How Bitcoin Will Benefit from New Accounting Rules

The recent vote from the US Financial Accounting Standards Board (FASB) clarifies and solidifies some of the language surrounding cryptocurrency holdings by organizations. Large companies that hold tokens like BTC and ETH have been a little confused by how exactly the wealth is to be managed.

For example, companies are required to write down the value of their cryptocurrency holdings if the price drops below the price they purchased it. On the other hand, gains were only recorded if the assets were sold. This led to a lot of problems when it came to disclosing long-term investments, making the whole affair of investing in crypto holdings a little cumbersome.

To the uninitiated who haven’t been religiously following the what’s what of the decentralized world and crypto news in general—Almost a year ago, the US FASB recommended some changes to make. Their efforts facilitated crypto management for all for institutional investors, as well as companies, which were seeking to buy cryptocurrencies for the long-term.

On September 6, the FASB delivered a win for companies holding cryptocurrencies. The key change in how digital assets are valued can easily improve institutional adoption and cryptocurrency holdings by large companies for long-term investment purposes.

In this article, we’re going to talk about what it’s all about, what to expect, and most importantly, how will Bitcoin benefit from the upcoming account rules set by the FASB.

What’s it all about?

Essentially, the FASB has delivered the much-needed regulatory clarity to companies that are holding digital assets on their balance sheet—Most notably the EV maker Tesla and the exchange Coinbase.

Cloud and business intelligence services provider MicroStrategy is another company with a significant BTC holding of 152,800 Bitcoins. Its founder and chairman Michael Saylor tweeted on the same day, “This upgrade to FASB accounting rules eliminates a major impediment to corporate adoption of $BTC as a treasury asset.”

It increases the treasury adoption of digital assets like BTC and ETH. Companies that refrained from buying cryptocurrencies, because it could make their books look bad, can now take a breather and hope to buy some for whatever purposes they deem necessary.

It was certainly a long-awaited seal of approval. The new accounting rules will allow companies with a large holding of digital assets to measure the value of their cryptocurrencies more accurately without any confusion or vagueness.

Companies will now need to “report their holdings at fair value, a measurement that aims to capture the most up-to-date value of an asset—including rebounds in value after prices dip,” writes Nicola White for the Bloomberg Tax.

To boil it all down, the new rules, when enforced, will make it so that the value of the tokens held by a company will be calculated as per the going rate, which didn’t use to be the case. This way, losses and profits can be determined with the fair value of the token at the time just like it happens with other capital assets.

Just because this wasn’t the case so far, a lot of companies didn’t buy cryptocurrencies because their losses wouldn’t be registered fairly, for example.

What to expect?

The final language around this new development is still to be finalized. This is just a vote of confirmation. Finalization will happen by the end of the year and for the majority of private companies, the new rules will take effect from December 15, 2024.

This doesn’t mean that it can’t have any impact now. Of course, when the rule goes into effect, a lot of companies will be able to provide better clarity to their stakeholders and investors. But at the same time, this also allows more companies to come forward and adopt cryptocurrencies as a long-term investment, inflation hedge, trading asset, or just an experimental alternative asset class for rainy days.

Overall, this has the potential to start another bull run, especially for Bitcoin. Now that we’re on the topic, let’s see how it will affect BTC.

How will Bitcoin benefit?

The proponents of cryptocurrencies are saying that this is going to be a big boost to Bitcoin and cryptocurrencies in general because the new vote basically opens up the gate to institutional buying and investing.

As we all know, it’s better to get in sooner than later when everybody figures it out, so companies are likely to go on a shopping spree and get at least some Bitcoin on their balance sheets before the new rules finally kick in.

This will lead to a bull run, or at least that’s what a lot of speculators are expecting.

In conclusion

Even if you don’t have a company to buy heaps of Bitcoins, you can still be an investor and cash in on this upcoming bull run by investing early. If you happen to think that it might be a good idea, then we recommend you keep these 8 mistakes that new BTC investors make and thank us later!