FASB Passes Fair Value Accounting Standards to be Implemented by Year-End, Benefiting Companies Holding Cryptocurrencies like MicroStrategy

According to Bloomberg, FASB has approved fair value accounting standards to be implemented by the end of the year. This will allow companies holding cryptocurrencies like MicroStrategy to show the market value of their cryptocurrency assets in their financial statements.

U.S. Financial Accounting Standards Board (FASB) New Rule: Cryptocurrency Holding Companies Must Report at Fair Value

The U.S. Financial Accounting Standards Board (FASB) unanimously voted on Wednesday to pass new accounting rules, providing a long-awaited standard for companies holding significant amounts of cryptocurrency to measure the value of Bitcoin, Ethereum, and other cryptocurrencies in their assets.

Related: Bitcoin Holding Company MicroStrategy Adheres to Fair Value Accounting Standards

FASB New Rule Requires Reporting at Fair Value, Effective at Year-End

These new rules, expected to be announced by year-end, mandate that companies holding or investing in cryptocurrency must report the value of their digital assets at fair value.

This policy aims to capture the most current value of assets, including recoveries after price declines, to provide more accurate information. While this new standard may make earnings more volatile for companies heavily invested in cryptocurrency, it is also an improvement over current practices, a need that many companies and accountants have been telling FASB for months.

FASB New Rule Applicability: Cryptocurrency Holding Companies

FASB members stated, "It's not often that we see something that can both lower costs and increase the usefulness of information for decision-making, which made this vote very easy."

New Rules Already Applicable

These new rules will take effect in 2025, but FASB has agreed that companies can adopt these rules early.

Challenge: Cryptocurrency Accounting

However, it should be noted that U.S. accounting rules have not yet clearly defined how companies like enterprise software firm MicroStrategy, automaker Tesla, or cryptocurrency exchange Coinbase should identify and measure the digital currencies they hold.

Current Practices

Currently, companies often treat most cryptocurrencies as intangible assets, including trademarks, copyrights, and brands, which are not items traded as frequently as cryptocurrencies.

This means companies record their cryptocurrency at historical prices when purchased and evaluate their holdings each quarter for impairment or value declines. If the price of Bitcoin drops even temporarily during a period, it is considered impaired. Moreover, if the market recovers, companies cannot adjust the value upward.

MicroStrategy's Perspective

Existing accounting methods often affect MicroStrategy, the largest publicly traded company holding cryptocurrency.

MicroStrategy's CFO wrote to FASB in May stating that "Fair Value Cryptocurrency Reporting" will allow us to provide investors with more relevant financial conditions and the economic value of our Bitcoin holdings, aiding investors in making informed investment and capital allocation decisions.

FASB's Lengthy Decision-Making Process

FASB has rejected three different requests for cryptocurrency rules since 2017, citing too few companies using Bitcoin. However, once major companies like Tesla and MicroStrategy began investing in Bitcoin, the committee changed its stance.

Definition Limitations Remain

FASB's definition covers only assets created or held on a decentralized ledger based on blockchain technology and protected by encryption. According to the definition in U.S. accounting rules, these encrypted assets must currently be classified as intangible assets and must be interchangeable, meaning they can be exchanged with similar types of assets.

New Rules Exclude NFTs, Wrapped Tokens, and Stablecoins

Although groups including the Big Four accounting firms hoped FASB would include Wrapped Tokens in the new regulations, this was not adopted.