FASB's Crypto Accounting Shakeup Could Lure More Corporate Investment, Michael Saylor and Others Argue

The U.S. accounting standards board yesterday unanimously voted in favor of "fair value" accounting for crypto assets held on corporate balance sheets.

AccessTimeIconSep 7, 2023 at 4:51 p.m. UTC
Updated Sep 7, 2023 at 5:17 p.m. UTC

A big change in how U.S. companies are now supposed to account for bitcoin (BTC) and other cryptocurrencies they own could make businesses more willing to buy them, according to a Wall Street research shop and one of corporate America's biggest bitcoin boosters.

Currently, accounting rules only let companies record increases in the value of their digital assets when they sell them – though losses are reflected at least once a year. But, on Wednesday, the Financial Accounting Standards Board (FASB) voted to take another path, letting companies use fair-value accounting that allows them to show gains and losses immediately on their income statements.

"The decision is a significant development," said analysts at Stifel. They noted that generally accepted accounting principles, or GAAP, in the U.S. force companies to write down the value of crypto assets when prices drop, but don't let them reverse those writedowns if prices subsequently rally – meaning balance sheets can reflect substantially lower values than what the assets would fetch in the open market.

"We could see increased receptiveness towards holding digital assets on the books for U.S.-based companies, especially during periods when the market is hot given the improved impacts to the bottom line," the Stifel team said.

MicroStrategy (MSTR) Executive Chairman Michael Saylor, who began loading his company's balance sheet with bitcoin about three years ago, was less circumspect, saying the rule update "eliminates a major impediment to corporate adoption of bitcoin as a treasury asset."

The Stifel team noted MicroStrategy's roughly 152,300 bitcoin at the end of the second quarter were carried on the company's books at a value of $2.3 billion, a whopping 50% (or $2.3 billion) less than their fair market value at the time.

One caveat about the potential for adoption of crypto by companies is the level of risk aversion among CEOs and other senior executives, who are paid to run their businesses, invest reserves conservatively and deliver at least somewhat predictable earnings.

"Most companies are widely held and not controlled by one majority holder (unlike Michael Saylor and MSTR), ex-hedge fund manager James Lavish wrote in November, when the momentum towards a switch to fair-value accounting was building. "The career risk for those in charge is just too great for them to dive in and allocate their treasury cash to bitcoin in lieu of straight cash or U.S. [Treasuries]."

FASB is expected to formally approve final language later this year and companies at that point would be free to adopt the new standards. Companies will be required to switch over beginning with calendar year 2025.

Edited by Nick Baker.


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Stephen Alpher is CoinDesk's managing editor for Markets. He holds BTC above CoinDesk’s disclosure threshold of $1,000.

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