Cryptocurrency – despite its name – is not accounted for as currency.
Digital tokens are built on a distributed ledger infrastructure often referred to as a “blockchain.” These tokens can provide various rights. Cryptocurrency is a type of digital token, and is designed as a medium of exchange. Other digital tokens provide rights to use assets or services, or in some cases represent ownership interests.
Cryptocurrencies, including Bitcoin, are generating a significant amount of press given their rapid increases in value and extreme volatility. Because of this volatility, the value of Bitcoin in circulation has recently fluctuated between $100 and $300 billion. While investment activity in cryptocurrency is relatively small when compared to the overall financial markets, it has attracted significant regulatory scrutiny across multiple jurisdictions. Under the current US accounting framework, cryptocurrency is not cash, currency, or a financial asset; rather, it should likely be accounted for as an indefinite-lived intangible asset. The implication of this model is that declines in the market price of cryptocurrencies would be included in earnings, while increases in value beyond the original cost or recoveries of previous declines in value would not be captured. We believe that measuring cryptocurrencies at fair value, with changes in fair value recognized in earnings, better reflects their economics. We applaud the FASB for researching this topic in consideration of potential standard-setting and encourage them to undertake a project to consider the accounting for cryptocurrencies.
