosures to enhance transparency and decision usefulness in financial reporting.
However, in 2024, crypto firms Coinbase and Marathon Digital received regulatory comment letters from the U.S. Securities and Exchange Commission (SEC) regarding their accounting practices. These incidents have heightened attention across crypto enterprises and the broader market toward the new accounting standard. Why did these two companies receive SEC comment letters? How should crypto firms respond to changes in accounting treatments and SEC oversight brought by the new standard? This article provides a brief analysis of the new accounting standard from three aspects—its key provisions, rationale for development, and impact on crypto enterprises and the industry—to help crypto firms navigate compliance challenges arising from the new standard.
1. Key Provisions of ASU 2023-08
ASU 2023-08 is FASB’s first dedicated accounting update specifically addressing crypto assets. The revision process began in 2022, underwent multiple reviews, and incorporated extensive stakeholder feedback before reaching consensus and final issuance in 2023. This update allows companies to record crypto assets at current market value, representing a major shift from the traditional intangible asset model to a fair value model. The SEC also requires that when applying the new standard, companies must comply with U.S. GAAP. Below we outline the main components of ASU 2023-08, including its scope, fair value measurement, financial statement presentation, disclosure requirements, and effective date.
1.1 Scope
According to FASB's document "Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting and Disclosure for Crypto Assets" (Accounting Standards Update No. 2023-08), ASU 2023-08 applies to all entities holding specific crypto assets that meet the following six criteria:
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Meet the definition of an intangible asset under the Accounting Standards Codification (ASC);
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Do not provide the holder with enforceable rights or claims to underlying goods, services, or other assets;
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Are created or exist via distributed ledger technologies such as blockchain;
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Are secured through cryptographic techniques;
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Are fungible;
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Are not created or issued by the reporting entity or its affiliates.
This framework clearly defines the scope of applicable crypto assets, excluding NFTs, stablecoins, and tokens issued by enterprises, ensuring targeted applicability and simplified accounting treatment.
1.2 Fair Value Measurement
The prior standard, ASC 350, treated crypto assets as indefinite-lived intangible assets using the cost-less-impairment model. Under ASU 2023-08, crypto assets are measured at fair value, with changes in fair value recognized in net income each reporting period and presented on the balance sheet at period-end. Fair value measurement reflects the economic reality of crypto assets, overcoming the limitation of the prior standard which only captured impairment losses. This approach simplifies impairment testing, reduces costs, and enhances the decision-usefulness of financial statements.
1.3 Financial Statement Presentation
Under ASU 2023-08, the presentation requirements for crypto assets in financial statements are as follows:
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Balance Sheet: Crypto assets must be separately presented from other intangible assets and may be further disaggregated by individual asset or category.
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Income Statement: Gains and losses from changes in fair value must be included in net income and separately disclosed from changes in carrying amounts of other intangible assets.
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Cash Flow Statement: Crypto assets received as non-cash consideration (e.g., in ordinary business transactions or donations to nonprofit entities), if converted into cash almost immediately, result in related cash inflows classified as operating activities.
1.4 Disclosure Requirements
ASU 2023-08 requires the following disclosures in annual and interim reports:
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Material holdings: For each material crypto asset (based on fair value), disclose name, cost basis, fair value, and number of units held; aggregate fair value and cost basis for immaterial holdings.
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Restricted assets: Disclose fair value, nature of restrictions, remaining term, and conditions for release of contractually restricted crypto assets.
The following must be disclosed specifically in annual reports:
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A rollforward of crypto asset holdings from beginning to end of period, including additions, disposals, and gains/losses;
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Difference between disposal price and cost basis of disposed assets, along with descriptions of related activities;
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If gains/losses are not separately stated, identify the income statement line item where they are included;
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Method used to determine cost basis (e.g., FIFO, specific identification, average cost).
Overall, these detailed and dedicated disclosures enhance transparency and comparability of financial statements, helping investors better understand risks, liquidity, and management efficiency related to crypto assets.
1.5 Effective Date and Transition Requirements
Effective Date: ASU 2023-08 applies to fiscal years beginning after December 15, 2024 (including interim periods within those fiscal years), with early adoption permitted (but must begin from the start of the fiscal year containing the earliest interim period adopted).
Transition Requirement: Upon adoption, a cumulative-effect adjustment must be made to opening retained earnings (or another appropriate equity or net asset component), equal to the difference between the carrying amount of crypto assets at the end of the prior fiscal year and their fair value at the beginning of the adoption period.
Given that companies will need time to adjust to the new standard, FASB has provided a generous transition window and allowed early application, making the transition relatively flexible.
1.6 Comparison with International Financial Reporting Standards (IFRS)
International Accounting Standard 38 (IAS 38) defines intangible assets as identifiable, non-monetary assets without physical substance. Under IAS 38, crypto assets held by companies are considered intangible assets initially measured at cost. Subsequent measurement may use either the cost model or revaluation model: The cost model applies generally to crypto assets lacking active markets, measured at cost less accumulated amortization (if applicable) and impairment losses. For intangible assets deemed to have indefinite useful lives, no amortization is required. The revaluation model applies when reliable fair values can be determined in an active market; changes in fair value are typically recognized in other comprehensive income (OCI) and accumulated in revaluation surplus within equity. If a revaluation results in a decrease exceeding accumulated revaluation surplus, the excess is charged to profit or loss. IAS 38 also requires that only one subsequent measurement model be applied to a class of intangible assets, and regardless of the model chosen, impairment testing must occur at least annually.
There are significant differences between IFRS and updated U.S. GAAP in terms of flexibility, scope, and disclosure requirements. Regarding flexibility, IFRS permits the revaluation model and allows reversal of impairment losses up to the latest recoverable amount when appropriate. In contrast, updated U.S. GAAP adopts the fair value model, recognizing fluctuations in asset value in net income each reporting period and eliminating the previous rule under the cost-less-impairment model that impairments, once recognized, could not be reversed. Thus, companies can now record unrealized gains from rising asset prices. In terms of scope, under IFRS, crypto assets may be classified as inventory or intangible assets depending on the entity's purpose, whereas U.S. GAAP explicitly limits the fair value model to fungible blockchain-based assets without attached rights. Furthermore, IFRS does not impose special disclosure requirements for crypto assets, creating a clear contrast with U.S. GAAP.
2. Reasons Behind FASB's Issuance of ASU 2023-08
Reviewing the development and issuance process, the new accounting standard was clearly driven by both the evolution of the crypto industry and national regulatory demands in the United States.
2.1 Industry Growth Exposes Limitations of Existing Standards
Prior to ASU 2023-08, U.S. GAAP treated crypto assets as intangible assets under ASC 350 using the cost-less-impairment model. This approach required companies to record crypto assets at historical cost and assess them for impairment each reporting period, but it did not allow recognition of increases in value. This practice originated from treating early crypto assets similarly to trademarks or patents. However, the traditional cost model fails to capture the unique economic characteristics of crypto assets, which are highly volatile and liquid. Companies could only recognize impairment losses when values declined but could not reflect unrealized gains during price increases, failing to align with the dynamic nature of crypto assets. For example, Bitcoin dropped from $69,000 in 2021 to $16,000 in 2022, then surpassed $100,000 in 2025. The traditional model caused financial statements to diverge significantly from market realities, limiting investors' access to decision-useful information.
As the crypto market expanded rapidly, companies like MicroStrategy and Tesla increased investments in crypto assets, amplifying calls for accounting reform. The limitations of the cost model prompted FASB to initiate revisions to better reflect the economic substance of crypto assets.
2.2 National Regulatory Demand Drives Standardization
The emergence of ASU 2023-08 was also propelled by regulatory needs in the U.S. crypto sector. Due to the disconnect between FASB’s prior standards and market practices, many crypto firms adopted accounting methods they deemed suitable, leading to significant inconsistencies in classification, measurement, and disclosure across companies. This posed challenges for SEC oversight. Between 2020 and 2023, the SEC intensified supervision through repeated comment letters, enforcement actions, and the issuance of SAB 121 (later rescinded), aiming to standardize disclosures regarding crypto holdings, custody arrangements, and balance sheet items. From the SEC’s perspective, a unified accounting standard facilitates more effective regulation of U.S. crypto firms, serving as one motivation behind its involvement in shaping the new standard.
3. Impacts of Adopting ASU 2023-08
3.1 Impact on Crypto Enterprises
For crypto firms, adopting ASU 2023-08 may lead to the following effects:
3.1.1 Enhanced Financial Statement Transparency
The new standard mandates fair value measurement for crypto assets, resulting in more consistent and transparent accounting practices across crypto firms, with financial statements better aligned with market movements. Greater transparency not only provides management with more accurate asset valuation data but also enables investors to make clearer assessments of corporate performance and investment decisions. Additionally, this enhanced transparency may encourage more companies to adopt cryptocurrencies. Firms previously hesitant due to reporting complexities or investor pressure might now consider holding crypto as a reserve asset. Moreover, financial statements under fair value accounting offer institutional investors a more reliable information base, potentially attracting additional capital into the crypto market. For instance, Coinbase adopted ASU 2023-08 in 2024 and, in its Q3 2024 10-K filing with the SEC, broke down net crypto impairment into operational and held crypto asset revenue, providing investors and regulators with a more granular view of its crypto-related income streams and enhancing financial transparency.
However, implementing ASU 2023-08 may increase disclosure workload. Because fair value accounting makes financial statements more sensitive to market changes, firms with large crypto investments may experience greater earnings volatility, potentially undermining investor confidence. Therefore, while proactively disclosing information, companies may need to adjust strategies to manage increased financial statement volatility—such as managing investor expectations through detailed disclosures on asset names, cost bases, fair values, and restriction terms, avoiding market misinterpretations due to volatility; or enhancing investor communication via shareholder letters and earnings calls to explain the impact of fair value changes.
3.1.2 Simplified Accounting Processes
By adopting fair value accounting, ASU 2023-08 streamlines the accounting process for crypto assets. Under the old model, companies were required to conduct impairment tests every reporting period to determine whether asset values fell below historical cost—a process involving complex valuation techniques and subjective judgments, particularly difficult for low-trading-volume assets. Additionally, impairment losses were irreversible; even if asset values recovered later, companies could not reverse the write-downs, leading to cumbersome accounting records. The fair value model eliminates the need for impairment testing, instead relying directly on market prices or valuation techniques per ASC 820. This reduces resource allocation for impairment testing, lowering accounting costs. For actively traded cryptocurrencies, fair value should be based on publicly quoted prices in the principal or most advantageous market available to the entity on the measurement date, making the accounting process more efficient.
3.1.3 Changes in Taxation and Capital Structure
Fair value accounting may affect the tax obligations of U.S.-registered crypto firms. Under the 2022 U.S. Inflation Reduction Act, large corporations are subject to a 15% Corporate Alternative Minimum Tax (CAMT) based on Adjusted Financial Statement Income (AFSI). Unrealized gains recorded under fair value accounting may be included in AFSI, increasing taxable income. For example, if a crypto firm records $50 million in unrealized fair value gains from rising Bitcoin prices in 2025, it could face an additional $7.5 million CAMT liability.
In terms of capital structure, given the high volatility of cryptocurrency prices, fluctuations in fair value impact the balance sheet and net assets, causing significant swings in financial statements. Firms may therefore need to take measures to mitigate such volatility. One approach is diversifying holdings across multiple cryptocurrencies, whose prices often do not move in tandem, thereby reducing overall portfolio volatility. Alternatively, firms can use instruments like futures and options to hedge against market value changes. Long-term, ASU 2023-08 may drive crypto firms to place greater emphasis on capital management and tax planning to adapt to the volatility and regulatory demands introduced by fair value accounting.
3.1.4 Exposure to Regulatory Risks Related to Non-GAAP Metrics
The implementation of ASU 2023-08 has prompted the SEC to strengthen scrutiny of non-GAAP metrics. In 2024, crypto firms Coinbase and Marathon Digital received SEC comment letters. The SEC noted that although these firms followed ASU 2023-08 for accounting purposes, their use of certain non-GAAP metrics effectively excluded the impact of ASU 2023-08, constituting improper "tailored" metrics that require correction. This indicates that after adopting the new standard, firms attempting to smooth earnings through non-GAAP measures may face higher regulatory risks. Specifically, U.S.-registered crypto firms using non-GAAP metrics must ensure compliance with the Federal Reserve’s Regulation G and Item 10(e) of Regulation S-K, which may limit flexibility in financial reporting and compel greater reliance on GAAP metrics to disclose true financial conditions.
3.2 Impact on the Crypto Market
3.2.1 Accelerated Regional Industry Standardization and Regulatory Alignment
The new accounting standard requires all qualifying crypto assets to be measured at fair value and mandates standardized disclosures—including asset name, cost basis, fair value, number of units held, details of contractually restricted assets, and a rollforward of asset balances from period-start to period-end—establishing a uniform accounting framework for U.S. crypto firms and reducing diversity in accounting practices and disclosures. Standardized reporting clearly enhances the reliability of financial statements and promotes规范化in industry accounting. These disclosure requirements closely align with the SEC’s goals of financial transparency and investor protection, easing the SEC’s burden in reviewing compliance of non-GAAP metrics and assessing risk disclosures related to crypto assets.
3.2.2 Increased Demand for Associated Accounting Technologies and Services
The implementation of ASU 2023-08 may stimulate demand for crypto-related technologies and services. As firms adopt fair value models, internal valuation tools and analytical methods must be updated, and some may seek new custody solutions, creating favorable conditions for emerging blockchain analytics platforms and custody providers, thus driving innovation in the crypto technology sector. Companies like Chainalysis and other on-chain data analytics or custody service providers may experience business growth. Meanwhile, accounting and consulting firms such as Deloitte and PwC have already launched specialized crypto asset audit and advisory services related to ASU 2023-08, helping firms transition smoothly and meet compliance challenges.
4. Conclusion
The issuance of ASU 2023-08 reflects the rapid growth of the crypto market and the growing need for industry standardization. While in the short term, increased financial statement volatility under the new standard presents challenges for businesses, investors, and policymakers alike, the fair value measurement and enhanced disclosure requirements significantly improve financial transparency and accounting efficiency for U.S. crypto firms. At the same time, the new standard provides the SEC with a consistent regulatory framework. Across today’s crypto landscape, accounting practices and oversight are steadily moving toward standardization and规范化. What further impacts will the new accounting standard have on the U.S. crypto market? Will it inspire IFRS jurisdictions such as the EU and UK, or emerging markets like India and Brazil, to consider adopting fair value models? Can it help attract more global capital to U.S. crypto firms and accelerate technological innovation in the industry? These questions remain to be seen through continued observation.
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