Given that Grayscale Investments hasn’t shied away from sparring with regulators, CFO Ed McGee’s recent praise for the Financial Accounting Standards Board’s new crypto accounting standards was notable.
In an interview this week with CFO Dive, McGee was reluctant to acknowledge that the new standard that FASB voted on this month wasn’t perfect. If he had a critique, he said, it was that the new standard is narrow in terms of the scope of assets it will impact: bitcoin and ethereum are addressed by the new accounting rules that were nearly finalized in a unanimous board decision but not non-fungible tokens. He said that it would have been “marginally better” if it included wrapped tokens or tokens with enforceable rights.
But more broadly, McGee — whose firm is battling the Securities and Exchange Commission to win the right to launch the first bitcoin exchange-traded fund — expressed strong support for the step forward that the U.S. accounting standards setter took in finally putting digital assets squarely in the rules or codification that guides generally accepted accounting principles.
“Does it solve every nuance from an accounting perspective even with fair value in terms of the scope of the assets and how digital assets are maybe unique from other assets on the balance sheet? No. But does the progress they made give me a lot of excitement? Absolutely,” McGee said. “I think the FASB met the moment.”
While many companies in the crypto industry have long clamored for fair value accounting, the FASB decision comes at a difficult time for the sector, which is just beginning to regain its footing after the collapse of FTX and other crypto companies last year. Then too the resulting fall in valuations prompted sharp criticism of regulatory oversight of the new asset class.
Until last year FASB had generally been cautious about addressing cryptocurrency despite calls to standardize it. In October 2020 the board decided not to add a project on digital currencies to its technical agenda after deciding the issue wasn’t “pervasive” enough, one of the gauges it uses to determine whether a subject merits attention.
This time around, the FASB, not known for making rapid decisions, moved fairly quickly and intentionally kept the scope narrow to make sure a standard was achievable. While FTX’s collapse turned out not to have been an accounting failure, its troubles and the attention it drew to the sector likely did help drive the FASB to move forward on the new rule, McGee said.
FTX helped put cryptocurrencies “on the radar for FASB to focus on,” McGee said.
Under the accounting standards update — which will will go into effect for the fiscal years beginning after Dec. 15, 2024 — the rules that underpin generally accepted accounting practices will call for companies to report qualifying crypto assets using the fair value accounting method, which is a change from current practice under which most companies report it as an intangible asset that is impaired to the lowest observable value within a given reporting period.
The details matter, but the naming of crypto in the rules that were once silent about them is also a major change, he said. The new standard takes the ambiguity that many companies have wrestled with when accounting for crypto currency and and gives a baseline that the FASB can build on, and that executives can work with, he said.
“You can now go to the guidance and find this topic,” McGee said. “Digital assets now have a home within the U.S. GAAP codification. That’s a great thing.”