US Financial Accounting Standards Board Approves Mark to Market Accounting for Crypto Assets
In September 2023, the US Financial Accounting Standards Board (FASB) approved mark to market accounting for corporations and businesses holding crypto digital assets. Previously, companies like Microstrategy and Tesla had to classify crypto assets as intangible assets, leading to restrictions in recognizing gains. However, losses had to be declared. Microstrategy’s Michael Saylor advocated for this change to address the imbalance.
Impact on Corporate Adoption of Crypto Assets
The FASB’s decision has significant implications for the adoption of Bitcoin and other cryptocurrencies in corporate treasuries. Previously, acquiring digital assets was seen as detrimental to quarterly performance. With mark to market accounting, finance managers can determine portfolio allocation based on asset potential and volatility.
Relation to SEC Approval of Bitcoin Spot ETF
The FASB’s announcement aligns with the anticipated approval of a Bitcoin spot ETF by the US Securities and Exchange Commission (SEC). The introduction of a spot ETF will provide corporate holders with legal protections offered by the SEC. The SEC has requested that ETF sellers and custodians remain separate entities.
Grayscale’s Legal Victory and Institutional Adoption
Grayscale recently won a court decision against the SEC, highlighting the possibility of approving a spot ETF correlated with futures prices. As corporations, family offices, hedge funds, and institutional clients adopt crypto assets, price volatility may decrease due to their long-term investment strategies. The market cap and usage of digital assets are expected to grow substantially with institutional participation.
Hot Take: Increased Adoption and Reduced Volatility Expected for Crypto Assets
The FASB’s approval of mark to market accounting for crypto assets is a significant development that will encourage corporate adoption. With the impending approval of a Bitcoin spot ETF and the involvement of institutional buyers, the market for digital assets is poised for growth. The accounting change and regulatory protections will likely reduce volatility and attract more long-term investors, leading to increased market cap and usage in the coming years.
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