Introduction

At the end of 2023, the Financial Accounting Standards Board (FASB) officially approved a new accounting standard (ASC 350) for cryptocurrencies. It requires companies, starting December 15, 2024, to measure non-productive crypto assets like Bitcoin at fair value and recognize unrealized gains and losses directly in the income statement. Unrealized gains and losses refer to the accounting profits or losses resulting from market price fluctuations of held assets. These do not reflect actual realized profits or losses until the asset is sold or settled. This shift moves away from the rigid framework of the traditional impairment cost method and allows financial statements to better reflect Bitcoin’s price fluctuations. However, it has sparked discussions on both financial transparency and profit volatility. The new standard is expected to encourage more publicly traded companies to include Bitcoin on their balance sheets and could reshape the liquidity structure of the crypto market and the institutional investment landscape. This article examines the key changes in accounting standards and their potential impact on both corporate decision-making and the broader crypto ecosystem.

About FASB

The FASB is an independent nonprofit organization responsible for establishing and maintaining accounting standards in the United States. Founded in 1973, FASB’s primary mission is to develop and uphold a transparent, consistent, and high-quality accounting framework known as GAAP (Generally Accepted Accounting Principles).

The GAAP ensures reliability, comparability, and transparency in financial reporting, thus safeguarding both investors and the public.

Source: https://www.fasb.org/

Functions of FASB

The FASB establishes and maintains the foundational principles of accounting information quality. Its primary responsibility is to ensure consistency in corporate financial reporting across key dimensions, including disclosure scope, measurement methods, and recognition timing, by developing the Generally Accepted Accounting Principles (GAAP). To accomplish this, the FASB operates under a three-tiered framework:

• Research-Driven Approach – Closely monitors economic trends (e.g., crypto assets, ESG disclosures).
• Consensus Building – Conducts public hearings and collects industry feedback.
• Dynamic Iteration – Introduces gradual revisions for contentious areas (e.g., lease liability recognition).

This mechanism ensures the forward-looking nature of the standards framework while effectively preventing government or corporate influence through the independent funding structure of the Financial Accounting Foundation (FAF), thus preserving the neutrality and credibility of the standards.

How FASB Operates

FASB’s standard-setting process is built on rigorous procedures and stakeholder collaboration. Each new accounting standard undergoes five key phases:

• The initial research phase thoroughly analyzes changes in the economic environment, and after drafting, the proposal is publicly solicited for feedback from businesses, accounting firms, and academic institutions. After several rounds of revisions and improvements, the final standards are officially released.
• For example, revising cryptocurrencies’ fair value measurement standards took 23 months. It incorporates feedback from 532 institutions, including Goldman Sachs and PwC. The final standards address the industry’s practical needs and maintain rigorous measurement logic.

Regarding regulatory coordination, the FASB ensures its standards are mandatory for the financial reporting of publicly traded companies through its statutory authority with the SEC. In addition, in partnership with the IASB, the FASB works to align technical differences between U.S. GAAP and international IFRS standards (such as revenue recognition timing and lease accounting), which enables multinational companies to reduce cross-border financial compliance costs by approximately 15%. This governance approach, which combines professional judgment with market realities, allows the FASB to preserve the stability of accounting standards while effectively addressing emerging challenges, such as innovations in financial instruments and sustainability reporting.

The Role of FASB in Traditional Enterprises

The Financial Accounting Standards Board (FASB) performs two key functions through the development and continuous revision of the U.S. Generally Accepted Accounting Principles (GAAP):

• Standardizing corporate financial accounting practices and ensuring the reliability of market information. Its standards systematically define the measurement and disclosure rules for core accounting elements, such as revenue recognition and asset impairment. This allows for cross-industry comparability of financial statements across different sectors, such as manufacturing and retail, and establishes a benchmark framework for investors to conduct cross-sector analysis. In practice, FASB standards directly influence corporate accounting processes, such as the mandatory inclusion of long-term lease liabilities on the balance sheet. This adjustment forces companies to rethink financing decision models and introduces stricter measurement standards in merger valuations and risk exposure management.
• The standards provide clear compliance references for auditing firms and reduce the potential for financial fraud by standardizing accounting treatment methods (e.g., conditions for capitalizing software development costs).

From a regulatory perspective, the FASB’s mechanism balances two key needs: ensuring the accuracy of corporate economic activity records while safeguarding investors’ right to reliable financial data. It ultimately creates a normative consensus system that supports the effective operation of capital markets.

Comparison of Old and New Accounting Standards

Old Standard: Cost-Less-Impairment Model

The Cost-Less-Impairment Model required companies to record cryptocurrencies such as Bitcoin at their initial purchase cost. Impairment losses were recognized only if the asset’s value suffered a permanent decline, and these losses were irreversible even if market prices recovered. However, as the financial industry evolved, the limitations of this model became increasingly evident:

• Distorted Financial Statements:

The model failed to reflect real market value fluctuations of crypto assets, disconnecting balance sheets from market conditions. For example, when Tesla held Bitcoin in 2021, its financial reports only recorded the cost price and concealed potential gains.

• Suppressed Institutional Adoption:

The rule of non-reversible impairment forces companies to acknowledge losses without recognizing gains, which increases financial volatility and discourages long-term allocation. MicroStrategy, for instance, faced shareholder pressure due to substantial impairment losses.

• Lack of Transparency:

Investors could not accurately assess the real value of corporate crypto holdings through financial reports, which undermines market pricing efficiency. This issue contributed to the persistent high discount rate of Grayscale’s Bitcoin Trust (GBTC) due to accounting treatment controversies.

Key Changes in the New Standard

The newly issued fair value accounting standard requires companies to revalue their crypto holdings quarterly based on market prices. Specifically, at each quarter-end, companies must adjust the book value of their crypto assets in line with the latest market prices. For example, if Bitcoin’s price rises from $30,000 to $50,000, the unrealized gains must be immediately reflected in financial statements. This adjustment significantly increases the volatility of reported net income, as unrealized gains and losses are now included in the income statement even if the assets remain unsold. Additionally, the new disclosure requirements cover four key aspects: total crypto holdings, valuation methodology (e.g., adjustments for liquidity discounts), liquidity risk assessment (including proof-of-reserves audits), and internal risk control mechanisms (such as key storage solutions and transaction approval processes). These disclosure rules align crypto asset reporting with traditional equity investment standards while incorporating special considerations for decentralized asset characteristics.

Direct Impact on Bitcoin and the Crypto Market

Impact on Corporate Financials

FASB’s new regulation requires companies to revalue crypto holdings quarterly based on market prices and recognize unrealized gains/losses in financial statements. This change restructures corporate financials in three key ways:

• Increased Profit and Loss Volatility: Due to the extreme price fluctuations of crypto assets, corporate net income will now more directly reflect market trends. For example, a company holding $1 billion in Bitcoin would report a $300 million unrealized gain if Bitcoin’s price rose 30% in a quarter—or a corresponding loss if prices dropped. This mandatory real-time recognition could lead to irregular profit fluctuations, impacting stock price stability. To mitigate this risk, companies must enhance investor relations management and regularly publish position reports and risk hedging strategies to stabilize market expectations.
• Improved Balance Sheet Transparency: Market-based valuation eliminates the disconnect between asset values and market conditions. For example, MicroStrategy’s 214,246 Bitcoin holdings (as of June 2024) will no longer be undervalued due to outdated accounting standards. Greater transparency reduces investor concerns about financial accuracy, thus attracting more long-term institutional investors. However, companies must now disclose detailed custody arrangements (e.g., cold wallet storage ratios) and liquidity management strategies (e.g., minimum convertible reserves) to increase compliance complexity.
• Forced Shift in Asset Management Strategies: Companies may need to rethink their traditional “buy-and-hold” strategies to manage profit volatility. Two likely approaches include:

1. Risk Hedging Strategies: Using futures contracts and options to lock in some portfolio value.
2. Active Position Management: Implementing strict threshold-based triggers for partial sell-offs at predefined price levels.

These adjustments will redefine the relationship between corporate financial reporting and business strategy, which necessitates closer collaboration between finance teams and investment decision-makers.

Enhanced Institutional Appeal

The new standard resolves the distortion of recognizing only impairments without acknowledging gains, thus lowering institutional entry barriers:

• Reduced Compliance Risk:

Fair value accounting aligns with traditional financial assets (e.g., stocks), which eliminates audit disputes (e.g., GBTC’s long-standing discount due to accounting issues).

• Optimized Product Structuring:

Crypto ETFs and trusts can now simplify accounting treatments to reduce operational costs. For example, BlackRock’s Bitcoin ETF (IBIT) values holdings at market price, which makes it easier for pension funds to include it in their portfolios.

• Stronger Institutional Adoption:

Hedge funds and insurance companies are likely to increase their Bitcoin exposure as improved accounting clarity enhances asset allocation transparency. A report by Fidelity reveals that 78% of institutional investors view clear accounting standards as a critical factor in expanding their crypto holdings.

Market Liquidity and Price Volatility

New standards may reshape trading behavior and price formation in the crypto market

• Quarter-End “Window Dressing” Effect:

Companies may engage in concentrated Bitcoin buying or selling before quarter-end to optimize financial reports, which leads to short-term liquidity surges and abnormal price fluctuations—similar to the “window dressing” phenomenon in U.S. equities.

• Long-Term Liquidity Enhancement:

Fair value accounting strengthens Bitcoin’s status as a “quasi-financial asset,” attracting more market makers and derivatives instruments (e.g., futures and options), thereby reducing bid-ask spreads.

• Improved Price Discovery Efficiency:
  With greater transparency in corporate Bitcoin holdings, the market can better assess supply and demand dynamics (e.g., publicly traded companies holding over 5% of Bitcoin’s circulating supply).

Pushing Forward the Crypto Industry Ecosystem

• Growing Demand for Pricing Data Services:
  Enterprises will rely on compliant data sources (e.g., Coin Metrics, Kaiko) to verify fair value. It will drive the growth of on-chain data analytics.
• Upgrades in Custody and Audit Services:
  Institutions may require custodians (e.g., Coinbase Custody) to provide real-time holdings reports, while auditing firms (e.g., Deloitte) will need to develop crypto asset verification tools.
• Regulatory Synergy:
  The FASB standards could influence the SEC’s classification of crypto assets (e.g., whether they are deemed securities), potentially accelerating legislative progress.

Future Outlook

Crypto Market Maturity Boost

FASB’s fair value standard represents a milestone in integrating cryptocurrencies into the global financial system. As accounting transparency improves, traditionally conservative institutional investors—such as public pension funds and university endowments—will have a stronger foundation for crypto allocation:

• Large-Scale Institutional Inflows:

Conservative institutions such as pension funds and endowments may gradually allocate Bitcoin as accounting transparency lowers compliance barriers. As a reference, the management of BlackRock’s Bitcoin ETF surpasses $20 billion.

Data Projection: ARK Invest estimates that institutional Bitcoin ownership could rise from 5% to 20% over the next five years.

• Expansion of Derivatives Markets:

The need for corporate risk hedging against earnings volatility will drive structural growth in crypto derivatives. Accounting standards mandate the periodic recognition of changes in asset values, which will lead to a surge in demand for Bitcoin options (for downside protection) and futures contracts (for yield curve locking).

Conclusion

FASB’s new standard represents more than just an accounting update—it marks a pivotal moment in integrating cryptocurrencies into mainstream finance. Over the next decade, as institutional capital, regulatory frameworks, and technological advancements continue to evolve, Bitcoin may become a standard asset on corporate balance sheets. The market must now balance managing volatility, complying with cross-border regulations, and fostering financial innovation. This will ultimately redefine the concept of “assets” and lay the groundwork for a robust financial foundation in the Web3 economy.