FASB Move A Major Win For Cryptocurrency
Michael Saylor is happy.
The Financial Accounting Standards Board’s (FASB) published an Accounting Standard Update regarding digital assets, including Bitcoin. This is something that will completely alter how corporations account for cryptocurrency they are holding.
This was something that many, including the aforementioned Saylor, believed hindered the adoption of Bitcoin. Fortunately, the standards apply to all cryptocurrency, not just BTC.
So what is taking place and why is this important?
Let us dig through this and see how a new buyer could be entering the market.
Treasury Accounting
At the center of this discuss is the treasury of a company. Basically, we are looking at the excess money that an entity has on hand. Apple, as an example, has a couple hundred billion worth of assets due to the profitability of the company over the years. When it is generating so much cash, what does a firm do with it?
The most obvious choice is to reinvest in the business. That usually nets the best return. There does, however, come a point where the cashflow is so large, it cannot be put back into operations. After all, one can build factories only so fast.
Another reason for not investing everything is for a prudent reserve. Recessions happen and there are times the profits flip to losses. Companies are wise to keep cash (or cash equivalents) on hand.
All this leads to companies buying assets and holding them on their balance sheet. This can be different forms of commercial paper, sovereign debt such as US Treasuries, or Bitcoin. The problem was the latter was handled differently for accounting purposes.
With this change, cryptocurrency is treated the same as other asset. Many believe this could open the door for other companies to buy Bitcoin as an investment vehicle. They will hold it in their treasury, hoping for the price appreciation over time.
Fair Value
The change essentially moved the end of quarter reporting to a fair value method. Before, it was only net loss that was recognized. With this move, any positive change will be shown as net income.
What does all this mean?
Under the old standard, any corporation reporting that held Bitcoin would have to value it at the end of the quarter at the lowest price during that time period. For example, if Bitcoin was purchased for $45K in Q2, ended that quarter at $47K, it would be on the books at the purchase price.
Suppose during Q3, the price dropped to $37K. No matter what the price was at the end of the quarter, this would be shown at that level, with an $8,000 net loss recognized. Even if the price was $50K at the end of Q3, it was on the books at the low.
As you can see, with such a volatile asset, this could be a deterrent. That obstacle was removed.
Now, if the same scenario hits, the BTC will be shown at the price at end of quarter, with a net loss or income being recognized. This treats cryptocurrency the same as any other asset.
Major Players Joining The Party?
Could this open the door for major players to enter the market? Here is where people like Saylor believe Bitcoin is going to get a massive push.
Up to this point, the biggest name to buy Bitcoin was Tesla with its $1.5 billion purchase. It has since sold off most of the position, something that could change in the future.
Does this allow other entities such as Apple to acquire Bitcoin? The accounting is no longer an issue, deterring companies from moving into the space. Couple this with new custodian standards and it is possible that some corporations take a look at this.
That is not to say we are going to see a race to acquire Bitcoin. Any company buying it will have it as a small allocation of the treasury. We would likely see most entities putting a couple percent of their holdings into it. It is not going to be a large makeup of the portfolio.
This move does do one other thing. In my view, it further legitimizes crypto-assets as viable alternatives for companies. While most will still shy away from them, it is a step forward. The accounting board is now treating the asset like any other.
In essence, the "penalty" for holding Bitcoin on the balance sheet by reporting companies is removed. It is one less obstacle in the way of corporate treasuries moving into this asset class.
Of course, knowing Wall Street, this is only the beginning. While we focus upon asset such as Bitcoin or Ethereum, this really enters when we start to discuss crypto derivatives. Bet the ranch Wall Street, over the next half decade, will create an assortment of financial products that derive their value from the underlying cryptocurrency. This is what these financial institutions do.
Now they have a market for them since they will be treated the same from an accounting perspective.
Major corporations can now enter the game if they so desire.
Posted Using InLeo Alpha
i know something like this will come up someday, I believe the board would have been holding different workshop, seminars and lectures on how to account for profit on digital assets and BTC.
Would treating Bitcoins the same as any other assets help the industry in any way? I believe so too because as you already said, it might encourage major corporations to enter the market. I do hope the FASB update will bring positivity to cryptocurrency.
all this news will continue to see Bitcoin boom. When Bitcoin rises it is great for Hive as our Value also increases.
We will see. I still believe Hive is separate in that we are so far off the radar we have to build it ourselves. Yes the general trend will help but we need to build things that people actually use for Hive to be successful.
It's ultimately a social media platform, I always wonder why we don't have a lot more people. But I think it has everything to do with the fact we don't have an algorithm. People don't want to look for things they want what they like given to them.
It's part of the user experience and what makes Tik Tok and the other platforms highly sought after and utilised.
Hive, in my view, really has nothing to offer at this point. The database is basically without any useful information, we do not offer services, and anything that is timely is not posted on here.
Where do you go for your news? Do you turn to Hive or head to Web 2.0? That alone should answer it. We cannot even get news headlines on Hive.
Yes and no, we can deliver the news. I had a lot of luck with projects when I was engaging with them and many knew who my account was and it was being passed along. I got a lot of hits. One of my articles was the most view for the month and they were constantly viewed and many high views.
The problem was that it is very time consuming engaging, interviewing, editing, sending back for review and approval. And with a personal job it wasn't really worth it.
Yes it is all time consuming. And we are still focusing upon blogs which is the worst approach in my view. If pushing articles that are time sensitive, always starting over. With threads, we can post quick hits of headlines, at least people are aware of what is taking place.
We need the database to be filled with information that doesnt decay with time. That is where Web3 is sorely lacking.
If I want to find out about the Prime Ministers of England, I have to turn to Web 2.0. It is where we stand right now.
I agree and this new requirement of 750 words to be eligible for upvotes is a killer.
What is surprisingly true that cryptocurrency has future regardless of its current position, people's popularity and large corporations view it. Some of the top billionaire companies are conducting their business operations via BTC and they are likely to expand even more.
Interesting to see how they roll forward in the future. But we might see digital assets get regularized in financial exchanges. Thats happening soon.
I didn't know all these were happening, so thank you for sharing. By the way you described it, this is a really great news for crypto. Big corporations can treat BTC like gold [digital gold?] and hold it for a long time. Since it is not only for BTC, other tokens could see an increase in price as well.
They can have BTC in their treasury and treat it, from an accounting standpoint, like any other asset.
Keep in mind this is US only. I do not know the laws in other areas such as the EU.
I see. EU tends to be stricter in some aspects, but hopefully they follow suit. That would be very advantageous for all involved.
The board are really working on getting some more valuable and this is really cool to see and I believe there is more to come actually
It definitely seems as day goes by, the race to have more btc will definitely improve and this will create more massive adoption around the world for bitcoin through the companies
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