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[Nueva York, octava Reuters BREAKINGVIEWS]US electric vehicle (EV) maker Elon Musk, Tesla’s chief executive, never hesitates to create a bit of confusion. Tesla said on the 8th that it has invested $ 1.5 billion in crypto-assets (virtual currency) Bitcoin, and announced that it will soon accept car payments in Bitcoin.
It’s a decision that suits Musk’s tastes in terms of looking toward investing in cryptocurrencies and rebelling against preconceptions. Not only that, it is also a serious challenge to the framework that is well established in the world. In this case, it is the accounting rules that are shaken.
Following Tesla’s announcement, Bitcoin prices hit a record high of over $ 44,000. However, Tesla will not record any increase in the price of Bitcoin or any corresponding increase in the holding value as a valuation gain. When the value decreases, it is recorded.
This sounds strange, but it is. For example, like the US Square payment service, Tesla must classify its Bitcoins as “intangible assets with indefinite useful lives.”
Intangible assets, whose useful life cannot be determined, are a more widely used concept when it comes to trademarks and registered trademarks. In principle, depreciation is amortized if something damages the value, such as when the market transaction price falls below the acquisition cost. On the other hand, the valuation gain will not be added again. You can only make a profit when you sell an asset.
Current accounting methods follow the so-called “erasure” process. However, cryptocurrencies like Bitcoin do not fit the definition of cash, which requires credit from the national government above all else, and they do not fit the traditional form of financial products. Nor is it a tangible asset that can be defined as inventory.
On the other hand, Bitcoin is also like virtual cash. It is also similar to the coin. However, fluctuations in value are volatile, liquidity remains low, and issuance depends on algorithms.
There are also many items of speculative financial products. For those who see Bitcoin as an inflation hedging instrument, it is gold in the digital world.
So far, the current accounting rules do not address any of these aspects. However, if companies’ investment in cryptocurrencies expands, there is no doubt that accounting rules will need to be reviewed.
At present, after all, due to the harshness of Bitcoin’s price movements, even if there is a scene where the higher price is updated, the book value dragged by Tesla’s Bitcoin is more likely to decline. It is almost certainly expensive.
Imagine a future where Tesla will have a large amount of Bitcoin, which is much higher than the cost of acquisition. In principle, Tesla will report the value of the assets based on the market price at the lowest time after the acquisition of Bitcoin. This would be misleading and force fund managers to make investment decisions with huge vague returns.
Musk can appreciate that flexibility. But investors and those responsible for setting accounting standards should never leave this alone.
● Background news
* Tesla announced on the 8th that it has invested around $ 1.5 billion in Bitcoin and will soon allow the use of Bitcoin to pay for cars and other products. As a result, the price of Bitcoin increased by more than 10%, reaching a new high of more than $ 44,000.
(I am a columnist for “Reuters Breaking views”. This column is based on my personal opinion).
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