- MicroStrategy has reported a Q1 operating loss of US$53.1 million, largely due to a US$191 million impairment charge on its Bitcoin holdings.
- Current digital asset accounting standards can lead to significant undervaluing of digital assets, resulting in large losses on paper.
- A new accounting standard comes into effect in January 2025, which will allow companies to record the ‘fair value’ of digital assets and should result in more accurate accounting.
The world’s largest corporate Bitcoin holder, MicroStrategy, has announced a quarterly net operating loss of US$53.1 million (AU$80.9 million) or US$3.09 (AU$4.71) per share, driven by a US$191 million (AU$291 million) impairment charge on its Bitcoin holdings—despite the OG crypto’s strong price action during Q1.
This impairment charge is the result of digital asset accounting standards, which inaccurately record the current value of digital assets. A new accounting standard that allows companies to record the ‘fair value’ of digital assets comes into effect in December of 2024 and will lead to much more accurate record keeping.
Related: Pivotal Moment for Crypto: New Accounting Rules Coming
Accounting Standard Significantly Underestimates Bitcoin’s Current Value
Using the currently accepted accounting standard meant MicroStrategy recorded the value of its Q1 Bitcoin purchases at US$23,680 (AU$36,131) per Bitcoin, far lower than Bitcoin’s US$71,028 (AU$108,377) market price at the end of the quarter.
Many market watchers expected MicroStrategy to adopt the new digital asset accounting standard earlier than required, which would’ve allowed it to report the ‘fair value’ of its Bitcoin purchases this quarter and post a sizeable profit. However the company chose to stick with the older standard, valuing its total Bitcoin holdings at US$5.1 billion (AU$7.78 billion), around a third of their quarter-ending market value of US$15.2 billion (AU$23.2 billion).
Addressing investors on the Q1 earnings call MicroStrategy’s Chief Financial Officer, Andrew Kang, said the company is currently deciding when would be the best time to implement the new digital asset accounting standards. The Financial Standards Accounting Board (FASB) requires that the standard be implemented by January 1, 2025, but early adoption is permitted.
Saylor Keeps Accumulating
So far in 2024 MicroStrategy has accumulated an additional 25,250 Bitcoin at an average purchase price of US$65,232 (AU$99,548), with 122 of those being bought so far in Q2.
Related: In 2020 They Laughed at Saylor; Today, His Bitcoin Investment Tops $10 Billion
That puts MicroStrategy’s current holdings at 214,400 BTC, valued at around US$13.5 billion (AU$20.6 billion) based on Bitcoin’s current market value of approximately US$63,000 (AU$96,152).
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