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14th October 2022 > > Accounting rules.


Accounting rules just got exciting!

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As Bloomberg continues to claim there is market turmoil this morning, I can only see a very impressive risk asset rally. What am I missing?

Curious Cryptos’ Commentary – Financial misreporting

I know I have been banging on about this, but it is really bugging me.

Just as a reminder, I have no political axe to grind – the CCC remains fiercely apolitical.

As you know, the UK press ran headlines for days on end about market turmoil after the mini budget with no factual evidence to back up the lurid, screeching headlines, seemingly designed to engineer the outcome of the reporting, though - luckily for everyone - to absolutely no effect.

Now they are doing it again. I saw this yesterday afternoon in the online edition of one of our most august publications:

Anyone want to guess where stocks were at that specific point in time?

Yep, you are right.

Wall Street was up 600 points, about 2%, and is even higher now. Whatever happened to journalist integrity?

Curious Cryptos’ Commentary – Accounting rules

I know, I have lost most of you right now with that headline, but if you can stay the course, this is an interesting and instructive CCC.

On the 16th June 2021, the CCC reported that MSTR (MicroStrategy) had put together a handy little guide for the accounting treatment of cryptos on a company’s balance sheet:

“However, we believe that cryptocurrencies would generally meet the definition of an indefinite-lived intangible asset because they do not convey specific rights in the same way as financial instruments. Indefinite-lived intangible assets are not amortized, but are required to be recognized and measured at their historical cost; impairment is recognized when their carrying amount exceeds fair value. The subsequent reversal of previously recognized impairment losses is prohibited”.

Which are all just words, and frankly worrying ones to those with working knowledge of accountancy, but the CCC posed a question – what does this mean in practice?

Without wanting to leave you with a cliff-hanger at the time, I also answered that question:

“If, at any quarterly reporting date, the mark-to-market value of BTC held on the balance sheet is less than the purchase price, the company must take that hit as a loss and declare it in the PnL.

If, at any quarterly reporting date, the mark-to-market value increases, that benefit CANNOT be recognised in the PnL until such time as the BTC is sold.”

The problem is surely obvious to everyone.

This problem has been a major stumbling block for Corporate Treasury departments to even consider diversifying a small part of their portfolio into BTC.

Treasury departments have a very clear function – they need to balance daily cash needs for operational reasons against their longer-term financing plans.

Those plans are mostly made up of debt, as opposed to the popular view that equity (stocks and shares) is the key driver of corporate finance, but once again we can put that public ignorance down to the low quality of most financial reporting in all major news outlets, print or digital.

I told you it was bugging me.

Moving on.

Regular readers will recall that my ridiculous price prediction of $1.2mm per BTC on 5th February 2021 included an assumption that up to 5% of Corporate Treasury assets will one day be allocated to BTC.

Estimates of that investment pool are hard to come by, and very unlikely to be accurate. I have seen some that state it is around $10 TRILLION ( which seems a remarkably low-ball figure to me, but we will go with it.

If 5% of those assets are allocated to BTC that more than doubles the market cap of BTC, doubling the price at a minimum, though with such a large buyer in town, the lack of sell-side liquidity would amplify that upward price move.

Maybe you want to argue that the allocation is just 1%, but I would argue that $10 TRILLION is a huge underestimate of Corporate Treasury assets.

Regardless of these finer details and potential disagreement around them, the key point is this.

One of the drivers towards $1.2mm per BTC is adoption by Corporate Treasury.

And that day has now come a lot closer.


The US Financial Accounting Standards Board (FASB) has declared that crypto assets are presented on the balance sheet at “fair value”.

Fair value is an easy concept in theory, but somewhat more difficult in real life, but that’s a discussion for the auditors and not us.

We will assume that the market price of BTC as shown on retail-driven centralised exchanges such as Coinbase and Binance is the fair value of BTC (*). It is certainly the most commonly accepted measure of fair value.

Let me ask the same question again – what does this mean in practice?

The answer is this:

If, at any quarterly reporting date, the mark-to-market value of BTC held on the balance sheet is less than the purchase price, the company must take that hit as a loss and declare it in the PnL.

If, at any quarterly reporting date, the mark-to-market value increases, that benefit MUST be recognised in the PnL.

Anthony Tuths, principal of KPMG's Alternative Investment Tax practice, understands the importance of this new accounting decree:

“FASB has just cleared the way for new accounting guidance which will allow most cryptocurrencies to be accounted for at fair value. When this guidance goes into effect (likely in 2023) it will greatly help smooth the way for broader mainstream adoption.”

Way to go, Tony.

(*) Spoiler alert – it isn’t, for reasons we have discussed before.

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