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Investors, in the Dark on Crypto, Join Push for Accounting Rules

Sept. 23, 2021, 8:45 AM

It isn’t just companies and accountants frustrated about the lack of rules on how to account for investments in cryptocurrency.

Investors and analysts are in the dark about the value of the Bitcoin, Ethereum, and other digital currencies companies hold, and even whether they hold them at all. That may change.

U.S. generally accepted accounting principles, or GAAP, offer no rules for reporting the value of digital assets. Nonbinding guidance from the American Institute of CPAs says companies should classify the currency as intangible assets. This means businesses that don’t qualify as investment firms record cryptocurrency at historical cost on the balance sheet and then only adjust it if its value declines. Once their holdings get written down, or impaired, companies can’t revise the value back up if the price recovers.

“So it remains at that deflated value on the balance sheet even though there might be a higher value in the market today,” said Shripad Joshi, senior director and accounting officer at S&P Global Ratings.

The mismatch between what gets recorded on company books versus what the assets are worth in the market creates problems for analysts—and makes the case for a formal accounting rule, Joshi said.

Accounting standard-setters, historically skeptical about the need to make accounting changes in a rapidly evolving market, may be listening.

While the Financial Accounting Standards Board has rejected three requests to tackle accounting for cryptocurrency, in June it asked in a wide-ranging request for public input whether it should revisit digital asset accounting. Businesses, accountants, and cryptocurrency trade groups have long made the case that FASB needs to take action, but the voices of investors and analysts are getting louder now, too.

Their demands: an easier way to figure out the value of the digital assets companies hold. Fair value, or the price an asset would fetch in an orderly market, makes the most sense, some investors say.

“Please consider the fair value treatment of Bitcoin and other digital assets in the broadest possible sense. This ensures fair and consistent comparison across companies and across time,” the portfolio manager of the Teacher Retirement System of Texas wrote to FASB. Comments on the issue were due Sept. 22.

FASB last rejected a call to consider digital asset accounting in October 2020, when the board reasoned that few companies actually invested in volatile cryptocurrency. Companies that accept digital currency as payments immediately convert it to cash, which eliminates accounting headaches, board members said at the time.

Then Tesla Inc. changed the discussion.

Square, MicroStrategy, PayPal

The electric vehicle maker made headlines in February when it announced a $1.5 billion investment in Bitcoin. Later that month, Square Inc. said it would invest $170 million in Bitcoin after having invested $50 million in October.

Tesla’s and Square’s news followed software company MicroStrategy Inc.'s December announcement that all its excess cash would get invested in the digital currency. In the first six months of 2021, the company spent $1.6 billion buying Bitcoin. In October, PayPal Holdings Inc. had announced that customers could buy, sell, or hold cryptocurrency through their accounts.

“It’s a significant asset category with a lot of interest out there,” Joshi said. “Even though it’s just a few companies today, it’s likely to grow, so they need to be ahead of the curve.”

Academic research shows companies’ crypto investments surged in recent years. Prior to 2017, the total value of corporate crypto assets was about $10 million. By the first quarter of 2021, that number rose to $8.6 billion. Including the digital assets held by investment fund Grayscale Trusts, that figure jumps to $53 billion, according to research by Vivian Fang of the University of Minnesota, Chelsea Anderson and Jonathan Shipman at the University of Arkansas, and Robbie Moon at the Georgia Institute of Technology.

But even that number doesn’t represent the whole picture. Under the voluntary guidance from the AICPA, companies report digital assets at historical cost, not fair value. While Bitcoin can be volatile, its value soared in recent years. In addition, since there are no actual financial accounting requirements to report digital holdings, academics and analysts can’t for certain find all the companies that hold it.

“How do we know how substantial the crypto holdings are if we can’t examine the entire universe?” said Fang, associate professor of accounting at the Carlson School of Management at the University of Minnesota.

Companies generally are required to report anything in their financial statement that could be considered material to an investor. Small holdings of cryptocurrency may not make the cut, in a company’s eyes. But such details can be valuable to analysts because they can lend insight into a company’s risk appetite or help investors analyze trends.

“If we want maximum transparency, we should ask them to disclose any involvement in cryptocurrency transactions,” Fang said.

In the meantime, companies that hold crypto increasingly add voluntary disclosures about the fair value of their assets. Fair value gives a more accurate picture of what the digital holdings are worth, said Aaron Jacob, head of enterprise resource planning at TaxBit, a cryptocurrency tax and accounting software firm.

Current accounting gives investors only “half the story,” Jacob said.

“It’s a one-sided thing where the price drops have to be recorded,” he said. “But if the price goes up, I don’t get to record the benefit of it.”

To contact the reporter on this story: Nicola M. White in Washington at

To contact the editor responsible for this story: Jeff Harrington at