The United States Financial Accounting Standards Board (FASB) has made a significant move to address the complexities of accounting for cryptocurrencies, and analysts from Berenberg Capital believe these changes will positively impact companies holding digital assets.
On September 6th, the FASB approved a set of new rules that will affect how companies report the fair value of their cryptocurrency holdings on their balance sheets. In a follow-up analysis by Mark Palmer, Berenberg’s senior equity research analyst, it was argued that these changes will particularly benefit companies like Microstrategy, which will soon be able to report their digital asset holdings every quarter without being required to realize impairment losses.
These rule changes come as a welcome relief for companies like Microstrategy, which has been accumulating Bitcoin since August 2020 and has accumulated $2.23 billion in cumulative impairment losses during this period. Some of the quarterly reports released by Microstrategy over the past three years have included substantial impairment losses due to fluctuations in Bitcoin’s price, resulting in negative press coverage and the impression that the company’s intrinsic value had been adversely affected.
Under the new rules set to effect in 2025, companies holding cryptocurrency can report their holdings at fair value, allowing their quarterly reports to reflect the current values of these assets, including any price rebounds. Importantly, these impairment losses will no longer be locked in and will adjust if the asset’s price recovers.
Microstrategy, currently the world’s largest corporate holder of Bitcoin, with 152,800 coins valued at around $3.9 billion as of July 31, is expected to apply these new rules in advance. Berenberg predicts that Microstrategy’s Bitcoin holdings will be valued at $8.8 billion by April 2024.
According to Berenberg’s analysis, Microstrategy CEO Michael Saylor has previously criticized the FASB’s “hostile” and “punitive” approach to cryptocurrency. Saylor believes this change in accounting treatment is a positive development and could be a significant catalyst for Bitcoin’s price, potentially encouraging more tech companies to adopt cryptocurrency investment strategies.
In summary, the new FASB rules for crypto accounting are expected to create a more favorable accounting environment for companies holding digital assets, potentially leading to improved financial optics and greater corporate cryptocurrency adoption.
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