Microstrategy’s BTC Accounting Method Gets Rejected By The SEC

Microstrategy’s BTC accounting method got rejected by the SEC which would have allowed it to avoid using impairment for Bitcoin so let’s find out more in today’s latest Bitcoin news.

Microstrategy was trying to avoid claiming BTC impairment losses which are able to shrink the company’s reported value. The software company did well in 2021 as the price of BTC went from $29,000 to $68,000. However, not everything seems that good. The US Securities and Exchange Commission rejected Microstrategy’s BTC accounting method which would have allowed it to avoid using an impairment for BTC. Under the generally accepted accounting principles, you are able to adjust the value of BTC on the balance sheet when the price goes down which it did between the bull runs and this is called impairment.

If the price increases, you make no such adjustment which means you can’t claim your company is worth more because the value of the holdings increased. As recently reported when discussing a $23 million impairment last year from TEsla’s $1.5 billion BTC buy, it was a quirk in accounting rules rather than the actual loss. Regardless, impairments affect the net worth of the company and the value for investors. The SEC Division of Corporation Finance wrote:

“We object to your adjustment for bitcoin impairment charges in your non-GAAP measures. Please revise to remove this adjustment in future filings.”

The company even responded that it would do so whcih means that Microstrategy’s next quarterly earnings statement will show that the company is worthless on paper than claimed. Microstrategy is a cloud software company but in the past two years, it transformed itself into a de facto BTC fund. Under CEO Michael Saylor, the company bought up 124,391 BTC since 2020 which is now worth $4.5 billion. According to Michael Saylor, the coins cost $3.75 billion to purchase in chunks over time. With more than half of the business’ treasury held in BTC buying MSTR stock is one way for investors to get exposure to the crypto asset. The exposure hasn’t done more favors because BTC lost 11% of the value in 24 hours. MSTR stocks closed the day even worse and dropped by 18% to $375.89 per share and it continued dropping in the following hours.

Source: https://www.dcforecasts.com/bitcoin-news/microstrategys-btc-accounting-method-gets-rejected-by-the-sec/