The global cryptocurrency market has evolved rapidly over the past few years, transforming from a niche technological experiment into a mainstream financial asset class. With over 4,000 tracked digital currencies and a market capitalization exceeding $570 billion at peak levels, the impact of blockchain technology on finance, commerce, and society is undeniable. As institutional and corporate interest grows—evidenced by major players like PayPal and Visa integrating crypto services—the accounting treatment of these digital assets has become a critical issue for businesses and startups alike.
For companies holding cryptocurrencies, or operating in the blockchain and decentralized finance (DeFi) space, understanding how to properly recognize and report these assets under current accounting standards is essential. Despite the growing adoption, International Financial Reporting Standards (IFRS) have not yet introduced a dedicated classification for cryptocurrencies. This creates ambiguity for enterprises trying to align their financial reporting with regulatory expectations.
So, where should cryptocurrency holdings appear on a company’s balance sheet?
Current IFRS Guidance: No New Rules, Only Interpretations
As of now, the IFRS Interpretations Committee has decided not to issue new standards specifically for cryptocurrencies. Instead, existing frameworks must be applied based on the nature and purpose of the holdings. According to official guidance issued in 2019, cryptocurrencies can be classified under two primary categories: inventory or intangible assets, depending on the entity's intent and business model.
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Cryptocurrency 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, exchanges, or trading firms.
For example, if a company generates its primary revenue through active trading of digital assets, those holdings qualify as inventory. In such cases, the accounting treatment follows IAS 2 guidelines:
- The value is measured at the lower of cost or net realizable value.
- However, there’s an important exception: if the entity operates as a broker-trader dealing in commodities (including digital ones), it may measure inventories at fair value less costs to sell, with changes recognized directly in profit or loss.
Given the high volatility of cryptocurrency prices and frequent trading activity, many regulators are likely to consider crypto traders as broker-dealers. This means that fluctuations in market value would flow directly into the income statement, significantly impacting reported earnings.
However, this classification does not apply to companies that hold crypto for long-term appreciation, use it to access future services, or invest casually without it being part of their main business operations.
Cryptocurrency as Intangible Asset
When cryptocurrency is not held for resale, IAS 38 – Intangible Assets becomes the applicable standard. This is the more common classification for non-trading entities.
Companies like Riot Blockchain, listed on NASDAQ, report their Bitcoin holdings under intangible assets. Under IAS 38:
- The asset is initially recognized at cost.
Subsequent measurement can follow either the cost model or the revaluation model:
- Cost Model: Carrying amount = acquisition cost minus accumulated impairment losses (no amortization, as useful life is indefinite).
- Revaluation Model: Carrying amount = fair value minus accumulated impairments. Increases in value go to other comprehensive income (OCI), while decreases are recognized in profit or loss.
⚠️ Important Note: Jurisdictions like Taiwan, which follow IFRS but restrict revaluation of intangible assets for public companies, must use only the cost model. This limits upward adjustments even when market prices surge.
Challenges in Classification: Why a Binary Approach Falls Short
While IFRS provides a framework, classifying crypto solely as inventory or intangible asset raises practical concerns:
- Functional diversity: Some tokens function like currency (e.g., used for payments), others represent utility (e.g., access to services), and some grant governance rights (e.g., voting in DeFi protocols).
- Economic substance vs. form: A token might economically resemble a financial instrument or prepaid asset, yet IFRS doesn’t allow classification as financial assets due to lack of contractual cash flows.
- Subjectivity: Determining "intent" introduces judgment calls that vary across auditors and jurisdictions.
These complexities explain why 23 comment letters were submitted to the IFRS Interpretations Committee—including opposition from countries like South Korea—urging a more nuanced approach.
Global Divergence: Japan’s Progressive Stance
Japan offers a compelling alternative. While not mandating IFRS for public companies, the Accounting Standards Board of Japan (ASBJ) has established specific guidelines treating cryptocurrency as a distinct asset class, separate from inventory, financial instruments, or intangibles. This forward-looking approach acknowledges the unique characteristics of digital assets.
Similarly, Taiwan’s Accounting Research and Development Foundation has recommended that IFRS develop a new standard or amend existing ones to better reflect the economic reality of crypto holdings.
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Frequently Asked Questions (FAQ)
Q: Can cryptocurrency ever be classified as a financial asset under IFRS?
A: No. Under IFRS 9, financial assets require contractual cash flows. Since most cryptocurrencies lack such contracts, they cannot be classified as financial assets.
Q: What happens if a company changes its intention from long-term holding to active trading?
A: A reclassification from intangible asset to inventory is possible, but must be justified and disclosed. Once reclassified, fair value changes affect profit or loss.
Q: How should crypto received as payment for goods or services be treated?
A: It should be recorded at fair value at the transaction date, with any subsequent changes handled according to the entity’s accounting policy for that asset.
Q: Are there tax implications beyond accounting treatment?
A: Yes. Tax authorities may have different rules—for example, treating crypto gains as capital or ordinary income—so coordination between accounting and tax teams is crucial.
Q: What disclosures are required for crypto holdings?
A: Companies must disclose the accounting policy used, carrying amount, changes in value, and risks associated with volatility and custody.
Q: Is there any update expected from IFRS on crypto standards?
A: As of 2025, no formal agenda item exists for revising crypto accounting rules. However, increasing market significance may prompt future action.
Conclusion: Navigating Uncertainty with Prudence
Until IFRS introduces clearer guidance, companies must rely on judgment and existing frameworks to account for cryptocurrency holdings. The choice between inventory and intangible asset hinges on business purpose and operational context—not just technical definitions.
For blockchain startups and traditional enterprises alike, transparent disclosure, consistent policies, and alignment with auditor expectations are key. As seen in Japan and advocated by regulators in Taiwan, the long-term solution may lie in creating a new asset category tailored to digital assets.
Until then, entrepreneurs and finance teams should stay informed, document decisions thoroughly, and seek expert advice when needed.
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