At the 4pm close of trading in New York, MicroStrategy will hear the determination of its highly anticipated bid to join the prestigious NASDAQ 100 index. The well-publicized event has already attracted bids from investors who view MicroStrategy as highly qualified for approval.

After the NASDAQ committee’s announcement, there are a variety of other catalysts on the horizon for MicroStrategy, including year-end tax loss harvesting, the presidential inauguration, and quarterly earnings announcements.

However, in addition to these, there’s also an idiosyncratic catalyst on its near-term calendar: a bitcoin (BTC)-specific, Financial Accounting Standards Board (FASB) rule change.

The FASB establishes generally accepted accounting principles (GAAP) for US public companies and maintains financial accounting and reporting standards for Securities and Exchange Commission (SEC) filings.

In its rulebook, the FASB forces public companies to treat BTC assets in a manner that disadvantages MicroStrategy on its balance sheet and earnings reports.

Specifically, the FASB has categorized BTC as an “indefinite-lived intangible asset.” As relevant to financial reports, this designation requires a public company to permanently mark down the value when its BTC declines in USD price.

Read more: MicroStrategy bitcoin purchases aren’t stopping premium decline

Rather than an asset on a balance sheet that can subsequently increase in value, the FASB has only allowed BTC losses to pass through as an expense/loss on the income statement.

MicroStrategy CEO Michael Saylor had been lobbying the FASB to change its BTC accounting rules for years. The board has agreed to implement his suggestions starting January 1, 2025, per rule change ASU 2023-08.

No more permanent mark-downs for bitcoin

As a result, MicroStrategy will soon be able to list its bitcoin holdings on its balance sheet at its current USD value — including increases from quarter to quarter.

Read more: MicroStrategy’s average bitcoin purchase price exceeds $58,000

On its first-quarter income statement — and every quarter thereafter — the FASB will finally permit MicroStrategy to list both positive and negative price changes of its bitcoin since the start of each quarter.

In addition to enhanced transparency and a standardized number on MicroStrategy financials that quantitative traders can easily compare across thousands of stocks, this FASB rule change will also impact another catalyst.

By allowing MicroStrategy to recognize its USD gains from BTC’s appreciation, these values will improve MicroStrategy’s candidacy for other indices that use GAAP reporting standards, including the world’s largest index, the S&P 500.

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It’s rumored that NASDAQ once owned bitcoin seized from dark web marketplace Silk Road and, by extension, customers of disgraced Japanese crypto exchange Mt. Gox.

The story begins in December 2014, when Barry Silbert’s Bitcoin Investment Trust spent less than $17 million to acquire 48,000 bitcoins seized from the Silk Road at a US Marshals auction.

That trust would later morph into the Grayscale Bitcoin Trust (GBTC), but in late 2015, there was a time when NASDAQ itself might have controlled those bitcoins.

To understand the NASDAQ connection, we need to look back into Silbert’s career, specifically to 2004 when he founded SecondMarket.

SecondMarket originally gained popularity before the creation of bitcoin as a way to acquire employees’ equity in non-public companies via a secondary market-like platform (hence, ‘SecondMarket’). It diversified considerably over the next nine years and by September 2013, Silbert had launched Bitcoin Investment Trust, a bitcoin-only fund for high-net-worth individuals.

The month after the trust was launched, the FBI shut down Ross Ulbricht’s Silk Road and seized its massive trove of tens of thousands of bitcoin, placing it into the custody of the US Marshals.

Barely five months later, Mark Karpelès’ Japanese-American Mt. Gox bitcoin exchange declared bankruptcy and less than a year after that, Bitcoin Investment Trust purchased the government-seized bitcoin from the Silk Road.

The following year, NASDAQ acquired SecondMarket, Bitcoin Investment Trust, and the bitcoin itself, which today would be worth somewhere in the region of $3 billion.

Silbert’s 175X gain versus customers’ 0X gain

Although a select few Mt. Gox victims have received a small number of repayments from the bankruptcy, most customers still haven’t received anything. Indeed, its bankruptcy has deprived them of their assets for over a decade. Similarly, the US government simply seized Silk Road bitcoin outright from operators and customers, rendering them an equal return of $0.

Silbert’s fund — in contrast to Silk Road customers who will never be refunded, or Mt. Gox victims who still await their refunds — has enjoyed a 175X gain on the bitcoin held since its December 2014 US Marshals auction win.

Some people speculate that NASDAQ was particularly interested in its bitcoin holdings when making the 2015 acquisition while others are unclear whether SecondMarket still owned rights to any US Marshals-purchased bitcoin at that point.

Ultimately, it is unclear whether SecondMarket, its Bitcoin Investment Trust, or accredited investors of the Bitcoin Investment Trust became the ultimate beneficial owner(s) of the US Marshals auctioned bitcoin. 

Similarly, with SecondMarket, Mt. Gox, and Grayscale remaining private companies since their inception, there are limited public filings to track the ownership of SecondMarket’s auction-acquired bitcoin.

Barry Silbert is one of bitcoin’s earliest investors

In any event, there are theories that connect Barry Silbert to even more US government-seized bitcoin. For example, Cumberland of DRW is widely rumored to have won a third US Marshals-auctioned lot of 27,000 bitcoin. Cumberland has a known relationship with Barry Silbert’s Digital Currency Group, which was a sister company of SecondMarket.

Some blockchain observers believe that some of those 27,000 bitcoins ended up at Barry Silbert’s Grayscale, which had a deep relationship with Digital Currency Group’s Genesis and Tyler and Cameron Winklevoss’ Gemini via its doomed Gemini Earn program.

Read more: Barry Silbert’s Grayscale wants GBTC to commingle bitcoin ‘from time to time’

In the end, it is not difficult to trace bitcoin on the blockchain. However, it’s almost impossible to trace bitcoin whose ownership changes via paper contract within private companies. In the case of Bitcoin Investment Trust (now GBTC) bitcoin and other US Marshals lots, ownership rarely changed via on-chain transfer. As is often the case with private companies and non-public trusts, ownership changed frequently by signing paper contracts.

When someone buys a share of GBTC, the seller doesn’t transfer bitcoin on-chain. Nevertheless, over $160 million worth of bitcoin truly changes ownership every day via off-blockchain GBTC trades. Similarly, tens of billions of dollars of crypto assets change hands every day off-blockchain across the world’s crypto exchanges. This frustrates the work of on-chain sleuths.

Tracing government-seized bitcoin to NASDAQ itself

Tracking the history of Mt. Gox and Silk Road bitcoin from US Marshals auctions is certainly illuminating but it’s only a small part of the larger story. The blockchain does show that NASDAQ ended up managing — whether on its own behalf of on behalf of customers — some US government-seized bitcoin with ties to Silbert’s prescient purchases over a decade ago.

Similarly, US Marshals bitcoin auctions certainly link entities like Grayscale, Cumberland, Genesis, Digital Currency Group, and Gemini.

Every $1,000 of bitcoin one decade ago is now worth $100,000 and for anyone lucky to have had the capital to bid on Silk Road bitcoin auctions, and the wisdom to have never sold, the appreciation is certainly life-changing. The gains from these early auctions have capitalized some of the largest crypto companies in existence today.

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One of the world’s most prestigious exchanges, NASDAQ, has paused its plans to custody digital assets. It had originally filed an application for a limited-purpose trust company with the New York Department of Financial Services (NYDFS). That trust company would have managed its digital asset custodian, however, those plans are no more.

Originally, NASDAQ had planned to test its digital asset custody service starting in March, with a full-service offering by the second quarter of 2023.

This week, NASDAQ CEO Adena Friedman shelved those plans during an earnings call. In making the decision, she considered “the shifting business and regulatory environment in the US.”

SEC partial loss in court upends regulatory stability

The unnamed elephant in the room might have been the surprising, split decision in SEC v. Ripple that interrupted the SEC’s nearly lossless track record in crypto enforcement actions. 

Whereas the SEC’s approach to crypto regulation was clear a few weeks ago — the vast majority of digital assets except bitcoin launched illegally via unregistered securities offerings — a US District Court judge has ruled that Ripple’s Programmatic Sales of XRP on crypto exchanges were, in fact, legal.

(It’s worth noting that the judge explicitly declined to rule on the legality of 99% of XRP trading volume since 2017.)

Although Ripple lost on other, major charges, that particular ruling upended conventional wisdom. It certainly confused NASDAQ. 

While the XRP community erupted in applause for their partial victory — only $728 million of the SEC-charged $1.3 billion in sales of XRP were illegal — Wall Street institutions like NASDAQ hit the pause button to reassess.

Read more: Abolish the SEC! A decade of battling crypto’s top regulator

NASDAQ will continue to work with bitcoin ETFs

Of course, not everything screeched to a halt. Bitcoin itself remains clearly legal, with legal markets for spot and derivatives trading. Indeed, NASDAQ is continuing plans to partner with bitcoin ETF issuers. It recently assisted in the resubmission of Blackrock’s bitcoin ETF application with the SEC to reflect new market surveillance services as well as NASDAQ’s plans to serve as Blackrock’s listing exchange partner.

In addition to Blackrock’s application, the SEC is currently reviewing six other spot bitcoin ETFs. Bitcoin investors consider ETFs important because they could allow more institutional investment via retirement plans.

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