For those asking about accounting impact of BTC holding (
@PeterJA), I did some quick technical accounting research. The conclusion is ridiculous (to me) and extremely counterintuitive to general accounting principles. This has to do with the fact that SEC and PCAOB (
Public Company Accounting Oversight Board - Wikipedia) have yet to acknowledge what crypto assets are. So, absent their guidance, classification defaults to Intangible Assets, which have horrible revaluation principles under US GAAP. The assumption for intangibles is that they are not easily exchangeable, so fluctuations in value would not occur often, and establishing market value would be too subjective. With that assumption there is no means to adjust values upward, only downward. That’s clearly a crappy assumption for a crypto asset.
So, my preliminary conclusions are the following.
Under US GAAP
Treated as intangible asset. Tested for impairment (eg, impaired assets mean assets that have lost value or utility) every reporting period. Any reductions in value are posted to profit and loss (P&L) and not flowing through Other Comprehensive Income (OCI - below the Income line used for EPS). No ability to revalue upwards absent selling of the asset. In other words, write downs would negatively impact GAAP EPS and there would be no ability to write up the asset, absent a disposition/sale of the asset.
Note this is not a recurring write down. If the position started at $1.5B and at end of next quarter it was worth $1B, there would be a -$500M loss recognized on P&L, and the balance sheet asset would now have a revaluation reserve against its cost basis, netting also to $1B. If next quarter it was still $1B, there would not be another write down. If it went back to $1.5B, there would be no reversal unless the asset is sold.
source:
Cryptocurrency: The Top Things You Need To Know
Under IFRS
Also in an intangible asset. However, under IFRS, where a market exists for the intangible asset, reporters can revalue their asset both up and down.
Downward adjustments have two outcomes: if reversing a previously recognized unrealized gain - OCI, if reducing below original cost basis - P&L.
Upward adjustments equally have two outcomes: if reversing a previously recognized unrealized loss - P&L, if increasing beyond original cost basis - OCI.
I still need to dig in to what happens on realization or disposition of the asset. My educated guess is that it first reverses any accumulated OCI and excess hits P&L, but I may be wrong.
Not perfect, given that unrealized losses (past original cost basis) hurt EPS, whereas unrealized gains above cost basis don’t benefit EPS. At least reversals of losses (up to original cost basis) will benefit EPS.
While not perfect, a lot more representative than the US GAAP presentation.
https://www.grantthornton.global/gl...counting-for-cryptocurrencies--the-basics.pdf
Conclusion
US GAAP is generally a few years behind the rest of the world. Unrealized losses on the overall position get booked to P&L, with the loss reducing the balance sheet cost basis of the asset. Unrealized reversals or gains are not recorded. Reversals and gains are only booked once the underlying asset is sold (to be confirmed, but likely true). Incredibly one sided and a disservice to financial statements users because you could have extremely appreciated assets and you would never know from presentation.
Likelihood is that we see technical guidance released in the coming months as more S&P 500 companies start to hold crytpo. It would be senseless that companies reporting under IFRS would be benefited from appreciating crypto assets while US GAAP reporters would be completely disadvantaged.
Think of it this way... if Volkswagen held BTC, they could record both gains and losses (with a mix of P&L and OCI) and their balance sheet presentation would be reflective of actual value. Tesla would just recognize unrealized losses with no means of reversing previous unrealized amounts, absent disposition of the asset.
