1.2 Classification (2024)

In some situations, crypto assets provide the holder with an interest in an underlying asset. The underlying assets might be commodities (such as gold or oil), intangible assets (such as a license or a patent), artwork, real estate, or some other tangible asset. While some asset-backed tokens represent a claim on the asset itself, others have no ability to redeem the underlying asset. When the crypto asset represents a contractual right to receive cash equivalent to the value of the underlying asset, it might meet the definition of a financial asset. If the crypto assets represent a right to the asset itself, it might be accounted for in a manner similar to the underlying asset and therefore measured following the relevant accounting standard for the underlying asset.

A holder should analyze the characteristics of crypto assets and the rights the holder obtains to determine its classification and resulting accounting to apply:

Cash

A crypto asset may be cash if it is accepted as legal tender and issued by a government. If the crypto asset is not cash, it would not meet the definition of a foreign currency.

Cash equivalents

A crypto asset may be a cash equivalent if it is short-term, highly liquid, and redeemable with the issuer. See FSP 6.5.2 for additional information.

Financial instruments

Financial instruments include contracts that impose an obligation on one party and convey a right to another party to deliver/receive cash or another financial instrument. If a crypto asset provides a contractual right to receive cash or another financial instrument, it would be classified as a financial asset. See CA 2.1.2 for the classification and measurement of crypto assets that meet the definition of a financial asset.

An investment company may determine that its appropriate to account for a crypto asset as an “investment.” See CA 2.1.

Inventory

Crypto assets are often purchased or mined with the intent to sell them. Thus, crypto assets may meet some of the characteristics of inventory. However, as crypto assets are not tangible assets, they do not meet all the requirements in ASC 330, Inventory to be considered inventory.

Broker-dealers that are subject to ASC 940, Financial services – Brokers and dealers, might consider their crypto asset holdings “inventory.” See CA 3.1.1 for accounting by broker-dealers.

Intangible assets

Crypto assets will often meet the definition of intangible assets. The ASC master glossary defines intangible assets.

Given their lack of physical substance, unless the crypto assets fall within the scope of other asset classes, they should be classified as intangible assets and reporting entities should follow the accounting guidance in ASC 350, Intangibles – Goodwill and other.If crypto assets that meet the definition of an intangible asset also meet all of the additional criteria in ASC 350-60-15-1, reporting entities should follow the accounting guidance in ASC 350-60 for the subsequent measurement, presentation, and disclosure of those crypto assets. See CA 2.4 for accounting considerations related to crypto assets in the scope of ASC 350-60.