About four months after MarketWatch stated that Coinbase Global Inc. may probably expect a regulatory comment letter about its accounting for cryptocurrency holdings after the regulator took action against another company for the same behavior.
The letter of comment submitted to Coinbase was posted on the Securities and Exchange Commission’s Edgar platform on Tuesday.
A similar letter was sent to cryptocurrency miner Marathon Digital Holdings Inc. in April 2024, stating that the company’s use of non-GAAP accounting measures that exclude the impact of a new rule from the Financial Accounting Standards Board for crypto assets was a “individually tailored” measure.
The SEC strongly objects to this. The letter was dated October 18, approximately four months after MarketWatch reported on it. Before making feedback letters public, the regulator often waits a predetermined period of time.
Coinbase chose to embrace the new rule early, just like Marathon did, as MarketWatch reported in July. The FASB agreed to this last year. Although early adoption was permitted, the rule went into force on January 1, 2025.
The regulation change was a reaction to requests for standards governing the accounting of crypto assets, which are often volatile, from businesses that own significant quantities of them, such as Tesla Inc. and MicroStrategy Inc., now known as Strategy.
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Maintenance of companies record:
In contrast to the previous accounting practice, which treated cryptocurrencies as intangible assets, the rule permits businesses to record the most recent value of a cryptocurrency asset. Brands, copyright, and intellectual property identifiers like trademarks are examples of intangible assets.
Companies were required under that method to book cryptocurrency assets at the historical price at which they were purchased. They were then required to evaluate whether the value had decreased at each reporting period, in which case they would record an impairment.
Last year, Usvyatsky accurately pointed out that if owners of cryptocurrency assets were required to continuously report gains and losses on their income statements, the rule would cause instability in business profits.
She was also correct to anticipate that they would use nonstandard metrics, or those that do not adhere to the U.S. accounting standard known as Generally Accepted Accounting Principles, to eliminate the impact of other factors that cause volatility.
Businesses are permitted to utilize these indicators, but they must prioritize GAAP-compliant data, give them equal weight, and provide a reconciliation of the two. Most importantly, when utilizing non-GAAP measurements, they are not permitted to exclude regular recurring operating expenses or develop specially customized metrics.
