Digital assets present new corporate treasury challenges
Corporates looking to acquire digital assets for treasury purposes need to take care in their accounting treatment.
Tesla, MicroStrategy and Square are just some of the companies that have recently revealed plans to hold digital assets on their balance sheets.
When MicroStrategy announced its bitcoin purchase, chief executive Michael Saylor observed that macro factors such as the economic and public health crisis precipitated by Covid-19, unprecedented government financial stimulus measures, and global political and economic uncertainty could have a depreciating effect on the long-term real value of fiat currencies and many other conventional asset types.
Intangible asset accounting means you can’t recognise appreciation but you do recognise impairment
Enthusiasts argue that bitcoin’s technical characteristics make it an ideal diversified corporate treasury holding and that digital assets have a proven history of acting as a store of value and inflation hedge, which is clearly attractive for corporate treasuries.
The accounting of the asset is important though.
“Intangible asset accounting – where bitcoin sits for most corporates – means you can't recognise appreciation but you do recognise impairment,” explains Ledgermatic chief executive Luke Sully. “The early signs from some US corporates holding bitcoin are to deploy a hybrid strategy; to use it both as payment for goods and services, as well as to hold on the balance sheet.”