Firms can mark Bitcoin rebounds on their balance sheets in long…

The wonkier corners of Crypto Twitter were buzzing on Wednesday on news that the Financial Accounting Standards Board, a.k.a. FASB, had unanimously passed a measure that will bring a big change to how companies hold crypto on their balance sheets. This has immediate implications for the likes of Bitcoin-buying Block, Tesla, and MicroStrategy—and could potentially lead other large firms to consider adding crypto to their treasuries.

Most people are understandably reluctant to dive into the finer points of corporate accounting, but the big change is not hard to grok. It stems from the fact that, for the longest time, the head bean counters stayed silent on crypto—refusing to provide guidance for how to value it on a balance sheet. This led to Bitcoin being chucked into a category called intangible assets along with things like trademarks and goodwill. In practice, this meant that any company holding crypto had to mark down its value as an “impairment” if the price dropped—but could not record a gain if the price shot back up.

Thanks to this week’s FASB vote, that practice is out the window, and very soon firms will be able to tally a gain whenever their crypto holdings rebound from a price shock. While this has been in the works for many months, the new accounting regime is now official—albeit with a few quirks. Namely, the updated rules apply to Bitcoin, Ethereum, and other cryptocurrencies, but not to the synthetic or “wrapped” versions of the currencies that power much of the DeFi landscape. Likewise, stablecoins and NFTs are not included, according to a helpful Bloomberg Tax report on the news.

All of this is unlikely to inspire most firms to rush out and add crypto to their balance sheets, especially in the current bear market. But the fact there are finally clear accounting rules in the first place is likely to make corporate finance departments less skittish if their company wants to experiment with Bitcoin and Ethereum in one way or another.

More broadly, the FASB rule change comes at a time when the financial landscape around crypto is maturing rapidly. Other recent changes include Coinbase announcing a crypto lending service for large investors, and firms in the hyper-volatile Bitcoin mining sector learning to employ hedging strategies in order to stabilize revenue.

These developments mean that, more than ever, the forces of traditional finance are likely to shape the next phase of crypto. For now, though, the crypto industry’s main concern is coming up with a way to rekindle interest in the sector in the first place.

Jeff John Roberts
[email protected]
@jeffjohnroberts

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