Written: The bookkeeping exercise keeps bitcoin from being more widely accepted

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Accounting firms prevent companies from holding cryptocurrency as an asset, even if they give ventures to venture capital firms – such as SoftBank Group Corp. – to invest in equally risky and volatile unicorns. Elon Musk’s MicroStrategy Inc. and Tesla Inc. own Bitcoin, but these are exceptions. A survey found that only 5% of financial executives plan to invest in Bitcoin this year.

This mindset is hampering the wider adoption of Bitcoin and other cryptos, as companies holding such digital currencies bear an accounting risk: large write-downs of assets.

This happens even though there are no official guidelines under generally accepted accounting principles (GAAP) on how companies should account for digital assets. Accountants operate from a consensus among auditors – in their ‘non-authoritative’ voice as they attempt to define the new era in a new report – that cryptos are not considered cash or instruments financial, but “intangible assets with indefinite useful life” because they “lack physical substance”.

In general, intangibles tend to be tied to a company’s business and operations – marketing, customer relationships, technological skills, or artistic expressions, says Allen Huang, professor of accounting and associate dean at the School of Business of the United States. ‘Hong Kong University of Science and Technology. To classify Bitcoin as such is overkill. However, this is now where accountants are trying to fit crypto into existing categories. And, as an intangible asset, Bitcoin’s book value can only go one way: down.

If a company bought Bitcoin at $ 60,000 and the fiscal quarter ended with crypto at $ 35,000, its investments will need to be written down and depreciated at $ 35,000 per coin. The reverse, however, is not true. A CFO cannot write off his company’s investments if the price goes back to $ 60,000. It can only do this when the company sells the parts. This makes it difficult for a company to account for gains on its crypto assets, while leaving many profits on the decline.

In February, this concern was raised just after Tesla disclosed a $ 1.5 billion Bitcoin investment. This is an important point. Depending on exactly when Tesla built up its crypto stack, the electric vehicle maker may have to report depreciation for the June quarter. What top-notch business wants to have this kind of puzzle on their balance sheet?

In contrast, stocks – classified as financial instruments – can easily be depreciated, thanks to what, in accounting parlance, is called “fair value, at market” accounting. For example, in the March quarter, venture capital giant SoftBank reported net income of 1.93 trillion yen ($ 17.5 billion), the highest on record for a Japanese company, mostly due to unrealized gains of new state-owned Coupang Inc. SoftBank owns more than a third of South Korea’s e-commerce.

It seems unfair. Often times, newly listed, money-burning unicorns like the now infamous Didi Global Inc. can be as risky as 12-year-old Bitcoin. If these unicorns had been classified as intangible assets, SoftBank and the other VCs would not have been able to claim profits until they had sold their holdings.

Nonetheless, the accountants are holding up. Companies with extra cash and willing to take risks will find it difficult to get into crypto. Granted, many CFOs may stay away from crypto assets anyway due to the volatility of trading. But those less risk averse would be deterred by a huge institutional barrier: their accounting firms.

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