Save red and green – New accounting rules on cryptocurrencies could encourage companies to HODler while waiting for better days, more than to part with them during bear markets.
Fair value for better accounting transparency
The truth of the prices must be reflected in the books. On October 12, the Financial Accounting Standards Board (FASB) took a stand in favor of accounting for cryptocurrencies at fair value.
According to one of the board members, Gary Buesser, this method helps meet investors’ requirements for “transparency through disclosure”. In this context, fair value accounting would be “the only way to achieve this”.
In the absence of specific accounting rules for cryptocurrencies, the companies that hold them currently categorize them as intangible assets with an indefinite life.
In this accounting method, companies reassess the value of their cryptocurrencies at least once a year. This value decreases if their price, at the time of this revaluation, is lower than that of the purchase price.
However, companies cannot record winnings on their assets, only at the time of the sale of their cryptocurrencies, and not as long as they remain in their wallets, even if their price knows strong increases.
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New rules to encourage Bitcoin HODling
While serving as MicroStrategy’s chief financial officer, Phong Le sent a letter to the FASB noting that his company was planning a continual increase in the gap between the book value of its bitcoins (BTC) on its balance sheet, and their “fair market value”.
By adopting fair value accounting, companies could treat cryptocurrencies as financial assets, and pass on both losses and gains to their holdings in their portfolios when they are revalued.
Unlike the current accounting method, fair value would therefore not penalize companies that continue to HODle their bitcoins, with gains being recorded even in the absence of sales.
For Deniz Appelbaum, assistant professor of accounting and finance at Montclair State University, the introduction of new accounting rules for cryptocurrencies could thus reduce the reluctance of companies to hold them.
With the accounting method in effect, Bitcoin is dragging down the total value of the assets of certain companies that hold it during this crypto winter. But when the gradual return of good weather comes, will fair value have managed to impose itself to redress the balance sheet of the HODlers?
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