MicroStrategy and Tesla are among the expected beneficiaries of a rule change that will allow U.S. companies to count crypto gains on their balance sheets for the first time ever.
Crypto proponents argue this makes ownership of crypto assets a far likelier prospect for corporations across the market.
A significant rule change
Corporate ownership of digital assets is a more appealing prospect than ever. This is thanks to a long-awaited change to accounting rules in the U.S., allowing for a fairer representation of asset worth.
Companies that hold or invest in cryptocurrencies will in the future report their holdings at ‘fair value.” Fair value means recording the price of an asset at its current trading price, whether up or down. This is in contrast to the current practice of valuing crypto assets at their lowest value.
Greg Foss, a market veteran and bitcoin advocate, explained the importance of the change to Forbes on Sept.18.
“Not being required to mark your book to market when there is a fluid, liquid reference punishes stakeholders,” said Foss.
“When a liquid market exists, the value of assets should be recorded accurately for fair market evaluation and interpretation.”
Foss believes the new practice removes unfair and punitive accounting practices previously foisted on the industry.
Jeff Rundlet, the head of accounting strategy at Cryptio, a crypto accounting company, agreed. Rundlet, however, went further in his analysis, predicting a positive reaction from the market.
“It’s a great step forward for the entire crypto market. I think it’s a great step toward mainstream adoption,” Rundlet told Bloomberg earlier this month. “I can see finalizing this proposal to help large corporations that are maybe scared to hold crypto on their balance sheet because they’re scared of the technical complexities.”
The change comes following a vote of the Financial Accounting Standards Board (FASB).
FASB member Christine Botosan said, “It’s not very often that we can both take cost out of the system and improve the usefulness of information, and it makes it a really easy vote to do both of those.”
MicroStrategy among beneficiaries
The change of rules will undoubtedly please corporations already holding cryptocurrencies, including MicroStrategy and Tesla. MicroStrategy alone holds over 150,000 bitcoins.
Former MicroStrategy CEO Michael Saylor previously complained about FASB rules, calling them “toxic” for most companies.
“If I told you, you could invest money in something but you could never recognize the gains from the investment, that would be a big letdown,” said Saylor.
In an interview with The Bitcoin Layer on Sept. 16, Saylor explained how the previous accounting standard called “indefinite intangible treatment” killed the prospect of cryptocurrency ownership for most companies.
“If you have fair value accounting and this year you have ten billion dollars of Bitcoin but last year you had five billion, then when an objective observer looks at your profit and loss or your balance sheets over three years, they’ll see you went from two billion to five billion to ten billion, and that makes sense; that’s logical, right? That tells a story in a matter of seconds.
“But under indefinite intangible treatment, the balance sheet would show two billion going to one billion going to 800 million over the three years, so the story is actually the opposite of what happened. It looks like you have a lot less money; it looks like the strategy is failing.”
In May, MicroStrategy CFO Andrew Kang told the FASB that fair value accounting “would enable us to provide investors with a more relevant view of our financial position and the economic value of our bitcoin holdings, which in turn would facilitate the ability of investors to make informed investment and capital allocation decisions.”
Now that the FASB has taken heed of MicroStrategy’s petition, the door is open for further companies to follow in their footsteps.
The new rules will become standard practice by 2025, but the FASB agreed that companies that wish to switch to the new accounting method can do so before then.