Volatile Nature of Bitcoin Captured in New FASB Corporate Accounting Standards

Major new guidelines are coming for how public companies account for Bitcoin and cryptocurrency holdings on their balance sheets. This week, the Financial Accounting Standards Board (FASB) announced that firms will soon be required to measure crypto assets at their fair market prices rather than just their purchase cost.

Keypoints

The Financial Accounting Standards Board (FASB) has issued new rules for accounting of cryptocurrencies
Companies will now be required to measure crypto assets like Bitcoin at their fair market value
Fair value will be assessed at the end of each reporting period to capture price fluctuations
The move aims to provide more accurate and transparent reporting on corporate crypto holdings
Rules take effect in December 2024 but early adoption is permitted

The long-anticipated ruling aims to more accurately capture the volatile nature of cryptocurrencies in financial reporting. By assessing Bitcoin’s fair value at the end of each quarter or fiscal year, corporate bookkeeping will better reflect unrealized gains and losses.

Previously under older GAAP rules, companies could only list crypto on their books at historical cost minus any impairment charges. This meant gains were only recognized upon selling, while unrealized losses were immediately reported if Bitcoin’s market price sank below an entity’s average paid price.

But under the new guidance taking effect in December 2024, businesses must mark-to-market their crypto holdings periodically. This enables them to show paper profits and losses each quarter without requiring liquidation.

The FASB confirmed the new standards apply to digital assets like Bitcoin and ether if they meet specific criteria around blockchain residence, cryptography, fungibility, and more. The fair value policy does not apply to crypto a company issues itself.

Proponents argue the changes will give investors more transparent insight into the impact of crypto price swings on corporate balance sheets. Critics counter that accurately valuing such a volatile asset class remains highly challenging.

But following years of industry lobbying for clearer crypto accounting guidance, most observers still hailed the ruling as a major milestone. By allowing unrealized gains to appear on earnings reports, fair value accounting could make Bitcoin and crypto assets even more appealing for public company treasury allocations.