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Major crypto industry players including Coinbase Global Inc., MicroStrategy Inc., and Kraken back a US accounting proposal for companies that own digital currencies to report the most up-to-date values of their holdings.

“As preparers of financial statements, we do not believe the current accounting standards for crypto assets faithfully represents the economic substance of such transactions,” crypto trading platform Kraken told the Financial Accounting Standards Board.

FASB’s plan, released in March, requires companies that hold or invest in cryptocurrency to report crypto assets at fair value, a measurement that aims to capture the current value of an asset. While the potential new standard would inject volatility into the earnings of companies heavily invested in crypto, it’s an improvement over current practice, according to comments due June 6.

Companies currently only get to record declines in crypto values, never recoveries if the price rebounds, MicroStrategy Inc. and others told FASB.

Fair-value crypto reporting “would enable us to provide investors with a more relevant view of our financial position and the economic value of our bitcoin holdings, which in turn would facilitate the ability of investors to make informed investment and capital allocation decisions,” MicroStrategy Inc. said.

The enterprise software maker as of March 31 held approximately 140,000 Bitcoins with a fair market value of almost $4 billion, the company said. Under current accounting rules, however, the company could only record half that value: $2 billion.

New Territory

There is currently no mention of crypto anywhere in US accounting rules, leading companies to use an American Institute of CPAs practice guide by default. That guide treats most crypto holdings as intangible assets, a category that includes rarely traded items like trademarks, copyrights, and brands.

Under the institute’s nonbinding guidance, companies record their crypto at the historical price they paid and assess their holdings every reporting period for impairments, or drops in value. If a company holds Bitcoin and the price drops briefly during the reporting period, the asset is considered impaired and those impairments can’t be reversed.

“This accounting does not reflect the economics of businesses engaged in crypto assets,” Kraken said.

FASB for years has resisted tackling crypto accounting, reasoning that too few companies invest in Bitcoin in a material way. Amid market volatility and Securities and Exchange Commission scrutiny of digital assets, FASB said it wanted to focus on the most pervasive use of crypto for US companies.

The March proposal would only cover assets that are created or reside on distributed ledgers based on blockchain technology and are secured through cryptography. The crypto assets would have to currently be classified as intangible assets, as defined in the US accounting rules, and fungible, meaning they can be interchanged with other assets of the same type.

The proposed rules also guard against companies minting tokens just to inflate their balance sheets. Tokens which a company creates for use within its own platform—such as the self-created tokens collapsed crypto exchange FTX offered to customers to make discounted trades on the FTX platform—are specifically excluded.

Non-fungible tokens, or NFTs—unique digital tokens that can take the form of animated memes or digital baseball cards—also are excluded from the proposal. Stablecoins and wrapped tokens—digital tokens that allow crypto from one blockchain to be used on another—similarly don’t fall within FASB’s plan.

Broader Rules Urged

Several companies, audit firms, and trade groups asked FASB to consider broader coverage. All four of the Big Four accounting firms asked FASB to include wrapped tokens that grant the holder the same rights as holding an underlying asset.

Such assets are typically held for similar purposes and trade at a price similar to that of the underlying crypto asset, PricewaterhouseCoopers LLP told FASB. Wrapped Bitcoin, the 18th largest cryptocurrency by market cap, is one example, PwC said.

Wrapped tokens can support the trading of locked or restricted tokens, such as when ethereum was locked for staking during its recent upgrade, wrote Coinbase. These wrapped tokens are actively traded on various decentralized and centralized exchanges, have readily determinable fair values, and exist specifically as a representation of another token.

“We believe that these tokens should be in scope of the proposed amendments if the underlying crypto asset meets the proposed scope criteria,” Coinbase wrote.

Deloitte & Touche LLP also cautioned against excluding all entity-created digital coins from the proposal. Crypto assets that were originally issued or created, but then subsequently purchased from an unrelated third party or received in exchange for goods or services, would be outside the rules as currently written, the firm said.

First Step?

Kraken said it “wholly” supported FASB’s proposal, but that it was only a first step to fully accounting for digital assets. The trading platform called on FASB to tackle accounting for stablecoins, wrapped tokens, crypto-based loans, and non-fungible tokens.

Payments company Block Inc. said the industry needed more guidance on emerging transactions, such as the presentation of revenue for companies acting as financial intermediaries.

“We believe the exposure draft should be a first step to modernizing accounting guidance as the digital assets space grows in size and complexity,” wrote Block Inc., whose products include Square and Cash App.

MicroStrategy, whose profits take a hit every time Bitcoin’s value nosedives, agreed with FASB on the need for narrow rules.

Prolonging the rulewriting process to accommodate a broader group of crypto assets “would delay the introduction of much needed accounting standards for entities that hold the most widely held digital assets for a comparatively small benefit,” the company told FASB.

After reviewing comments, FASB will discuss what changes, if any, it will make to the plan before finalizing it as an update to US generally accepting accounting principles. The board’s leadership has signaled it wants to issue new rules by year-end.