Given its history of challenging regulators, Grayscale Investments CFO Ed McGee’s recent approval of the Financial Accounting Standards Board’s (FASB) new crypto accounting standards is remarkable. In a recent interview with CFO Dive, McGee was hesitant to state that the new standard was far from perfect. He mentioned that the scope of the new rules was somewhat narrow, as it only addressed Bitcoin and Ethereum but not non-fungible tokens. He did, however, suggest that it would have been better if it included wrapped tokens or tokens with enforceable rights.
McGee, who is currently fighting the Securities and Exchange Commission (SEC) to launch the first bitcoin exchange-traded fund, strongly endorsed the FASB’s step forward in enforcing digital assets into accounting principles. He stated that, although the new standard may not solve every nuance of fair value accounting, the progress made is highly commendable.
The FASB’s decision came at a very difficult time for the crypto sector, which is still trying to recover from the collapse of FTX and other crypto companies last year. This prompted much criticism of the existing regulatory oversight of this new asset class. Previously, the FASB had been wary of addressing cryptocurrency, and in October 2020, it declined to add a project on digital currencies to its technical agenda, claiming the issue wasn’t “pervasive” enough.
This time, however, the FASB, usually known for its slow decisions, acted more quickly to keep the scope narrow and achievable. McGee argued that FTX helped put cryptocurrencies “on the radar” for the FASB to take action.
The accounting standards update, which will come into effect for the fiscal years beginning after December 15, 2024, requires companies to report qualifying crypto assets using the fair value accounting method. This is a change from the current practice of reporting crypto assets as an intangible asset which is impaired to the lowest observable value within a given reporting period.
The details of the new rule are important, but the recognition of crypto assets in the standards that were once silent about them is even more significant. McGee believes the new standard provides a platform for the FASB to build on, and for executives to work with. He expressed his joy at the fact that “digital assets now have a home within the U.S. GAAP codification”.