MicroStrategy Backs ‘Fair Value Model’ Proposal for Crypto Holdings Reporting

MicroStrategy is the latest to back rule changes proposed by the Financial Accounting Standards Board (FASB) that would eliminate impairment charges for companies holding crypto.  

The business intelligence company is the largest public holder of bitcoin. It held roughly 140,000 BTC as of March 31.

Crypto assets, under current Generally Accepted Accounting Principles (GAAP), are considered “indefinite-lived intangible assets” that are tested for impairment — defined as a permanent drop in an asset’s value.

If the carrying amount of the asset exceeds its fair value, an entity is required to recognize an impairment loss and reduce the carrying amount of the asset to its fair value. 

But amendments proposed by FASB would instead require entities to periodically measure certain crypto assets at fair value and recognize any fair value changes in net income, according to a draft of the changes published in March. 

In a letter addressed to FASB on Monday, MicroStrategy revealed that despite purchasing 140,000 BTC for approximately $4.2 billion, the company currently reports the assets on its balance sheet at $2 billion. This valuation is a result of recording cumulative impairment charges amounting to nearly $2.2 billion.

The market value of the company’s bitcoin holdings on March 31 was just shy of $4 billion — about double what it was reported as under the indefinite-lived intangible asset accounting model, the company added.

“Reporting crypto asset holdings under a fair value model, as proposed by the FASB, would enable us to provide investors with a more relevant view of our financial position and the economic value of our bitcoin holdings, which in turn would facilitate the ability of investors to make informed investment and capital allocation decisions,” MicroStrategy said in the letter. 

Some industry participants have said an accounting standard specific to crypto would spur more companies to hold such assets without fear of impairment charges due to short-term market volatility.

Similar to MicroStrategy’s latest comments, TaxBit wrote in a March letter to FASB that the proposals better reflect “the economic realities of these assets and would offer investors “more accurate and useful information as they make capital allocation decisions.”

FASB is set to accept comments on the proposed changes until June 6. 

MicroStrategy endured $18.9 million of impairment losses on its digital assets during this year’s first quarter — an improvement from an impairment of $198 million during the fourth quarter in the last three months of 2022. 

During the second quarter of 2022, the company incurred impairment charges amounting to $918 million. This period coincided with the crash of algorithmic stablecoin terraUSD (UST) and its associated coin LUNA, which consequently caused a significant drop in the price of Bitcoin.

Tesla, which bought $1.5 billion worth of bitcoin in January 2021, endured a $170 million impairment loss during the second quarter of 2022 despite selling the bulk of its crypto holdings during that span.

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