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The Financial Accounting Standards Board (FASB) voted unanimously on Wednesday to change how companies account for and disclose holdings of cryptocurrencies like Bitcoin and other digital assets. The new rules will take effect starting in 2025 and are aimed at providing investors and other financial statement users with more transparency around these volatile assets.
Established in 1973, the FASB is recognized by the U.S. Securities and Exchange Commission as the designated accounting standard setter for public companies.
"I think in my brief term here, there hasn't been an issue that has excited such passion from people," said FASB Chairman Richard Jones. "I think we heard overwhelmingly from investors that allocate capital based on the use of financial statements that this will provide them better information to make their decisions, and so I'm fully supportive of it."
FASB board member Christine Botosan agreed.
"It's not very often that we can both take costs out of the system and improve the decision usefulness of information," she said. "It makes it a really easy vote when we can do both of those."
Under current rules, companies have to record cryptocurrency holdings at their original cost and then write them down as an "impairment charge" if the value drops below cost—but cannot mark them up if the price rises. This method has drawn criticism for only reflecting one side of value changes.
The new FASB rules will require companies to account for digital assets at fair market value, capturing frequent price fluctuations. Gains and losses will flow through the income statement.
The rules also expand disclosure requirements, including details on the cost basis of major cryptocurrency holdings, restrictions on selling the assets, and a reconciliation of crypto asset activity from opening to closing balances during the period.
"Our mission is to best reflect the economics of a transaction—provide investors and allocators of capital with the information they need—I think this moves the needle there," Jones said.
"While we're dealing with the world as it exists today, we're writing standards for the world of tomorrow," noted FASB board member Marsha Hunt.
The new requirements apply to cryptocurrencies like Bitcoin and Ethereum as well as stablecoins pegged to fiat currencies. However, after some debate, the board decided that non-fungible tokens (NFTs) and wrapped tokens providing claims on other crypto assets are excluded from the scope.
"If they are excluded from the scope, they would continue to be accounted for as cost less impairment, and that certainly would not be as relevant," Botosan observed. "Investors will not have transparency around these types of tokens, and from the stakeholders comment letters, they indicate that it will omit an important and prevalent aspect of the blockchain ecosystem."
"I know there'll be some that are disappointed that we haven't expanded the scope to address wrapped tokens and NFTs and whatnot," acknowledged FASB member Susan Cosper. "But I think that intentionally keeping this project narrow has really allowed us to get this information in the hands of investors sooner."
All public companies and private companies will need to apply the new rules, with an effective date for fiscal years beginning after December 15, 2024. Earlier adoption is permitted.
Most of the commenters told the board that the transition would not involve significant costs or effort, as current processes for voluntary reporting or tax compliance have given them much of the infrastructure needed.
— Michael Saylor⚡️ (@saylor) September 6, 2023
The FASB move follows increasing pressure from investors and other stakeholders as major companies like Tesla, MicroStrategy and Block (formerly Square) accumulated sizable Bitcoin holdings. Just today, blockchain intelligence firm Arkham said it had identified the Bitcoin holdings of Grayscale Bitcoin Trust with a balance of over $16 billion.
Breaking: Arkham has identified the Grayscale Bitcoin Trust’s holdings on chain.
It is the 2nd largest BTC entity globally, holding >$16B of BTC.
— Arkham (@ArkhamIntel) September 6, 2023
Ending the asymmetric treatment under current accounting standards has been a top request.
"Fair value accounting is coming to Bitcoin," cheered MicroStrategy co-founder and executive chairman Michael Saylor. "This upgrade to FASB accounting rules eliminates a major impediment to corporate adoption of $BTC as a treasury asset."
"This is undeniably good for Bitcoin," Swan Bitcoin declared on Twitter.
"Most public corporations couldn't stack Bitcoin without this rule change," noted financial analyst Stack Macro. "Now cash-rich companies have a way to insure their bond portfolios against debasement."
Wednesday's vote completes a standard-setting process that began back in July 2022 when the FASB issued its initial proposal. The final rules incorporate feedback from over 80 comment letters received during a public comment period.