FASB Rule Change, Spot Bitcoin ETFs, and the MicroStrategy Playbook Fuel Corporate Bitcoin Adoption

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Corporations are turning to Bitcoin to protect themselves from traditional financial risks and benefit from increases in Bitcoin's value. As a liquid asset outside the traditional financial system, Bitcoin allows companies to continue operations and meet short-term obligations, such as paying employees, in case of banking system disruptions.

A Bitcoin allocation enables companies to benefit from its potential increase in value, as it has been the best-performing asset of the last decade, and global adoption continues to increase. Bitcoin's scarcity and secure, decentralized network make it an attractive store of value compared to less scarce assets traded on centralized networks.

Impact of FASB Rule Change

Until recently, public companies rarely held Bitcoin on their balance sheets due to unfavorable accounting rules. However, in September 2023, the Financial Accounting Standards Board (FASB) proposed a rule change that made it more practical for public companies to own Bitcoin.

Under previous accounting standards, companies had to treat Bitcoin as an indefinite-lived intangible asset, similar to intellectual property. They were required to write down the value of their holdings if they fell below the purchase price, while gains could only be recorded if the Bitcoin was sold. Because of its short-term price volatility, this made it challenging for public companies to maintain an allocation.

FASB's adoption of fair value accounting for Bitcoin allows companies to report their holdings’ market value accurately. They must regularly assess and disclose the fair market value of their Bitcoin position, capturing unrealized gains and losses quarterly. Full implementation is scheduled for 2025, but firms can adopt standards before then.

ETF Approvals and the MicroStrategy Playbook

Since the FASB rule change, two events inspired confidence in corporate leaders regarding Bitcoin. First, the SEC approved spot Bitcoin ETF products, which attracted tens of billions of inflows, exceeding expectations. Various institutional investors, from state pension funds to hedge funds, have gained exposure to Bitcoin's price through these vehicles. Second, Michael Saylor's MicroStrategy successfully executed what is now called the “MicroStrategy playbook,” where a corporation acquires massive amounts of Bitcoin as the firms’ primary reserve asset. As a result, the company's stock price has increased tremendously. MicroStrategy has acquired over 200,000 BTC and even held an annual conference titled “Bitcoin for Corporations.”

Now, other corporations are implementing the MicroStrategy playbook, likely with more to follow. Semler Scientific, Inc. SMLR announced they are adopting bitcoin as their primary treasury reserve asset, following a similar move by Metaplanet, a Japanese firm. Both companies have seen dramatic increases in their stock price after announcing their Bitcoin strategy.

Corporate adoption of Bitcoin will increase as institutions seek an alternative to traditional finance’s counterparty risk and recognize Bitcoin's potential as a store of value. This trend may lead to higher Bitcoin allocations among retail consumers. The impact on corporate balance sheets is just beginning, and we can expect more companies to follow MicroStrategy’s lead in the coming months.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

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