As cryptocurrency continues to gain acceptance as an investment and treasury asset, we are seeing an increasing number of businesses holding digital assets such as Bitcoin, Ethereum, and other cryptocurrencies. Whether acquired as a long-term investment, accepted as payment from customers, or held as part of a treasury management strategy, these assets can present unique financial reporting and income tax considerations.
Under ASC 350-60, Crypto Assets, qualifying crypto assets are measured at fair value, with changes in fair value recognized in net income at each reporting date.
This accounting model replaced the former impairment-only approach that often understated the economic value of crypto holdings on the balance sheet.
In addition to fair value measurement, companies are required to provide expanded financial statement disclosures, including information regarding:
• Significant cryptocurrency holdings
• Cost basis and fair value
• Number of units held
• Annual rollforwards of crypto activity
• Gains and losses recognized during the reporting period
• Contractual sale restrictions, when applicable
Not Every Digital Asset Qualifies
The guidance generally applies to cryptocurrencies that:
• qualify as intangible assets;
• reside on a blockchain or similar distributed ledger;
• are secured through cryptography;
• are fungible;
• do not provide enforceable rights to underlying goods or services; and
• are not issued by the reporting entity or its affiliates.
Accordingly, many commonly held cryptocurrencies—including Bitcoin and Ethereum—fall within the scope of ASC 350-60, while certain other digital assets, such as some stablecoins, tokenized assets, and non-fungible tokens (NFTs), may be subject to different accounting guidance.
Book Accounting vs. Tax Accounting
Although U.S. GAAP requires qualifying crypto assets to be measured at fair value each reporting period, U.S. federal income tax law generally does not recognize unrealized gains or losses. Instead, taxable income generally arises only upon a realization event, such as the sale or exchange of cryptocurrency or when cryptocurrency is used to acquire goods or services or transferred as compensation for services.
Consequently, the carrying amount of cryptocurrency reported in the financial statements will often differ from its tax basis. These differences generally create temporary differences that must be accounted for under ASC 740, Income Taxes, potentially resulting in deferred tax assets or deferred tax liabilities.
U.S. GAAP vs. IFRS
Companies reporting under both U.S. GAAP and IFRS should also recognize that the accounting models are not identical.
Unlike U.S. GAAP, IFRS does not contain a cryptocurrency-specific accounting standard. Cryptocurrency is generally accounted for under IAS 38, Intangible Assets, or, in limited circumstances, IAS 2, Inventories. Under IAS 38, entities generally apply either the cost model or, if an active market exists, the revaluation model. Under the revaluation model, unrealized appreciation is generally recognized in Other Comprehensive Income (OCI) rather than profit or loss, whereas ASC 350-60 requires all fair value changes to be recognized immediately in net income. Consequently, multinational companies may report significantly different earnings and equity under U.S. GAAP and IFRS despite holding the same cryptocurrency assets.
As a result, the measurement basis, income statement impact, and financial statement presentation under IFRS may differ from those required under U.S. GAAP.
As digital assets become increasingly common in corporate treasury and investment strategies, companies should periodically evaluate whether their accounting policies and financial reporting processes remain compliant with current U.S. GAAP. This includes confirming that all qualifying crypto assets have been properly identified and accounted for under ASC 350-60, that fair value measurements are supported by reliable valuation methodologies, and that appropriate internal controls are in place over the custody and valuation of digital assets. Companies should also assess the deferred tax implications arising from book-tax differences under ASC 740 and ensure that all required financial statement disclosures are complete and accurate.