Bitcoin and cryptocurrencies will be measured at fair value under new FASB rules

Today, the Financial Accounting Standards Board (FASB) announced new rules requiring companies to account for cryptocurrencies like Bitcoin at fair value. The rule is scheduled to take effect on December 15, 2024, but companies can apply earlier.

The new guidance, a first of its kind in the United States, requires companies to disclose the value of their cryptocurrencies based on market prices at the end of each reporting period. The move aims to increase transparency and accuracy in financial reporting by acknowledging the volatility of digital assets such as Bitcoin.

Previously, Bitcoin was considered an intangible asset. This meant that if the price was lower than what the company purchased it for, it would have to take an impairment charge on its books even if it didn’t sell. However, if the price rises, you will not receive any benefits for your books unless you sell them. Fair value accounting now allows companies to report unrealized gains and losses on a regular basis (i.e. every quarter) in order to have an actual profit on their books if the price of the asset rises (without having to sell it to capture it). This could allow companies to add Bitcoin to their balance sheets and report audits without having to sell anything, making them more likely to become long-term holders.

“It’s a wonderful time of year to receive the holiday gift of common sense accounting,” said Edward McGee, CFO of Grayscale Investments LLC.

Investors and regulators now have access to more timely and accurate information about the financial health of companies holding Bitcoin. This increased transparency is expected to inspire greater trust and confidence in an industry that has often suffered from concerns about lack of oversight and regulation.

However, implementing fair value accounting for cryptocurrencies is not without its challenges. The volatility of Bitcoin and other digital assets means that companies must invest in robust valuation methods and procedures to ensure the accuracy of their financial reporting. Auditors must also develop expertise in assessing the fair market value of these assets, which can be a complex task.

Despite these challenges, the introduction of fair value accounting rules for Bitcoin and other cryptocurrencies is a significant step forward for the industry.