The Financial Accounting Standards Board's new accounting rules for cryptocurrencies will go into effect on Monday, making it easier for businesses to account for the value of their holdings on their balance sheets and encouraging adoption.
What happened: The Accounting Standards Update, announced in December of last year in response to widespread stakeholder feedback, will allow firms to report cryptocurrencies at fair value, or simply their current value, recognizing them under the company's net income.
Previously, cryptocurrencies were treated as indefinite-lived intangible assets, meaning that companies had to account for impairment charges.
Companies were required to write down the value of their holdings if the value fell below the original buying price, while the opposite was not true in the case of an unrealized gain. Instead, gains could only be reported if the holdings were sold.
Put simply, companies could only value cryptocurrencies at the price they bought, accounting for only the decreases but not the increases.
The concern from stakeholders was that such a model does not give investors "decision-useful information."
Under the new rules, companies will be required to report the fair market value of their positions, capturing both unrealized gains and losses on a quarterly basis.
See Also: Massive Crypto Exchange Witnesses Unusual $100 Million Bitcoin Activity
Why It Matters: The accounting adjustment allows firms to report more accurately the economic impact of cryptocurrency holdings on their overall financial position.
Furthermore, because they are not required to sell their holdings to declare gains, the HODLing approach may gain traction, helping boost cryptocurrency prices.
The rule change comes at a time when corporate adoption of Bitcoin BTC/USD, the world's largest cryptocurrency, was gaining traction.
Following in the footsteps of MicroStrategy Inc., the market leader with over $44.58 billion worth of Bitcoin on its balance sheet, companies like MARA Holdings and Semler Scientific have been steadily adding the leading coin to their reserves lately.
In fact, it was MicroStrategy Chairman Michael Saylor who took the lead in advocating for such an accounting adjustment from the Financial Accounting Standards Board.
Price Action: At the time of writing, Bitcoin was exchanging hands at $105,068.03, up 3.20% in the last 24 hours, according to data from Benzinga Pro.
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