Landmark FASB rule change is more rocket fuel for Bitcoin

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Bitcoin Accounting Rule Change

Today we learned of a MASSIVE change to the way in which companies will be allowed to measure the value of their Bitcoin (and other crypto) holdings. The FASB is introducing new accounting rules that will allow companies to use the Fair Value Accounting method.

 

 

What does that mean? Fair value accounting means that a business can measure its liabilities and assets at their current market value. Why is this change important? Michael @Saylor had this to say: "Fair value accounting is coming to #Bitcoin. This upgrade to FASB accounting rules eliminates a major impediment to corporate adoption of $BTC as a treasury asset."

 

 

The long term effects of this change have yet to be seen, but let's examine the Key

Takeaways from today's news:

New Accounting Rules for Bitcoin: US accounting standard-setters have decided to introduce accounting rules for businesses that hold or invest in Bitcoin (and other cryptocurrencies).

Reporting at Fair Value: Companies will be required to report their Bitcoin holdings at fair value, reflecting the most current value of the asset. This includes capturing value rebounds after price drops.

Implementation and Early Adoption: These rules will be effective from 2025, but companies can choose to adopt them earlier. Addressing Rulebook Gaps: Presently, there's no specific US accounting rulebook guidance for how companies should account for their crypto assets. Companies have been using the American Institute of CPAs practice guide which treats Bitcoin as an intangible asset, like trademarks or copyrights. This method does not allow for adjustments if the market recovers after a dip. Fair-value reporting will give investors a more relevant view of a company's financial position regarding their Bitcoin holdings.

Mandatory Adoption: All companies, both public and private, will have to adopt these rules for fiscal years starting after Dec. 15, 2024. This implies a 2025 adoption for companies that follow the calendar year. Disclosure Requirements: Companies must create a separate entry for crypto assets in their balance sheets. They will disclose significant Bitcoin holdings and any related restrictions in their footnotes every reporting period. They will annually disclose changes in their crypto assets' opening and closing balances, categorized by type. Immediate Bitcoin-to-cash conversions will be exempted. Since Bitcoin will be measured at fair value, companies must adhere to disclosure requirements under the accounting rules, ASC 820.

Scope of the Rules: FASB's rules cover assets on distributed ledgers based on blockchain technology, secured through cryptography, currently classified as intangible assets under US accounting rules, and are fungible. Non-fungible tokens (NFTs), stablecoins, and wrapped tokens are excluded. Despite several groups advocating for the inclusion of wrapped tokens, the majority of the board decided against it, stating the need for more market information.

Background and Future Scope: FASB had previously declined to create crypto rules but changed their stance as major companies began investing in Bitcoin and other cryptocurrencies. The board will continue to monitor the crypto markets and might introduce more rules in the future. This current move is seen as the "right first step" by industry players. Overall, the introduction of these new accounting rules for Bitcoin and alternative cryptocurrencies is seen as a positive move towards mainstream adoption and provides clarity for companies holding or investing in Bitcoin.

This is undeniably GOOD for Bitcoin.

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