Welcome back to the second installment of our comprehensive series on cryptocurrency accounting under IFRS. In our previous post, we explored how cryptocurrencies have evolved from Bitcoin’s 2009 launch to over 10,000 digital assets today. Additionally, we examined how this explosion is challenging traditional financial reporting for mineral exploration companies.
Today, we’re diving into one of the most fundamental—and frequently misunderstood—aspects of cryptocurrency accounting. Specifically, we’ll explore why IFRS explicitly excludes cryptocurrencies from classification as cash or financial instruments. Moreover, getting this classification wrong can distort your liquidity ratios, mislead investors, and potentially trigger covenant violations.
What You Need to Know About Cryptocurrency Accounting Errors
Picture this scenario: Your exploration company accepts Bitcoin from international investors as part of a private placement. Consequently, your bookkeeper classifies it as “cash and cash equivalents” on the balance sheet. After all, it’s digital money, right?
Wrong. In fact, that misclassification could be distorting your financial statements right now.
The 2019 Cryptocurrency Accounting Decision That Still Governs Today
In June 2019, the IFRS Interpretations Committee issued a landmark decision that remains in effect. Specifically, cryptocurrencies do not qualify as cash or cash equivalents under IAS 7. Furthermore, this wasn’t a close call—it was based on clear definitional failures.
IAS 7 defines cash equivalents as “short-term, highly liquid investments readily convertible to known amounts of cash, with minimal risk of value changes.” However, cryptocurrencies fail on three critical fronts.
First, they lack legal tender status in most places. For example, you can’t settle a Canadian court judgment in Bitcoin. Second, widespread acceptance remains limited. Despite adoption by companies like Microsoft and Tesla, most suppliers still demand regular currency. Third, and most importantly, extreme price swings disqualify them. Bitcoin swinging from $30,000 to $65,000 and back isn’t “minimal risk.” Instead, it’s the opposite of the stability required.
Why Digital Assets Are Treated Differently Than Financial Instruments
Many CFOs assume cryptocurrencies must be financial instruments under IAS 32. After all, they’re tradable and used in financial deals.
However, IAS 32 requires specific contractual relationships. Financial instruments create financial assets for one party and liabilities or equity for another. For instance, a bond is a financial instrument because it creates a contractual right to receive interest and principal.
In contrast, cryptocurrencies fail this test fundamentally. When you hold Bitcoin, you have no contractual right to receive cash from any entity. Furthermore, there’s no issuer with an obligation to you. Similarly, you don’t hold a residual interest in any entity’s net assets. Therefore, proper cryptocurrency accounting requires a different classification entirely.
Real Consequences of Cryptocurrency Accounting Mistakes on Your Financial Statements
These classification decisions cascade through your financials with real impact. Specifically, cryptocurrencies excluded from cash won’t appear in your cash flow statement the way regular currencies do. As a result, this creates confusion about transaction categorization—operating, investing, or financing activities?
More concerning, your liquidity ratios may mislead. The quick ratio and current ratio exclude cryptocurrency holdings from the numerator if they’re not classified as readily convertible current assets. Consequently, for exploration companies operating on tight financing cycles, appearing less liquid than you actually are impacts capital raising and covenant negotiations.
In addition, exploration companies with substantial Bitcoin holdings can appear cash-poor on traditional metrics. This leads to situations where considerable CEO time gets consumed explaining the position to concerned board members and investors. Meanwhile, time better spent evaluating drill results gets diverted to defending financial statement presentation.
Common Cryptocurrency Accounting Errors and the Emerging Debate
The most frequent cryptocurrency accounting mistake? Classifying cryptocurrencies as cash equivalents simply because they’re digital and liquid. Unfortunately, this overstatement can trigger audit restatements, damage credibility, and violate debt covenants.
However, here’s where things get interesting. In August 2025, FASB launched research questioning whether certain “payment digital assets”—particularly stablecoins pegged to regular currency—could qualify as cash equivalents. This potentially challenges the 2019 IFRIC position. Moreover, the October 2025 FASB-IASB joint meeting signals increased coordination on cryptocurrency accounting standards.
Nevertheless, “possibly” isn’t good enough for your year-end statements. Right now, the classification is clear: cryptocurrencies are not cash, not cash equivalents, and not financial instruments under IFRS. Therefore, any exploration company treating them as such is out of compliance.
Why Expert Cryptocurrency Accounting Guidance Matters for Exploration Companies
This is exactly where fractional CFOs fall short. Generic accounting knowledge isn’t enough when dealing with emerging digital assets and established IFRS rules. Instead, you need someone who monitors IASB agenda papers, understands classification details, and can implement compliant treatments. Additionally, they must explain them clearly to your board and auditors.
Getting crypto accounting classification wrong doesn’t just create statement errors. Rather, it erodes stakeholder confidence. For exploration companies dependent on capital markets trust, that’s a risk you can’t afford.
If your fractional CFO provides financial statements without detailed documentation of cryptocurrency classification decisions, you need specialized help. Similarly, if you’re uncertain whether your crypto holdings are properly shown in liquidity ratios and cash flow statements, you need expert crypto accounting guidance. The regulatory landscape is shifting. Standards may change within 2-3 years. However, today, you need compliant financial statements that accurately classify your digital asset holdings.
Conclusion
We’ve uncovered why IFRS definitively excludes cryptocurrencies from cash and financial instrument classifications under IAS 7 and IAS 32. These aren’t arbitrary technicalities. Instead, they’re foundational decisions that impact your liquidity presentation, cash flow structure, and investor perceptions. Moreover, the 2019 IFRIC guidance remains in effect despite emerging debates, and misclassification carries real consequences.
So where do cryptocurrencies actually belong on your balance sheet? In our next post, we’ll explore classifying cryptocurrencies as inventory under IAS 2. Specifically, we’ll examine when broker-traders and mining operations can apply this treatment. Additionally, we’ll cover how to measure crypto inventory amid volatility and the disclosure requirements that ensure transparency.
Don’t navigate these crypto accounting complexities alone. If you’re uncertain about your cryptocurrency accounting treatment, or if your current CFO isn’t providing the strategic IFRS guidance your exploration company demands, let’s talk. Book a Financial Diagnostic consultation today.