Unlike sterling, cryptocurrency, such as bitcoin, has no physical form, is not legal tender in many jurisdictions and is not currently backed by any government or legal entity.
Although the function of cyrptos is to improve the ability of parties to transact digitally with each other, most investors invest in cryptos with the hope of realising capital gains. Investors therefore expect to recognise cryptos at fair value as cash or cash equivalent. Is it really cash though? The high level of volatility also suggests that it cannot be a cash equivalent as defined by the accounting standards.
Accounting for cryptos at fair value, with movements reflected in profit or loss, would provide useful information but, as mentioned above, there is a strong argument that this cannot work under the current definition of a financial asset. The possible solution may be to treat it as inventory or an intangible asset depending on the business model of the entity that holds them.
However cryptos are accounted for, the entity must make appropriate disclosure in its financial statements if it is holding a material value of the ‘currency’.
For more information on this, contact Yasin Khandwalla on 020 7600 5667