In recent weeks, there have been two major changes in the digital asset industry. The Financial Accounting Standards Board (FASB) published an Accounting Standards Update (ASU) to improve the accounting for and disclosure of digital assets, and the Securities Exchange Commission (SEC) approved the listing and trading of select Bitcoin exchange-traded funds. Both events also come on the back of a bitcoin price resurgence where the price has more than doubled since the start of 2023.
The FASB Accounting Standards Update
The newly published ASU brings long-awaited guidance to help redefine how many have believed that digital assets should be recorded in the first place. Digital assets that meet select criteria included in the new ASU will now be recorded at fair value at each period end where the changes in fair value will be recorded on the income statement. Previously, digital assets were recorded using a cost less impairment model. This will simplify the amount of work required for companies to calculate the value of these digital assets.
For investors in these companies, the recent guidance adds and improves disclosures in the financial statements. The new disclosures include the makeup of the significant digital asset holdings at each period end, reconciliation of the digital assets held at each reporting period, and any sale restrictions that may exist. The combination of these will bring a much clearer picture of a company’s digital asset holdings.
While the new ASU covers the majority of digital assets, not all are covered. Digital assets must meet all the criteria as defined in the standard. Therefore, digital assets such as non-fungible tokens (NFTs) are not included under the new guidance since a criterion includes the need for assets to be fungible.
The ASU is effective for fiscal years beginning after December 15, 2024, however early adoption is permitted.
Approval of Select Bitcoin Exchange-Traded Funds
After years of anticipation, on January 10, 2024, the SEC approved 11 applications for the first U.S. listed Bitcoin exchange-traded funds (ETFs). This is a monumental moment for the industry as this brings easy access to bitcoin for both institutional and retail investors, and further validates bitcoin as a legitimate investment class.
Initial trading began on January 11, 2024, and the ETFs immediately saw a significant amount of trading on the first day with over $4 billion of shares traded, which was the largest volume ETF launch in history. The price of bitcoin immediately saw an increase and eventually reached $47,000 within days, which was the highest level since 2022.
However, there are still many naysayers for digital assets, including the SEC. The SEC noted in their approval of the Bitcoin exchange-traded funds that they still do not approve of or endorse Bitcoin. This is due to their belief that there are many risks associated with Bitcoin and products whose value is tied to crypto.
Where the Industry Goes From Here
Both events have been years in the making and will greatly improve how individuals and investors view the digital asset industry. With more regulated guidance, the amount of people jumping into the industry will grow and knowledge will spread to a broader audience. With hope from the approval of the Bitcoin exchange-traded funds, we are likely to see several companies in the digital asset space seeking approval from the SEC to go public. In addition, the Bitcoin ecosystem is eagerly anticipating the April 2024 halving, and how the market will react to this event.
While these developments are a step in the right direction, there is still a long way to go before the digital asset industry has a comprehensive financial reporting and regulatory framework. In the meantime, reach out to a member of Wolf’s Crypto and Blockchain team to learn how we can assist your organization in this evolving landscape.
