This was a big week for bitcoin and the other cryptocurrencies. Elon Musk bought and then complained that the assets were overpriced. And, for the first time, over 1 million individual purchasers traded bitcoin on one of the more popular wallets. Another institutional investing consultant suggested that all corporate portfolios should contain 1% cryptocurrency.

While very few businesses consider bitcoin to be a significant part of their cash management or treasury strategy (and no matter what we individually think about this investment trend), more BVWire—UK readers are likely to find themselves valuing these assets. Accounting rules don’t really exist, though IFRS suggests using the intangible asset rules. There are few market comparables, or business valuation standards or guidelines, to rely on.

Once again, The Footnotes Analyst offers thoughtful guidance for business valuers in their 15 February 2021 edition. How should experts analyse companies that hold bitcoin and other cryptocurrencies? In this regard, the accountants and the business valuation profession are likely in some agreement, since both recognise that a cryptocurrency is not cash and that it can’t be treated on the balance sheet—or in valuation analyses—as just another foreign currency.

Here’s how The Footnotes Analyst succinctly defines the problems for analysts: ‘[C]ryptocurrencies are not regarded as a currency for accounting purposes. This is because they are not considered legal tender, are not issued or backed by a government or state, and are not directly related to setting prices for goods and services.’ Nor are they cash equivalent, which must have ‘insignificant risk of changes in value.’ Bitcoin moved between 33,000 and 59,000 USD since the beginning of 2021.

What’s the conclusion? Since no other asset class works using existing IFRS, the authors conclude that valuers view cryptocurrencies as indefinite life intangible fixed assets—or, in exceptional cases, as inventory. ‘Intangible assets are defined as “identifiable non-monetary assets without physical substance” (IAS 38). This broad definition seems to encompass cryptocurrencies and hence, in the absence of specific rules, this appears to be the most logical classification,’ they conclude.

The analysis also includes the MicroStrategy ‘fair value’ case study on valuing impairments and gains (under IFRS, not US GAAP) from bitcoin. MicroStrategy is one of the few listed companies that has stated crypto-investments will be a key part of their treasury, and it appears that IASB is likely to add guidance soon.