Cryptocurrency has been shaking up the financial world for over a decade now. From Bitcoin to Ethereum and countless altcoins, digital assets have become an integral part of modern finance. Yet, when it comes to accounting for these assets, things can get tricky. Businesses, accountants, and even regulators are still navigating how to treat cryptocurrencies within traditional financial frameworks. If you’ve ever wondered how to account for cryptocurrencies under IFRS and US GAAP, or if you just want to make sure you’re handling digital assets correctly for tax and compliance purposes, you’re in the right place. In this article, we will break everything down in a way that is easy to understand—no accounting degree required.
Unlike traditional assets, cryptocurrencies don’t fit neatly into conventional financial categories. They aren’t cash, they aren’t typical investments, and they aren’t exactly inventory either. This ambiguity has led to a lot of confusion about how to classify, report, and account for digital assets properly.
For businesses that hold or trade cryptocurrency, proper accounting is essential for tax compliance, financial reporting, and risk management. Regulatory bodies like the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (US GAAP) have issued guidelines, but they’re evolving as the industry matures. That’s why understanding how to handle cryptocurrency accounting now can save you a ton of headaches later.
One of the biggest challenges with cryptocurrency is figuring out how to classify it. Traditional accounting systems are built around assets like cash, investments, and inventory, but crypto doesn’t fit neatly into any of those categories.
Here’s a breakdown of how IFRS and US GAAP view cryptocurrency:
Under IFRS: Cryptocurrency is generally classified as an intangible asset under IAS 38 unless it is held for trading, in which case it is considered inventory under IAS 2.
Under US GAAP: The Financial Accounting Standards Board (FASB) has ruled that cryptocurrency should be treated as an intangible asset, meaning it must be reported at its historical cost with impairment testing.
This classification matters because it affects how businesses report crypto on their financial statements. Unlike cash or investments, intangible assets are not marked to market, meaning companies can’t reflect market gains until they sell the asset. However, they must recognize losses if the value drops below the purchase price.
So, let’s say your company buys 10 Bitcoin at $40,000 each. How do you record that?
Initial Recognition: Under both IFRS and US GAAP, the Bitcoin purchase would be recorded as an asset at cost. Under IAS 38 and ASC 350, the cost includes the purchase price plus any directly attributable transaction costs.
Subsequent Measurement: If the price of Bitcoin falls to $30,000, impairment rules apply:
Under US GAAP (ASC 350): The asset’s value on the books must be written down when impairment occurs, and any subsequent increases in value cannot be recorded. Under US GAAP, you cannot recognize the gain until you sell it. The impairment test compares the carrying amount to the asset's fair value, and once written down, it cannot be reversed.
Under IFRS (IAS 36 - Impairment of Assets): Impairment is recognized when the carrying amount exceeds recoverable amount, but unlike US GAAP, if Bitcoin’s price later rises, certain companies using the revaluation model under IAS 38 may be able to recognize gains, subject to fair value considerations.
Since cryptocurrencies are classified as intangible assets, businesses must conduct impairment testing at least once a year. If the asset’s market price drops below its recorded value, the company must write down the asset.
For example, let’s say your company holds Ethereum at an initial recorded cost of $3,000 per unit. If the market price drops to $2,000, the impairment loss must be recognized immediately. However, if the price later recovers to $3,500, that gain cannot be recorded under US GAAP unless the asset is sold.
Taxation of cryptocurrency varies depending on how it is used. Here are some common scenarios:
Trading and Selling: Gains and losses from selling crypto are typically subject to capital gains tax.
Mining: If you mine cryptocurrency, it’s usually treated as income at its fair market value when received.
Payments and Transactions: If a business accepts cryptocurrency as payment, it must record revenue based on the asset’s fair value at the time of receipt.
Understanding these tax rules is crucial for staying compliant, especially as governments around the world are increasing scrutiny on crypto transactions.
Many businesses now accept cryptocurrency as payment, which means they need a robust accounting system to manage these transactions. Here are a few best practices:
Use Crypto-Friendly Accounting Software: Platforms like QuickBooks and Xero now integrate with crypto wallets.
Track Every Transaction: Since crypto values fluctuate, keeping detailed records is crucial.
Convert Crypto to Fiat Regularly: Some companies choose to convert crypto to cash to avoid volatility.
Stay Updated on Regulations: Accounting standards and tax laws surrounding cryptocurrency are constantly changing.
Several publicly traded U.S. companies have incorporated cryptocurrency into their financial statements. Here are some notable examples:
Tesla, Inc. (NASDAQ: TSLA)
Tesla disclosed its Bitcoin holdings in its financial statements after purchasing $1.5 billion worth of BTC in 2021. The company follows US GAAP, classifying Bitcoin as an intangible asset, meaning impairment losses are recorded, but gains are only recognized upon sale.
Source: Tesla’s SEC Filings – EDGAR Database
MicroStrategy Incorporated (NASDAQ: MSTR)
MicroStrategy is one of the largest corporate holders of Bitcoin. The company accounts for Bitcoin as an intangible asset under US GAAP, which has led to impairment losses on its financial statements despite Bitcoin's appreciation.
Source: MicroStrategy’s SEC Filings – EDGAR Database
Coinbase Global, Inc. (NASDAQ: COIN)
As a cryptocurrency exchange, Coinbase holds digital assets both for itself and on behalf of customers. It provides extensive disclosures on crypto accounting policies, following fair value principles under IFRS for some assets.
Source: Coinbase Investor Relations – Coinbase SEC Filings
Block, Inc. (NYSE: SQ) (formerly Square, Inc.)
Block (led by Jack Dorsey) has invested in Bitcoin and reports it as an intangible asset. The company also provides revenue disclosures related to Bitcoin sales through its Cash App.
Source: Block’s SEC Filings – EDGAR Database
To access the latest financial statements of these companies, visit the SEC’s EDGAR database and search for their annual (10-K) and quarterly (10-Q) reports.
No discussion about cryptocurrency would be complete without mentioning Elon Musk. The Tesla and SpaceX CEO has played a significant role in shaping the cryptocurrency market. His tweets alone have caused Bitcoin and Dogecoin prices to soar or plummet within hours.
In 2021, Tesla announced that it had bought $1.5 billion worth of Bitcoin and briefly accepted it as a payment method for its vehicles. However, Musk later reversed the decision, citing environmental concerns over Bitcoin mining. Despite this, his support for Dogecoin has remained strong, often jokingly referring to it as "the people's crypto."
Musk’s involvement highlights an important accounting challenge—volatility. When Tesla disclosed its Bitcoin holdings, it had to follow the same accounting rules we discussed earlier. This meant recognizing impairments when the price dropped but not reporting gains unless the Bitcoin was sold. For companies investing in crypto, these accounting complexities must be carefully managed.
Accounting for digital assets isn’t as straightforward as traditional finance, and several challenges arise:
Volatility: The price of cryptocurrencies fluctuates wildly, making valuation tricky.
Regulatory Uncertainty: Different countries have different tax laws and accounting treatments for crypto.
Lack of Standardization: Unlike stocks or fiat currencies, cryptocurrencies don’t have universally accepted accounting rules.
The future of cryptocurrency accounting is still unfolding, but we can expect more clarity as regulatory bodies refine their guidelines. The FASB has recently proposed changes that could allow for fair value accounting of digital assets, which would make reporting gains and losses more transparent. Companies that deal with cryptocurrency should stay ahead of these changes by keeping up with evolving regulations and best practices.
Cryptocurrency and digital assets are here to stay, and accounting for them correctly is crucial for businesses and investors alike. By understanding how IFRS and US GAAP classify crypto, staying compliant with tax regulations, and implementing best practices, companies can navigate the complexities of digital asset accounting more effectively.
If you’re dealing with cryptocurrency in your business, make sure you have a solid accounting framework in place. Need help with your accounting? Reach out to TheAccountingHelp.com for expert advice and resources!
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