Cryptocurrency is a type of digital token designed as a medium of exchange using cryptography as a form of security. Bitcoin is an example of a cryptocurrency. While investment in cryptocurrency remains relatively small compared to overall financial markets, this type of digital token has attached significant regulatory scrutiny across multiple jurisdictions.
It’s important to note that a cryptocurrency, contrary to what its name might suggest, is actually not a currency. While some companies may accept digital currencies in transactions, these aren’t legal tender and aren’t backed by the government. Cryptocurrencies are decentralized with no central authority or bank, are open to the public and don’t require trusted third parties to operate. In addition, cryptocurrencies aren’t readily convertible to cash and don’t exist with short-term maturity dates to be considered cash or cash equivalents.
Cryptocurrencies aren’t financial instruments because they don’t represent contractual rights to receive or exchange cash or another financial instrument. Cryptocurrencies likely aren’t inventory or commodities because they aren’t considered “goods,” as cryptocurrencies aren’t tangible assets.
Cryptocurrencies most likely fit into current U.S. GAAP under the intangible asset literature, as cryptocurrencies aren’t tangible assets, don’t have a physical substance and don’t represent a material right to receive cash.