Cryptocurrencies have become popular in the last few years. There are over 10,000 cryptocurrencies with the global crypto market capitalisation over $2 trillion.

A cryptocurrency, such as Bitcoin, Ethereum or Ripple is a form of digital asset. Buyers use money to buy cryptocurrency such as Bitcoin (or a part of Bitcoin) and can exchange it online for goods or services. For example, Tesla, Inc. purchased $1.5 billion worth of Bitcoin and announced earlier this year that they will accept it as payment on sale of
their vehicles (though they subsequently suspended its use due to environmental reasons).

A key question that arises for an IFRS reporting entity is how to account for cryptocurrency? We have seen that it is a highly volatile asset, for example, the chart below shows the volatility of Bitcoin. So, from an accounting point of view, is cryptocurrency treated as cash, a financial asset, inventory or an intangible asset? 

Price of Bitcoin (US Dollars)

Period of Chart: September 2014 to August 2021

Source: Yahoo Finance

 There is no specific IFRS that deals with cryptocurrency. The IFRS Interpretations Committee has concluded that a cryptocurrency does not meet the definition of cash or a financial asset, and IAS 2 Inventories is applicable when cryptocurrency is held for sale in the ordinary course of business. This would lead to its recognition at cost or fair value
less costs to sell, with fair value losses in profit or loss.

If cryptocurrency is a long-term holding (IAS 2 is not applicable), then IAS 38 Intangible Assets is the relevant Standard. This is because a cryptocurrency is an identifiable non-monetary asset without physical substance.

If IAS 38 is applied, the purchase of cryptocurrency is recognised at cost and subsequent measurement of the indefinite-lived intangible asset is at cost less accumulated impairment. Impairment losses can be subsequently reversed in IFRS. The alternative treatment in IAS 38 is to measure cryptocurrency at fair value if there is an active market, in which case the fair value movements are recognised in OCI. 

Given the volatility associated with cryptocurrency, it is important that the fair value is disclosed, even if the IAS 38 cost model is used. Determination of fair value is a challenge if there is no active market.