MicroStrategy To Release Quarterly Updates On Bitcoin Holdings, Ignoring Impairment Losses

Software developer MicroStrategy is set to revamp its reporting of Bitcoin (BTC) holdings each quarter, thanks to a recent decision by the Financial Accounting Standards Board (FASB).

Greater transparency into their financial health will be possible owing to this reform, which will permit businesses like MicroStrategy to declare the fair value of their Bitcoin holdings without disclosing impairment losses if the cryptocurrency’s price declines during the quarter.

Impairment loss disclosure is a financial reporting requirement where a company must acknowledge and reveal that its assets have significantly decreased in value, typically when their market value falls below their recorded value. It’s important for transparency and informs stakeholders about the impact on the company’s financial situation, ensuring accurate representation of asset values.

A reputable investment bank, Berenberg, has emphasized the significance of this event, which may change how things work for businesses like MicroStrategy that have substantial Bitcoin holdings.

This change will give investors a more accurate financial picture, which is generally thought to be a good thing for the cryptocurrency market.

Currently, cryptocurrencies are treated as intangible assets, resulting in conservative accounting practices that negatively impact company earnings during crypto price downturns.

MicroStrategy Business And Operations

MicroStrategy embarked on an ambitious journey of substantial Bitcoin investments, earmarking a significant portion of its treasury holdings for the cryptocurrency. While this bold step underscored their commitment to innovation, it simultaneously laid bare the company’s vulnerability to the ever-fluctuating crypto landscape.

Since adopting this strategy in August 2020, MicroStrategy has reported cumulative impairment losses totaling $2.23 billion, with the largest loss of $917.8 million recorded in the second quarter of 2022.

Even if it wasn’t necessarily the case, this substantial loss attracted a lot of media attention and created the appearance that the company’s underlying value had been significantly impacted.

Formal Approval And Adoption Timeline

The Financial Accounting Standards Board’s new rules, voted on recently, will permit companies to use fair-value accounting, allowing them to immediately reflect gains and losses on their income statements.

Formal approval of the new standards is expected later this year, with companies having the option to adopt them earlier. Michael Saylor, executive chairman of MicroStrategy, welcomed this rule update, stating that it “eliminates a major impediment to corporate adoption of bitcoin as a treasury asset.”

This change is significant in encouraging wider cryptocurrency adoption within the corporate sector. While the official implementation of the new rules is slated for 2025, MicroStrategy intends to embrace them earlier, showcasing its eagerness to align with the latest accounting standards and leverage their advantages.

Berenberg, on the other hand, holds a favorable view of MicroStrategy’s prospects. The bank has issued a ‘buy’ rating for MicroStrategy shares and set a target price of $510.

According to the most recent data, as of Thursday, MicroStrategy’s stock closed at $353.07, indicating strong investor confidence in the company’s future potential.

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