With Bitcoin Soaring, Tesla may soon report these gains on its crypto holdings

The automaker run by Elon Musk made a bet on crypto in early 2021, joining MicroStrategy (MSTR) as one of the few companies to have Bitcoin in its corporate treasury. Tesla sold most of its crypto in the second quarter of 2022, dumping more than 30,000 Bitcoins or about 75% of its holdings and avoiding major losses amid Bitcoin’s fall from all-time highs near $69,000 in late 2021 to lows near $15,500 in November last year.

While 2023 has seen a reversal in Bitcoin’s fortunes, with the biggest digital asset up around 75% this year and trading around its highest level since last June, Tesla has been unable to reverse its earlier write-downs and report gains due to accounting rules. Tesla initially bought Bitcoin for around $30,000 a piece, which is close to the prices at the end of March – $28,500. The group appears to be pretty much in balance with the krypton it still holds, but the balance sheet still paints a picture of bear market carnage.

Cryptos are currently not covered by accounting rules, meaning companies record them as “intangible assets” and write down their value if their price falls below the purchase price. Gains can only be booked if the assets are sold, confusing disclosures about long-term investments and weighing on investors’ views on the company’s crypto holdings.

That may soon change. Last October, the Financial Accounting Standards Board (FASB) stated that companies can use fair value accounting when reporting digital assets such as Bitcoin. A change to fair value accounting will mean that companies report gains and losses related to crypto in a similar way to traditional financial assets, a move that has been singled out as a factor that could increase institutional use of digital assets.

The FASB confirmed its proposal with a proposed change to accounting standards last month, opening the idea to public review and stakeholder input until June 6.

“Stakeholders from all professional backgrounds identified digital assets as a top priority area for the board to address,” FASB Chairman Richard R. Jones said in a statement. “We responded to the feedback with what was proposed [Accounting Standards Update]which will provide investors with greater transparency about the fair value of cryptoassets held by entities, as well as additional information about the types of cryptoassets held and changes in those holdings.”

For companies holding crypto, this subtle change in accounting rules could have a major impact on the disclosure of holdings of digital assets. If Bitcoin continues to rally — or even holds on to recent gains — Tesla’s balance sheet will look much better for crypto bulls.

Write to Jack Denton at [email protected]