Bayview Software, Inc. closes its 12/31/X6 financials and the crypto footnote is suddenly harder than it looks. The company holds 20.00 BTC carried at a $900,000 cost basis, and the market data at 12/31/X6 supports a fair value of $1,100,000. Bayview also holds 10,000 USDC with a stated value of $10,000, plus a WBTC token that comes with a redemption right to 0.50 BTC. Before we book any fair value remeasurement, we have to decide which holdings are actually within ASC 350-60 and what model applies to the rest, because getting the scope wrong can misstate both the balance sheet line items and net income volatility. Bayview’s scoping output for this close is a three-bucket conclusion. BTC is a common example of a fungible crypto asset that can meet the ASC 350-60 scope criteria, which means subsequent measurement is fair value with changes in net income once it is in scope. USDC often turns on whether the holder has an enforceable right to redeem for a known amount of cash, which can push it out of ASC 350-60 and into other GAAP. WBTC depends on whether the holder has enforceable rights to the underlying BTC, which frequently flips the conclusion for wrapped tokens. Make the classification calls for each holding here:
Bayview’s most visible holding is the 20.00 BTC position, and the immediate close question is whether we are allowed to mark it from $900,000 to $1,100,000 through income or whether we are stuck in another model. That conclusion is not based on the price movement. It is based on whether the asset meets every scope criterion. Under ASC 350-60-15-1, the scope criteria apply to all entities and must all be met for the holding to be accounted for under ASC 350-60. The criteria are that the asset is an intangible asset, does not provide enforceable rights to or claims on underlying goods, services, or other assets, is created or resides on a distributed ledger based on blockchain or similar technology, is secured through cryptography, is fungible, and is not created or issued by the reporting entity or its related parties. If an asset meets the definition of an intangible but fails one or more of those criteria, it does not move into ASC 350-60. Before we write our memo, we have to make one decision. For Bayview’s BTC, which of the ASC 350-60-15-1 criteria is most likely to fail. For BTC in Bayview’s fact pattern, the typical support lands as pass on each point. BTC is a nonfinancial, nonphysical resource, which supports that it meets the Codification’s definition of an intangible asset. Holding BTC does not, by itself, give Bayview an enforceable claim on goods, services, or other assets from an issuer, so the enforceable-rights criterion is usually satisfied for native tokens like BTC. BTC exists on a blockchain and is secured through cryptography. One BTC is interchangeable with another, so it is fungible. Bayview did not create or issue BTC, and it is not issued by Bayview or a related party. With all criteria met, the BTC holding is in scope of ASC 350-60 and will be subsequently measured at fair value with changes in net income under that Subtopic.
Bayview’s other two holdings illustrate why scoping is a per asset exercise, not a portfolio level assertion. USDC is designed to track the US dollar, and WBTC is designed to track BTC, but their legal rights can be very different from simply holding BTC. The scoping question that often decides the answer is whether the holder has an enforceable right to something else, like cash for a stablecoin or underlying BTC for a wrapped token. ASC 350-60-15-1 excludes assets that provide the holder with enforceable rights to or claims on underlying goods, services, or other assets. That is why wrapped tokens are a common scoping pain point. Some wrapped tokens are purely technological representations with no contractual right to demand delivery of the underlying asset, which can allow them to remain in scope if the other criteria are met. Other wrapped tokens give holders enforceable rights to other assets, including other in-scope crypto assets, and those are not in scope of ASC 350-60, meaning we have to look to other GAAP for the appropriate model.
Tip When a token tracks another asset, do not assume it fails scope. The question is enforceable rights. Make one decision on each scenario before seeing the pattern. Which holding is in scope and which ASC 350-60-15-1 criterion fails when it is out of scope.