The rules for cryptocurrency regulation are often unclear and lack certainty for many businesses interested in the space. However, in October, the Financial Accounting Standards Board (FASB) made a pivotal decision to allow fair-value accounting of certain crypto assets such as Bitcoin (BTC) or Ethereum (ETH). This new standard allows organizations to track losses and gains immediately. Under the earlier rules, these digital assets were treated as indefinite-lived intangible assets which included line items such as goodwill or trademarks or domain names.
Furthermore, these assets are only reviewed periodically throughout the year. If the value of the asset drops below the purchase price, organizations have to write it down. However, if the value increases, then companies can only recognize the gain when the asset is sold. This makes sense for assets like trademarks and copyrights, which usually aren’t traded in a liquid market. But with billions of dollars in crypto assets being traded daily, there’s clearly a difference between other intangible assets and cryptocurrencies like BTC and ETH. Companies will now be able to add exposure to BTC and ETH without creating administrative or balance sheet headaches. BTC and ETH are much more ubiquitous and transparent than some other crypto assets and their market capitalizations prove it. It is readily apparent that they deserve to come out of the shadows and enter the mainstream of corporate finance.
With well over 50 crypto-focused legislative proposals pending in the 117th Congress, and with regulators signaling their interest in new rulings on the subject, it’s obvious that the next term will continue the discussion about this nascent industry. Whether the legislative debate centers on a comprehensive bill like the bipartisan proposal from Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY), the Responsible Financial Innovation Act (S. 4356), or a more narrowly tailored fix like the Securities Clarity Act (H.R. 4451), it is clear that an even handed approach that includes crypto innovators’ input will be key for encouraging the growth and stability of the industry.
FASB’s new fair-value accounting rule will allow the recognition of losses and gains immediately, and these crypto assets will be treated as financial assets. This may encourage companies to diversify their corporate treasuries into holding a risk-appropriate amount of BTC or ETH. While FASB is a private organization, hopefully Congress and executive branch regulators will also proceed in a commonsense and reasonable approach as they consider further action on crypto.