Crypto Loans & FASB Best Practices

Over the course of the past couple of years, FASB has been taking into consideration the proper methodology associated with how to account for digital assets on the balance sheet. Accordingly, to ASU 2023-08, which was recently made into effect last December 2024, states that businesses that have acquired digital assets must reflect them on their financial at the Fair Market Value, which also includes both assets and liabilities, both short term and long term (Rashty 2024). Digital assets have been developing vary use-cases across various blockchain ecosystems, includes the ability to use certain digital assets, such as Bitcoin, as a form of collateral, to then borrow against, and take out a long-term loan. These crypto loans can be in the form of an alternative digital asset which is subject to charges in prices / exchanges rates, which then in turn has an ever-changing Fair Market Value that must be accounted for.  

The FASB ruling, ASU 2023-08 also coincided with what is mentioned in Intermediate Accounting, “Companies have the option to record fair value in their accounts for most financial assets and liabilities, including noncurrent liabilities. Fair value measurement for financial instruments, including financial liabilities, provides more relevant and understandable information than amortized cost. If companies choose the fair value option, noncurrent liabilities, such as bonds and notes payable, are recorded at fair value, with unrealized holding gains or losses reported as part of net income. An unrealized holding gain or loss is the net change in the fair value of the liability from one period to another, exclusive of interest expense recognized. (Warfield 2022, Section 13-42).” Therefore, when a business acquires a loan in the form of a digital asset, the company will not only reflect the Fair Market Value or technically what the cost basis was at the time of acquisition but also periodically make necessary adjusting entries to account for either unrealized gains or losses (short-term or long-term). This way, when the business closes out their books for a specified period, the digital asset account that represents long-term liabilities will properly reflect the Fair Market Value for that specific ending period.  

Of course, as both interest and principal payments are paid off over the course of time, the business can make the corresponding entries to account for the interest expenses along with the overall ammortization of the loan. In terms of digital asset accounting, the debits and credits associated with the journal entries will be reflected at the Fair Market Value during the exact time of disposal. Moreover, since the digital asset loan value may have appreciated in value since the date of acquisition, and there are disposals that are occurring, a company must also account for any realized gains or losses for tax purposes, even if the digital asset was acquired in the form of a long-term liability.   

Rashty, J. (2024, December). FASB’s new guidance on accounting for crypto assets. The CPA Journal. Retrieved from https://www.cpajournal.com/2024/12/25/fasbs-new-guidance-on-accounting-for-crypto-assets/#google_vignette  

Warfield, Donald E. Kieso, Jerry J. Weygandt, Terry D. Intermediate Accounting. Available from: MBS Direct, (18th Edition). Wiley Global Education US, 2022.