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October 19, 2022

FASB Decides Companies Can Use "Fair Value" to Account for Crypto Holdings

The U.S. Financial Accounting Standards Board (FASB) has decided that companies can now use "fair value" to account for their cryptocurrency holdings. Previously, companies were required to report their cryptocurrency holdings as intangible assets, meaning they had to measure them at their lowest price during a reporting period.

Read a full statement from Ledgible Advisor Vivian Fang here.

FASB Crypto

This change will have a major impact on how public companies report their cryptocurrency holdings on their balance sheets. Many public companies have been holding onto large amounts of cryptocurrencies, such as Bitcoin, Ethereum, and Solana, over the past year or two.

The total value of all cryptocurrencies in circulation is currently around $1.5 trillion, so this decision by the FASB could potentially have a significant impact on the market. It remains to be seen how exactly this will play out, but it's definitely an interesting development worth keeping an eye on.

What is Fair Value?

The term "fair value" refers to the price of an asset that would be agreed upon by a willing buyer and willing seller, where both parties have reasonable knowledge of all relevant information about the asset and neither party is under any compulsion to buy or sell the asset.

In the case of cryptocurrencies, fair value is likely to be determined by looking at the prices of major exchanges such as Coinbase and Binance. Prices on these exchanges can sometimes vary significantly from each other, so it will be interesting to see how companies choose to account for this.

The Financial Accounting Standards Board (FASB) is voting on a change that will impact how intangible crypto assets are reported. This change will follow guidance from ASC Topic 820, Fair Value measurement. The criteria for what crypto assets will be impacted by this change are as follows:
-The asset must meet the definition of an intangible asset as defined in the Master Glossary of the Codification
-The asset holder must not have enforceable rights to, or claims on, underlying goods, services, or other assets (excluding tokenized securities or other digital assets that give rights to physical assets)
-The asset must be created or reside on a distributed ledger or "blockchain"
-The asset must be secured through cryptography
-The asset must be fungible (excluding NFTs)

What Does This Mean for Cryptocurrencies?

It's still too early to say for sure what this decision by the FASB will mean for cryptocurrencies in the long run. However, it's possible that this could lead to more mainstream adoption of cryptocurrencies by public companies.

Currently, there are very few public companies that hold large amounts of cryptocurrencies on their balance sheets. If this changes, it could have a significant impact on the demand for cryptocurrencies and, as a result, prices.

At Ledgible, we've been interacting with clients over the last few months and it's clear that many view FASB guidance as a step in the right direction. "Impairment meant that public companies looking to get into digital assets had a big hurdle in their public reporting," says Ledgible CEO Kell Canty.

Now that the guidance has been issued, Ledgible expects this to be a potential catalyst for companies who had limited their exposure to crypto assets to expand usage. There are many factors to consider, such as the need to bifurcate accounting and tax and sourcing accurate and timely pricing data. But in the end, it's clear that changes are coming and companies need an adaptive crypto asset accounting platform more than ever.

The FASB's decision to allow companies to use fair value to account for their cryptocurrency holdings is a potentially major development in the world of digital assets. It remains to be seen how exactly this will play out, but it's definitely something worth keeping an eye on.


Jacques Potts - Sr. Marketing Manager at Ledgible and experienced financial author, marketer, and crypto expert. His work has been featured on The Street, Project Serum, FirstTrade, and Invstr.
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