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Pivotal Moment for Crypto: New Accounting Rules Coming
- US regulator issues new accounting standards for crypto, to come into effect December 2024, allowing crypto assets’ fair value to be recorded in company accounts.
- Current system only allows crypto losses to be recorded, potentially underestimating the value of institutional crypto holdings.
- Entrepreneur and Bitcoin bull Michael Saylor believes the new accounting standard will drive institutional investment in crypto.
A new standard intended to improve the way institutions account for and disclose their crypto holdings has been issued by the US Financial Standards Accounting Board (FSAB).
The new standard will allow institutions to report the ‘fair value’ of their crypto holdings, more accurately reflecting their actual value than the previous standard, which treated crypto as intangible assets similar to copyright, patents and trademarks. The rule change was voted on by FASB in September this year.
New Standard To Be Introduced December 2024
The new accounting standard will come into effect in December 2024 and will mark a significant departure from current institutional crypto accounting practice.
It will provide investors and other capital allocators with more relevant information that better reflects the underlying economics of certain crypto assets and an entity’s financial position while reducing cost and complexity associated with applying current accounting.
Richard R. Jones, FASB Chair Under the current system, institutional crypto assets are subject to ‘impairment’, which means only losses in value can be accounted for — even if the assets increase in value, these increases cannot be recorded until the assets are sold.
This system means that institutional crypto holdings can appear in accounting documents to be worth considerably less than their actual value.
The new system means the ‘fair value’ — essentially the current market value — of crypto assets can be reflected in institutional accounts, making balance sheets more accurate.
Could Fair Value Accounting Ignite Institutional Interest?
There’s hope that the introduction of the new accounting standard may spur institutional interest in crypto. Michael Saylor, founder of MicroStrategy, is particularly bullish on the news, posting on X that he believes it will drive significant institutional investment in Bitcoin:
According to ex-hedge fund manager James Lavish, the primary reason institutions may see crypto as a more attractive investment option under the new accounting standard is that it’ll allow them to record crypto gains in addition to losses, which can then potentially flow through to their reported income and improve their balance sheets.
Lavish also says being able to record crypto gains reduces the personal “career risk” for CEOs and CFOs. Unlike alternative investment options, there has only been downside in the institutional accounting of crypto, which may have made leaders reluctant to invest.
The new standard removes this impediment.
Author
Jody McDonald
Jody is a Brisbane-based freelance writer who specialises in writing about business, technology, and the future of work.
