Is Bitcoin a Financial Asset?

Hands bitcoin

Many things has been written and said about Bitcoin and its popularity, however, some are not clear about its conceptualization, as well as that of other digital currencies.

An investment? A financial asset? A property? A commodity? Of course, these questions have contributed to raising doubts about this important digital currency.

In this sense, today we want to dwell on one of the questions that has generated the most debates in recent years, as well as conflicting opinions: Is Bitcoin a financial asset?

What do the experts say? What do the international financial standards say? How do countries see Bitcoin? Discover the answers below.

Bitcoin Money or financial asset? The position of some countries

Bitcoin and cryptocurrencies, in general, lack a unique existence. Thus, we see that depending on the nation, it has a different definition, as published on the CoinTelegraph portal.

In Japan, Germany and Russia it is referred to as private money, while in Denmark and Mexico it is an unregulated speculative asset.

The Securities and Exchange Commission (SEC) in the United States has defined it as a security, while the Canada Revenue Agency (CRA) as a commodity.

For its part, the Brazilian Securities and Exchange Commission (CVM) says it is not a financial asset. In Chile, it is neither value nor money.

In Argentina, it is a good, according to the Civil Code, while the fiscal regulation establishes that it is income derived from shares.

Whereas in the UK, comparing them to currencies, products or another financial instrument is inaccurate.

Switzerland recognizes the Ethereum and the Bitcoin as money. China, for its part, says that Bitcoin is a specific virtual product that should not be used as a currency in the market.

South Korea and Singapore recognize it as an asset with measurable value.

Bitcoin: means of generating income

We see that even in some developed nations is opening step to cryptocurrencies as a means to generate income and raise capital under a new technology, it is also clear that few recognize the Bitcoin as money.

Characteristics of Bitcoin

  • It is a digital currency based on a distributed book.
  • Its security is in the cryptographic method.
  • It is not issued by government, business or commercial authority.
  • Does not establish a contract between the owner and another party.

Characteristics of a financial asset

  • A patrimonial instrument.
  • Good or legal property that provides benefits or future earnings.
  • Any company or government entity can issue it.
  • Establish a contractual right.
  • It can be exchanged with another entity under special conditions.
  • It constitutes a contract.
  • Cash.

Although Bitcoin meets some characteristics that make it similar to a financial asset, it is not considered as such because a Central Bank or legal framework does not intervene in it, nor is it listed on stock exchanges.

What do IFRS say about cryptocurrencies?

The International Financial Reporting Standards (IFRS) establish a digital currency is not a financial asset or cash. So what is it from an accounting perspective and what guidance should be applied?

Cryptocurrencies are intangible assets, that is, non-monetary, identifiable and without physical substance; but if separable, with contractual and legal rights.

Since Bitcoin can be sold or transferred individually and without a number of monetary units, it then meets the definition of an intangible asset.

IAS and intangible assets

The aforementioned marries what the International Accounting Standards (IAS) establish on Bitcoin: “it is an identifiable non-monetary asset without physical substance”.

So why is Bitcoin not a Financial Asset?

  • It does not represent cash or a contract with an obligation to deliver or receive an instrument.
  • It is not a legal tender, although its adoption is increasing.
  • It does not equal local money.
  • It is not yet a traditional means of payment.

Bitcoin: Economic Haven?

Bitcoin has endured ups and downs, but also surprised thanks to its rapid growth and appreciation. It has proven to be firm and even acting as an economic refuge.

Despite the abrupt changes in its price, the daily trading volume has been growing, attracting many more investors.

Bitcoin (and other cryptos) have become a great alternative for saving, investing and complementing traditional payment systems.

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