By Tom Wilson, Anna Irrera and Jessica DiNapoli
LONDON/NEW YORK- When Elon Musk’s Tesla became the biggest name to reveal it had added bitcoin to its coffers last month, many pundits were swift to call a corporate rush towards the booming cryptocurrency.
Yet there’s unlikely to be a concerted crypto charge any time soon, say many finance executives and accountants loath to risk balance sheets and reputations on a highly volatile and unpredictable asset that confounds convention.
“When I did my treasury exams, the thing we were told as number one objective is to guarantee security and liquidity of the balance sheet,” said Graham Robinson, a partner in international tax and treasury at PwC and adviser to the UK’s Association for Corporate Treasurers.
“That is the fundamental problem with bitcoin, if those are the objectives for treasurers, then breaking them could get them in trouble.”
Tesla Inc’s $1.5 billion bitcoin bet saw it join business software firm MicroStrategy Inc and Twitter boss Jack Dorsey’s payments company Square Inc in swapping some traditional cash reserves for the digital coin.
Proponents of the cryptocurrency see it as a hedge against inflation at a time of unprecedented government stimulus, a falling dollar and record-low interest rates that make attractive high-yielding assets hard to find.
While the moves have prompted more boardroom discussions though, headaches from bitcoin’s volatility to accounting for it and storing it are likely to preclude a big wave of companies holding large amounts on balance sheets in the short term, according to over a dozen financial officers, board members and accountants interviewed by Reuters.
“It will take more than a small handful of disruptive companies investing in bitcoin to impact the narrative in boardrooms,” said Raul Fernandez, an entrepreneur and investor who sits on the audit committee of the board of chipmaker Broadcom Inc as well as other companies.
“Larger global companies, I can’t see those conversations happening right now.”
One problem could lie in the devil of the accounting detail in a bookkeeping industry that, like many others, is still taking stock of the nature of cryptocurrencies.
The Financial Accounting Standards Board, which sets accounting standards for US corporations, does not have guidance specific to the accounting for cryptocurrencies.
However, consistent with discussions among a separate US trade body, companies apply existing FASB guidance on the accounting for “intangible assets”, which usually includes intellectual property, brand recognition or goodwill.
Under these rules, companies other than investment firms or broker-dealers cannot book gains in the value of holdings should the price of bitcoin rise – but must write down their investment as an impairment charge if it falls.
Furthermore, once a company writes down its holdings, it cannot record subsequent gains until it sells.
By contrast, companies periodically reflect the impact of fluctuations in traditional currencies in their financial statements.
The FASB has no immediate plans to review its treatment of bitcoin as the issue affects few of its constituents, according to a source familiar with the matter.
“I don’t think it’s the best accounting so far,” said Robert Hertz, a former FASB chairman. “I am hoping that if more mainstream companies get into bitcoin, the accounting standards board may revisit the accounting treatment.”
Outside the United States, cryptocurrencies are usually treated as intangible assets too.
But in contrast to guidance under the FASB rules, writedowns can be reversed in future years. In certain cases, companies can record bitcoin at market value.
Publicly listed companies together hold around $9 billion of bitcoin, data from the Bitcoin Treasuries website shows. Around 80 percent is held by Tesla and MicroStrategy, the latter with over $4.5 billion.
Square, which allows users to buy and sell bitcoin, said last month it had added an additional $170 million of the virtual coin to its coffers.
Of course, if the price of bitcoin rises, a company can always simply sell its holdings, thus realising some gains. Yet it is still a risky investment, given the cryptocurrency’s record of wild swings.
In 2013, for example, bitcoin started at around $13 and spiked to over $1,000. In 2017, it went from about $1,000 to around $20,000. In early 2020, it sunk below $4,000. It fell more than 25 percent late last month only a week after hitting a record high above $58,000. It has now recovered part of its losses.