As blockchain technology continues to mature and reshape industries, an increasing number of startups are holding cryptocurrencies—whether acquired through fundraising, mining, investment, or operational activities. However, a critical challenge remains: how should these digital assets be properly recognized and reported in financial statements?
Despite the growing adoption of cryptocurrencies by both individuals and institutions, international accounting standards have yet to provide clear, dedicated guidance. This creates uncertainty for entrepreneurs, auditors, and investors alike. In this article, we’ll explore how blockchain startups can currently account for cryptocurrency holdings under existing frameworks, the practical implications of different classifications, and what the future might hold.
Current Accounting Framework: IFRS and Cryptocurrency
The International Financial Reporting Standards (IFRS), adopted by over 160 countries, do not yet classify cryptocurrency as a distinct asset category. The IFRS Interpretations Committee has declined to issue new standards specifically for digital assets, instead advising entities to apply existing rules by analogy.
As of now, two primary classifications are considered appropriate under IFRS:
- Inventory
- Intangible Assets
Let’s examine each in detail.
Option 1: Classify as Inventory
Under IAS 2 – Inventories, assets held for sale in the ordinary course of business should be classified as inventory. For blockchain startups whose core business involves buying and selling cryptocurrencies—such as crypto investment funds, trading platforms, or active market makers—this classification may apply.
Key Criteria:
- The primary purpose of holding crypto is resale.
- Trading crypto is part of regular operating activities.
- Revenue is predominantly generated from price arbitrage or trading fees.
Valuation Method:
Inventory is typically measured at the lower of cost or net realizable value. However, there’s an important exception: if the entity operates as a broker-trader, IAS 2 paragraph 5 allows for fair value through profit or loss (FVTPL). Given the high volatility and frequent trading in crypto markets, many firms may qualify for this treatment.
This means gains and losses from price fluctuations are directly reflected in the income statement—potentially causing significant swings in reported earnings.
Example: A Singapore-based hedge fund focused solely on cryptocurrency trading would likely classify its holdings as inventory and recognize daily price changes in profit or loss.
Option 2: Classify as Intangible Asset
If a company holds cryptocurrency for long-term investment, as a store of value, or for utility (e.g., accessing decentralized services), it generally does not meet the definition of inventory. In such cases, IAS 38 – Intangible Assets becomes the applicable standard.
Cryptocurrencies lack physical substance and are non-monetary—key traits of intangible assets. Companies like Riot Blockchain, listed on NASDAQ, report their Bitcoin holdings under this category.
Valuation Options:
Cost Model:
- Initial cost minus accumulated impairment losses.
- No amortization (since useful life is indefinite).
- Impairment testing required annually or when triggers occur.
Revaluation Model:
- Carried at fair value (market price) less accumulated impairment.
- Increases go to other comprehensive income (OCI), not net profit.
- Decreases are recognized in profit or loss.
⚠️ Note: Jurisdictions like Taiwan do not permit revaluation of intangible assets under local adoption of IFRS. Publicly listed companies there must use the cost model only.
Challenges and Limitations of Current Standards
While IAS 2 and IAS 38 offer starting points, they fall short in capturing the economic reality of modern cryptocurrencies.
Why a Binary Choice Isn’t Enough
Cryptocurrencies serve multiple functions:
- Medium of exchange (like currency)
- Store of value (like gold)
- Access rights (utility tokens)
- Governance rights (e.g., UNI, COMP)
- Equity-like claims (in some DeFi protocols)
Yet current standards force a simplistic dichotomy based mainly on management intent and business model—ignoring functional complexity.
For instance:
- A startup holding ETH to pay for smart contract execution isn't “investing” nor “trading”—yet it holds real economic value.
- A DAO distributing governance tokens blurs the line between equity, compensation, and incentives.
The IFRS Interpretations Committee received 23 comment letters from global stakeholders—including South Korea—urging reconsideration. Many argue that treating crypto as merely inventory or intangible fails to reflect its unique nature.
Alternative Approaches Around the World
Some jurisdictions are taking proactive steps.
Japan’s Pioneering Model
Japan does not mandate IFRS for all companies. Its Accounting Standards Board of Japan (ASBJ) has issued specific guidance classifying cryptocurrencies as a new type of asset, separate from traditional categories. This allows more accurate reflection of their liquidity and usage in business operations.
Taiwan’s Accounting Research and Development Foundation has also recommended that IFRS develop a dedicated standard—highlighting the need for evolution in global accounting practices.
Practical Implications for Startups
For blockchain founders, the choice of classification affects:
- Financial statement transparency
- Investor perception
- Tax obligations
- Fundraising potential
- Audit complexity
Here are key considerations:
1. Document Your Intent Clearly
Auditors will scrutinize your business model. Maintain internal memos explaining:
- Why you hold crypto
- Expected holding period
- Integration with operations
2. Be Consistent
Once a policy is chosen (e.g., cost model for intangibles), apply it consistently across reporting periods unless there’s a justifiable change.
3. Monitor Market Developments
With PayPal enabling crypto purchases and Visa integrating USDC into global payments, institutional adoption is accelerating. Regulatory and accounting clarity will follow.
Frequently Asked Questions (FAQ)
Q: Can cryptocurrency ever be classified as cash or cash equivalent?
A: No. Under IAS 7, cash includes only currency and demand deposits. Cryptocurrencies are not legal tender in most jurisdictions and lack stable value—so they don’t qualify.
Q: What happens if the market price drops significantly?
A: If classified as an intangible asset, you must assess for impairment. Any decline below carrying amount should be recognized as a loss in profit or loss.
Q: Are staking rewards or mining income considered revenue?
A: Yes. Newly minted tokens from staking or mining should be recognized as revenue when earned, measured at fair value at the time of receipt.
Q: How should DeFi tokens with governance rights be treated?
A: They’re still evaluated under the same frameworks—intent matters most. If held for influence over protocol decisions, they’re likely intangible assets.
Q: Is there any movement toward a global crypto accounting standard?
A: Not yet formalized, but growing pressure from regulators and industry players suggests it’s only a matter of time.
Q: Should early-stage startups worry about this now?
A: Absolutely. Proper classification from day one avoids restatements later—critical when raising funds or preparing for audit.
Final Thoughts
While IFRS currently lacks a dedicated standard for cryptocurrencies, startups must still make principled decisions using existing frameworks. Whether you choose inventory or intangible asset treatment depends on your business model, intent, and operational context.
Until global standards evolve, companies should:
- Prioritize transparency
- Maintain robust documentation
- Engage experienced auditors familiar with digital assets
The momentum behind blockchain innovation won’t slow down—and neither should efforts to modernize financial reporting.
👉 Stay ahead of regulatory trends and optimize your crypto accounting strategy today.
As the line between traditional finance and decentralized systems continues to blur, one thing is certain: the way we account for value is changing. And those who adapt early will lead the next wave of financial innovation.