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Recent developments indicate that US regulators are working on accounting regulations for Bitcoin (BTC) to effectively capture price increases and decreases for evaluation purposes. The long-awaited accounting rules for Bitcoin and altcoins are expected to be introduced in the US soon.
New Regulations to Take Effect in 2025
The long-awaited accounting regulations for Bitcoin and altcoins are expected to take effect by the end of the year. The new regulations will make it mandatory for cryptocurrency investors or companies investing in cryptocurrencies to account for their assets at fair value. This valuation method will enable the accounting of the most up-to-date asset prices, including potential price increases following price declines.
Financial Accounting Standards Board (FASB) feedback received from companies and accounting experts over several months represents a significant improvement over existing practices, even though the proposed regulations are expected to bring more volatility to financial reports of crypto-focused companies. FASB stated that the regulations will take effect in 2025, but companies still have the option to apply earlier. Jeff Rundlet, Chief Accounting Strategy Officer at accounting software company Cryptio, said the following on the matter:
This is a big step forward for the overall cryptocurrency market. I can see that these regulations will finally be concluded to help large companies that are hesitant to hold cryptocurrencies on their balance sheets due to technical complexities.
The Long Road to Accounting for Bitcoin and Altcoins
FASB had previously rejected three separate requests dating back to 2017 to create regulations for cryptocurrencies, citing limited material use of Bitcoin by companies. However, FASB’s stance changed with the significant investments in cryptocurrencies traded on blockchains by major companies like Tesla and MicroStrategy.
The scope provided by FASB for cryptocurrencies has been limited so far, focusing on assets produced or issued on distributed ledgers using cryptographic methods. These cryptocurrencies currently fall under the non-material asset classification according to US accounting standards and must be convertible to similar assets to allow interchangeability.
The forthcoming regulations on the accounting of cryptocurrencies will not cover NFTs representing various elements or wrapped tokens enabling the use of cryptocurrencies on different blockchains. Despite requests from various companies, including major accounting firms, to include wrapped tokens in the regulations, FASB chose to exclude them from the final regulations, claiming that they serve similar purposes and trade at similar prices to the underlying cryptocurrencies.
