In recent years, blockchain technology has evolved from a niche innovation into a transformative force across finance, commerce, and digital infrastructure. As more startups build on decentralized protocols and hold cryptocurrencies as part of their operations or investments, a critical question emerges: how should these digital assets be accounted for in financial statements?
While regulatory clarity is still evolving, understanding current accounting frameworks—particularly under International Financial Reporting Standards (IFRS)—is essential for founders, investors, and auditors navigating this space.
The Current IFRS Stance on Cryptocurrency Classification
Despite growing adoption, IFRS has not introduced a dedicated asset class for cryptocurrencies. In meetings held in 2018 and 2019, the IFRS Interpretations Committee decided against creating new standards specifically for virtual assets. Instead, existing guidelines must be applied by analogy.
As of now, cryptocurrency holdings are generally classified under one of two categories:
- Inventory
- Intangible assets
The classification depends on the purpose of holding and the nature of the entity’s primary business activities.
When Cryptocurrency Qualifies as Inventory
Under IAS 2 – Inventories, an asset should be classified as inventory if it is held for sale in the ordinary course of business.
This applies primarily to entities whose core operations involve buying and selling cryptocurrencies—such as crypto investment funds, trading firms, or exchanges. For example:
- A venture fund that actively trades tokens to generate returns.
- A startup running a liquidity provision strategy across DeFi protocols.
In such cases, the cryptocurrency is treated like any other product held for resale. However, valuation becomes nuanced.
Valuation Rules for Crypto Inventory
Normally, inventory is valued at the lower of cost or net realizable value (NRV). NRV equals estimated selling price minus costs to sell (e.g., transaction fees).
However, there's a key exception:
Under IAS 2.5, “commodity broker-traders” measure inventory at fair value less costs to sell, with changes recognized directly in profit or loss.
Given the high volatility and frequent trading patterns in crypto markets, many entities may qualify under this exception. This means:
Daily price swings in Bitcoin or Ethereum could directly impact your reported earnings.
For fast-moving portfolios, this approach better reflects economic reality—but also introduces significant earnings volatility.
When Cryptocurrency Is Classified as an Intangible Asset
If a company holds cryptocurrency not for resale, but for long-term investment, operational use, or future utility (e.g., accessing services on a blockchain network), it likely falls under IAS 38 – Intangible Assets.
Examples include:
- A tech startup holding ETH to pay for smart contract execution.
- A company receiving governance tokens (like UNI or COMP) for participating in protocol decisions.
- Long-term BTC holdings as part of treasury diversification.
Since cryptocurrencies lack physical substance and are non-monetary, they meet the basic definition of an intangible asset.
Measuring Intangible Crypto Assets
IAS 38 allows two models:
- Cost Model: Initial acquisition cost minus accumulated impairment losses.
- Revaluation Model: Fair value at reporting date minus accumulated impairments.
Under the revaluation model:
- Gains go to other comprehensive income (OCI), not net profit.
- Losses are recognized in profit or loss.
⚠️ Important Note: Jurisdictions like Taiwan do not permit the revaluation model for intangibles under local adoption of IFRS. Publicly listed companies there must use the cost model only.
This creates divergence in financial reporting between regions—even when applying the same global standard.
Why Current Accounting Frameworks Fall Short
While IAS 2 and IAS 38 offer starting points, they were designed for traditional assets—not programmable, multi-functional digital tokens.
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Consider these challenges:
1. Functional Diversity of Tokens
Cryptocurrencies serve multiple roles:
- Medium of exchange (like money)
- Prepaid access rights (utility tokens)
- Governance rights (voting power)
- Yield-generating instruments (staking rewards)
Yet none fit neatly into legacy categories. Treating Bitcoin like software (an intangible) or like wheat (inventory) fails to capture its true economic essence.
2. Ambiguity in Intent
Accounting treatment hinges on management intent—which can change over time. But reclassifying assets mid-hold introduces complexity and potential inconsistency.
3. Lack of Global Consensus
Some jurisdictions have taken independent action:
- Japan’s Accounting Standards Board (ASBJ) treats crypto as a new asset class, separate from inventory or intangibles.
- The Taiwan Accounting Research Foundation has urged IFRS to issue specific guidance.
These efforts highlight the growing disconnect between innovation and regulation.
Frequently Asked Questions (FAQ)
Q: Can cryptocurrency ever be classified as a financial asset?
A: Under IFRS 9, financial assets represent contractual rights to receive cash or another financial instrument. Since most cryptocurrencies lack such contracts, they generally do not qualify as financial assets.
Q: What happens when a company receives payment in crypto?
A: Revenue should be recorded at the fair value of the cryptocurrency at the date of receipt, converted into local currency. Subsequent changes in value are treated as gains/losses on held assets.
Q: How should staking rewards be accounted for?
A: Rewards should be recognized as revenue when earned (i.e., when control is obtained), measured at fair value. They may be classified as inventory or intangible income depending on business model.
Q: Are NFTs treated the same way?
A: Similar principles apply under IAS 38 if held for long-term use. However, NFTs with collectible or investment intent might fall under different interpretations—especially if traded frequently.
Q: What documentation should startups keep?
A: Maintain clear records of:
- Acquisition cost and date
- Purpose of holding
- Wallet addresses and custody methods
- Market valuation sources
- Internal policy on classification
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Looking Ahead: The Need for Standardized Guidance
As DeFi, tokenized assets, and Web3 economies grow, the pressure mounts on standard setters to clarify rules.
Until then, startups must:
- Document their accounting policies clearly.
- Apply consistent judgment based on intent and usage.
- Disclose assumptions in footnotes to ensure transparency.
The absence of formal rules doesn’t excuse poor reporting—it demands greater responsibility.
Final Thoughts
Blockchain innovation continues to outpace accounting standards. While IFRS provides a workable framework today using inventory and intangible classifications, it remains imperfect.
Founders must stay informed, consult experts, and prepare for evolving guidance. In the meantime, sound judgment, transparent disclosure, and proactive planning will set compliant, credible startups apart in the eyes of investors and regulators alike.
As we move toward a more tokenized economy, one thing is clear: the way we account for value is changing—and so must our books.