What did the entry of BTC into the mainstream lead to?

[Heridan]

Investing.com - The emergence of BTC into the mainstream has led the likes of Microstrategy (MSTR), Block (SQ) and Tesla (NASDAQ:TSLA) to add the digital coin to their balance sheets and spawn a new class of investors, in whole or in part converting their salaries into cryptocurrency, writes Yahoo.

BTC has fallen by almost half since hitting a November high of $69,000 in the midst of this winter, and if so, then the strategy of investing in cryptocurrencies is not without risk, especially for companies bound by strict accounting rules.

It could also have a negative impact on the results of companies with cryptocurrencies on their balance sheets, such as Microstrategy, which is engaged in business intelligence.

While cryptocurrencies are now on the rise again, some observers argue that their reversal and strict accounting rules could make their valuation more burdensome for companies and investors and dissuade other firms from engaging directly with cryptocurrencies.

“You can send BTC down and you can never make it go up, and truth be told, from an accounting standpoint, it would be better to buy a stack of comics or baseball cards,” Microstrategy CEO Michael Saylor said.

According to generally accepted accounting principles (GAAP) and guidance from the US Securities and Exchange Commission (SEC), digital assets must be accounted for as perpetual intangible assets, that is, their value must decrease over time due to impairment, and cannot be increased due to rising in value until the asset is sold.

Given the volatility of cryptocurrencies, large fluctuations are possible between the book value of bitcoin and its market value over the same period. For Microstrategy, according to the company, this difference was $1.6 billion in June, and this situation has only worsened.

This week Microstrategy has 125 thousand bitcoins. In the company’s Q4 report, a gross profit of $110.5 million was offset by a $147 million BTC impairment loss. Given Bitcoin’s rocky start in 2022, the next quarter won’t be much better.

Too strict accounting rules are far from the only reason why corporations owning cryptocurrencies are having a hard time. Such a policy is an obstacle for even more companies to invest in digital coins.

This problem is widely recognized in the industry. Last year, the U.S. Financial Accounting Standards Board (FASB), the body that sets corporate accounting standards, received hundreds of letters from companies including Microstrategy and Coinbase (NASDAQ:COIN) asking them to consider reviewing their digital asset accounting rules. The fact is that in its current form, accounting standards can hide important financial information about the value of the company.

The most “significant change” that the FASB could implement quickly would be to allow digital assets to be valued at an easily identifiable fair value (market price), and later on the FASB may also consider whether fair value should be more widely applied to certain types of assets. and business models.

But the decision of the organization to change the rules for accounting for bitcoins is not expected soon. For example, BTC is considered a commodity in the US, and changing its accounting rules could potentially change how other commodities, such as gold, are treated.

FASB has added a Digital Assets Project to its research agenda, which explores the accounting and disclosure of digital assets and publicly traded commodities. The FASB spokesman said he will discuss the research project in a public meeting in the coming months, the date of which has not yet been determined.

[Vynnetanon]

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[Ardas]

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