On Wednesday, the long-awaited guidelines for valuing digital assets were unanimously approved by the U.S. accounting standard authority. These new regulations will give cryptocurrency companies and other businesses with sizable holdings in digital currency a standardized method for determining the value of their Bitcoin, Ethereum, and other cryptocurrencies.
This analysis study focuses on the Bitcoin holdings of MicroStrategy and Tesla in order to ascertain how the most recent crypto accounting standards have affected the adoption of Bitcoin by institutions. The study also explores the potential bullish impact on Bitcoin’s value before the halving event in 2024.
Bitcoin will become widely used.
By the end of the year, new accounting guidelines that will require businesses with cryptocurrency investments to record their assets at fair value will go into effect. This approach aims to duplicate the most recent asset value, including any recoveries following value falls. Although this new standard is anticipated to add volatility to the financial reports of companies with a significant cryptocurrency presence, it is considered an improvement over current practices, in accordance with comments made to the Financial Accounting Standards Board (FASB) over a period of months.
According to the FASB, the new regulations are expected to be implemented by 2025, though businesses may decide to implement them sooner.
The move was praised by Jeff Rundlet, the director of accounting technology at Cryptio, a software company that specializes in accounting. When he spoke,
“This might be a crucial breakthrough for the entire cryptocurrency industry. It represents a significant advance towards greater acceptance. The completion of these guidelines might persuade large corporations to reconsider their reluctance to include crypto in their balance accounts due to its technological complexity.
Corporations may also be obliged to declare significant cryptocurrency holdings, any restrictions on these assets, and information about the conversion process for crypto assets acquired as payment and converted instantly into money.
Only fungible crypto assets—those that may be traded for other assets of a like kind—will be covered by the new pointers. This does not include wrapped tokens, stablecoins, or non-fungible tokens (NFTs), which are not covered by these regulations.
Finally, the good news is that Bitcoin is getting closer to becoming widely accepted as a growing number of businesses are starting to consider adding cryptocurrencies to their portfolios. The inclusion of cryptocurrency in accounting standards may potentially mean that businesses will now include cryptocurrency-related features and losses in their quarterly financial statements.
Tesla and MicroStrategy’s Bitcoin Sentiment Analysis
But for businesses that have digital assets on their balance sheets, such as electric vehicle manufacturer Tesla (TSLA), brokerage firm Coinbase World (COIN), and software provider MicroStrategy (MSTR), the FASB’s clearance provides much-needed regulatory certainty.
Advocates contend that this may open the door for more use of digital assets in corporate treasuries, particularly among businesses that have been wary due to the negative perceptions that current accounting regulations have fostered.
MicroStrategy stated that as of the beginning of July, it had amassed Bitcoin assets worth more than $4.5 billion. Tesla also revealed that at the end of the second quarter in 2023, the value of its digital assets had fallen to $184 million.
According to Mark Palmer, an analyst at Berenberg, the updated criteria should assist MicroStrategy and other businesses in dispelling the damaging perception caused by impairment losses, which were a result of the previous FASB guidelines.
According to current American Institute of CPAs guidelines, the majority of cryptocurrencies are regarded as intangible property that is rarely traded, such as trademarks or logos. This forces businesses to track cryptocurrency’s buy value and account for value reductions quarterly. Even a brief decline in the value of Bitcoin is recorded as an impairment, with little room for improvement if the market recovers. The largest publicly traded company with crypto assets, MicroStrategy, continuously suffers from the effects of this accounting technique.
For instance, if a company purchases Bitcoin at a favorable price of $500,000 and it loses $100,000 in value, that loss should be recognized and the value of the company’s cryptocurrency holdings should be reduced.
Even if the asset’s actual value eventually climbs to $600,000, the impairment loss remains fixed and cannot be increased on the balance sheet. According to GAAP, the asset’s value would remain at the $400,000 impaired level in this instance.
Companies holding cryptocurrencies will be more transparent with investors about the value of their digital assets once the new regulations are put into effect. It will provide a more comprehensive picture rather than only emphasising losses. For the few businesses with major crypto holdings, the shift will probably have a considerable impact.
An Increase In Crypto Adoption With Rising TVL
The Complete Worth Locked (TVL) within the DeFi sector will probably be significantly impacted by the impending changes to U.S. accounting standards for cryptocurrencies. Since Real-World Assets (RWA) like mortgages and personal equity investments haven’t historically been represented on-chain, TVL has primarily been used to quantify digital assets within DeFi protocols.
However, as more and more traditional financial institutions implement these new accounting standards, the inclusion of RWA in TVL calculations becomes both pertinent and significant.