Crypto Fair Value Accounting Rules from FASB Effective Today
New crypto fair value accounting rules from the Financial Accounting Standards Board (FASB) will take effect today. These rules specify how companies can report profits and losses that accurately reflect market prices for Bitcoin #BTC and other fungible cryptocurrencies meeting certain criteria.
New FASB Accounting Rules
Announced in December 2023, these rules allow firms to report the current value of cryptocurrencies as part of net income. Previously, entities faced impairment charges when prices fell below purchase figures, but unrealized gains could only be reported upon sale. The new regulations enable companies to declare more gains without selling their assets.
The FASB’s Subtopic 350-60 defines six criteria for assets under these rules: intangibility, existence on a distributed ledger, cryptographic security, and fungibility. Additionally, the asset must not provide enforceable rights or claims on goods or services and cannot be created by the reporting entity or its affiliates. Thus, non-fungible tokens (NFTs) and wrapped tokens are excluded from this update.
Reports indicate that the unique characteristics of NFTs make pricing inconsistent and challenging to report fairly, often due to low liquidity and subjective valuations.
The rules also require entities to present crypto assets at fair value and any remeasurements separately from other intangible assets. The FASB states:
“Fair value measurement aligns the accounting required for holders of crypto assets with the accounting for entities that are subject to certain industry-specific guidance (such as investment companies) and eliminates the requirement to test those assets for impairment, thereby reducing the associated cost and complexity of applying the current guidance.”
Companies to Enjoy Higher Profits from Crypto Price Jumps
With the updated regulations, companies can capitalize on increases in crypto prices. For example, Bitcoin recently surpassed $106,000 following various market updates. Influential factors include Michael Saylor's suggestion via an X post that MicroStrategy acquired more BTC, potentially driving further price increases.
Additionally, the Bitcoin market has experienced a bullish trend since President-elect Donald Trump's election victory in November. Speculation around Trump establishing a federal Bitcoin reserve may contribute to optimism for 2025, with independent analyst Ali Martinez predicting Bitcoin could reach $275,000 next year.