MicroStrategy to avoid reporting massive Bitcoin loss
MicroStrategy (MSTR) is set to change how it reports its bitcoin (BTC) holdings each quarter, as the Financial Accounting Standards Board (FASB) has voted to alter the crypto reporting rules.
Overall, the move is seen as a positive step for the crypto market and will provide investors with more transparency. Currently, cryptocurrencies are treated as intangible assets, resulting in conservative accounting that dings company earnings when crypto prices drop.
The new changes will allow MicroStrategy to avoid recognizing impairment losses if the price of bitcoin drops during a quarter. Since initiating its bitcoin acquisition strategy in August 2020, the Virginia-based business intelligence firm has reported $2.23 billion in cumulative impairment losses. The largest impairment loss of $917.8 million was recorded in the second quarter of 2022.
These losses have sometimes given the impression that the company’s inherent value was negatively affected, even when it wasn’t.
The move comes after the Financial Accounting Standards Board (FASB) has voted to allow companies to use fair-value accounting, enabling them to immediately show gains and losses on their income statements. This means that businesses can recognize recoveries in value after price declines, which is an improvement over the current practice.
The FASB is expected to formally approve the final language of this change later this year, and companies can then adopt the new standards.
Michael Saylor, Executive Chairman of MicroStrategy, tweeted that this rule update eliminates a major impediment to corporate adoption of bitcoin as a treasury asset. While the FASB has stated that the new rules will take effect as soon as 2025, companies will have the option to apply them earlier, and MicroStrategy is expected to do so.
MicroStrategy has long urged that US accounting standards should be reconsidered to accommodate companies that hold cryptocurrencies on their balance sheets. Currently, MicroStrategy reports its cryptocurrency holdings as intangible assets, which are then impaired if the value dips. However, the value can never be revised upward if the crypto price increases.
The analytics software maker, led by bitcoin bull Michael Saylor, has taken advantage of any price drop in Bitcoin to continue beefing up its investment in the world’s most-traded cryptocurrency.
This strategy, however, turned out to be a risky gamble. By the end of Q1 2022, MicroStrategy’s Bitcoin holdings were valued at approximately $5.9 billion. However, since then, the value has declined by around 22%. Throughout its venture into Bitcoin starting in 2020, MicroStrategy’s stock price has frequently mirrored the fluctuations in Bitcoin’s price.