FASB Unveils Fair Value Reporting for Bitcoin Holdings
The Financial Accounting Standards Board (FASB) has, in its Wednesday, December 13 statement, issued new guidelines mandating companies to report crypto holdings at their fair value. The enforcement of the fair value model would see the US companies with Bitcoin piles report lower value for their accumulated crypto.
The FASB standard would see the Bitcoin price set at nearly 19% below the prevailing market price, with the fair value model set at $36,000.
The Bitcoin price rally witnessed since the onset of mid-November is bringing significant profits for investors holding long positions. The profit gain is not limited to retail investors but also to institutional investors, including Tesla, MicroStrategy and crypto exchanges holding crypto assets.
Institutional investors are buoyed by the expectation of sustained bullish steam in January 2024 when the US Securities and Exchange Commission (SEC) is projected to approve the spot Bitcoin exchange-traded fund (ETF).
Nonetheless, before the realization of widely anticipated approval, the FASB first released new crypto accounting standards that would materially affect the reported profits and losses.
Bitcoin Receiving Fair Value Treatment
Bitcoin price has, over the years, witnessed booms and troughs that translate to net profits and losses for the crypto holders relative to the different purchase prices. The trend often influences the income reported by such enterprises.
The awareness of variations characterizing Bitcoin prices, gains and losses prompted the FASB to publish the Accounting Standards Update (ASU) in their Wednesday statement. The ASU targets enhancing the accounting for and disclosure of the crypto holdings.
The new standard requires the entity holding the crypto assets to measure such at their fair value. The standard applies to the institutional investors at each of their reporting periods. Besides, the enterprises are mandated to recognize the changes realized in the fair value of their cryptos in the net income.
The FASB stated that the amendments conveyed on Wednesday are slated for enforcement in the 2025-2026 fiscal year. Nevertheless, the FASB indicated that institutional investors can consider early adoption.
The fair value measurement of any asset implies assessing the actual worth derived fundamentally. Such value is not influenced by the factors driving market forces that dictate movement in market price.
A reflection of the fair value model applied by on-chain market intelligence firm Glassnode, Bitcoin value is technically capped at $36,000. Such would mark an 18.96% dip from the $42,825.03 market price.
MicroStrategy Chair Predicts Bitcoin Transformation to Treasury Reserve Asset
Embracing the change would affect the reported value of holdings by the crypto companies. The ASU publication is perceived as cementing the policy, itself a positive development of the cryptocurrency industry in the long run.
The ASU publication is perceived by MicroStrategy executive chairman Michael Saylor as beneficial in the long run. The American entrepreneur who co-founded the firm, identified as the largest global public holder of Bitcoin, tweeted that upgrading the accounting standards facilitates Bitcoin adoption as a treasury reserve asset for use by corporations globally.
Bitcoin Market Performance, Relative to Grayscale’s Growth
In the past weeks, the Bitcoin price rally has influenced the Grayscale Bitcoin Trust (GBTC) value since BlackRock bid for the ETF in June 2023. The influence has, in the past week, appeared to fade away.
The divergence of the two surfaced in the past week when Bitcoin lost steam, leaving its price to fall to $40,000. In contrast, GBTC sustained the premium steam.
The disparity arises from the awareness of GBTC’s potential as it edges closer to approval of conversion into a spot ETF in January. This projection is imbuing considerable optimism among the GBTC investors.
Although the GBTC premium to the net asset value is still stuck in the negatives (-9.47%), it portrays significant improvement from the -44% in mid-2023. The disparity experienced last week indicates that Bitcoin price correcting GBTC has a lesser impact on the exchange traded product (ETP), with its prevailing value subject to broader market cues.
The hype surrounding the ETF appears to propel GBTC’s recovery from the discount and ultimately regain trading at the premium witnessed before February 2021.
At press time, the GBTC discount to the NAV is -7.35% to exchange hands at $35.59, as per YCharts. Comparatively, Bitcoin is 4.3% up in the past 24 hours to trade at $42,949.82, signifying recovery towards the $43500 level.
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