The current US accounting frameworks treat digital assets as long lived intangible assets (examples in that category would be patents, trade names, etc.). The accounting for those assets are such that once acquired, they cannot appreciate in value on the company’s balance sheet, instead they have to be evaluated only to determine if they’ve decreased in value (impairment). So there’s no NGU in accounting for bitcoin.

Compare that to the treatment of accounting for securities… if a company acquired shares in a public company (not a controlling stake, think <20% of the other company), the price of those securities is known and fluctuates on the open market. In each quarterly accounting period, the company that owns those shares can “mark to market” their investment and the value can go up or down based on the open market price.

Bitcoin has an open market price but could ONLY be marked down, which made zero sense. For a company like MicroStrategy that has purchased billions of dollars of bitcoin, their balance sheet does not reflect the current value of their bitcoin, because once the price goes down, the accounting treatment says their bitcoin has been “impaired”. When the price goes down, those companies have to report a loss in their income statement (even if they didn’t sell), so when it comes to their financial statements, MicroStrategy has taken major losses even though they’ve not realized any losses to this point.

The new guidance allows the accounting for bitcoin to be marked to market and allows companies to show the market value of their bitcoin on their balance sheet and represents a more pragmatic take on the real economics of owning bitcoin.