The crypto market responded positively to the FASB announcement, with Bitcoin’s price rising over 4.12% to $42,979 following the guidance release.
The Financial Accounting Standards Board (FASB), the US entity responsible for detailing how companies report assets on their balance sheets, has introduced new standards allowing corporations to measure Bitcoin (BTC) and other crypto assets at fair value.
FASB’s Shift Towards Fair Value Measurement
This marks a departure from the previous accounting rules, known as the “indefinite-lived intangible asset accounting model,” which mandated using the original purchase price and cumulative impairment charges.
The FASB’s decision, outlined in a standards update released on Wednesday, responds to feedback from stakeholders advocating for improved accounting and disclosure standards for crypto assets.
FASB Chair Richard R. Jones emphasized the move’s importance:
“It will provide investors and other capital allocators with more relevant information that better reflects the underlying economics of certain crypto assets and an entity’s financial position while reducing cost and complexity associated with applying current accounting.”
As highlighted in the release, the new rules will be effective for fiscal years beginning after December 15, 2024, though companies have the option to adopt them earlier for financial statements that have not been issued. These rules specifically apply to intangible assets created or residing on a distributed ledger based on blockchain or similar technology, secured through cryptography, and not issued by the reporting entity or its related parties.
Companies holding crypto on their balance sheets, such as MicroStrategy Inc (NASDAQ: MSTR), stand to benefit from these changes. Under the previous rulebook, reporting a loss was required if the crypto’s value dropped below the purchase price, even if the assets were not sold.
However, the new standards mandate reporting fair value, cost-basis, and asset types, providing a more comprehensive and accurate financial picture. Michael Saylor, former CEO of MicroStrategy has expressed support for these changes, stating that “the upgrade to accounting standards will facilitate the adoption of $BTC as a treasury reserve asset by corporations worldwide.”
Market Reaction and Future Implications
The crypto market responded positively to the FASB announcement, with Bitcoin’s price rising over 4.12% to $42,979 following the guidance release. This move is seen as a net positive for the crypto market, as favorable accounting treatments are likely to increase the willingness of US companies to hold crypto assets on their balance sheets.
Ethereum (ETH), the second-largest cryptocurrency, also rallied on the news, reflecting a strong dip-buying mentality in the market. While the FASB’s new rules bring positive sentiment to the crypto market, traders are now turning their attention to the Federal Reserve’s policy announcement.
The Fed kept the interest rate unchanged at the close of the market on Wednesday giving more clarity to the market that has closely analyzed economic projections and interest rate forecasts. The Fed’s stance on potential rate cuts in 2024 could impact market sentiment, with implications for both traditional and crypto markets.