Sunday, June 23, 2024

Why it’s better to invest in ‘comic books’ thanks to Bitcoin accounting regulations.

Crypto assets are characterized by their extreme volatility. According to the GAAP accounting rules and the guidelines issued by the SEC, crypto assets are to be treated in the account books as intangible assets. What this implies in the non-accounting language is that in the event of losses, it cannot be reflected as such in the books. Also, the value of the assets cannot be increased in the book of accounts if the value increases.

This leads to large differences between the market value and the book value of the crypto assets held. In the case of the firm Microstrategy, the difference amounts to as much as $1.6 billion.

Given the wild volatility experienced by BTC in 2022, the rest of Q1 is expected to be no better. In the case of Microstrategy, because of the extant rules – its BTC holdings worth $5.7 billion in market value were only worth $2.85 billion in carrying value.

Although the wild market volatility has caused crypto investors and traders immense grief, the accounting rules have made it worse. The rules clearly require revision. Representatives from the crypto industry, including Microstrategy and Coinbase, have written to FASB to amend the crypto accounting rules. Accounting firm KPMG also favors changes.

KPMG was of the opinion that FASB could allow, as an immediate relief to the industry, the facility of assessing the value of the crypto asset based on its market value.

However, no immediate relief might be forthcoming. Such changes typically take time. Also, BTC, which is recorded as a commodity, cannot be treated separately. Any changes for BTC would have implications in the treatment of other commodities such as gold too.

On its part, FASB has said that it would examine the issue. Industry analysts say that if the suggested changes do come about, it will help in the greater adoption of bitcoin.

Cryptured Team
Cryptured Team
The writers team at Cryptured.com is composed of passionate and experienced journalists who cover the latest developments in the crypto and blockchain space. They aim to provide accurate, unbiased and easy-to-understand news and information for their readers, as well as insights and analysis from industry experts. The writers team is always on the lookout for new and exciting stories that can help the general public learn more about the potential and challenges of these technologies.
RELATED ARTICLES

Most Popular