Why MicroStrategy Plans to Continue Bitcoin Investments Amid SEC Call on Future Filings

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MicroStrategy plans to continue investing in bitcoin despite recent declines in the value of the cryptocurrency asset and a call from US securities regulators to revise its disclosure in upcoming filings.

The Tysons Corner, Vancouver-based software company is one of the few companies to hold bitcoins, alongside automaker Tesla and payments company Square, which recently rebranded itself as Block.

“Our strategy with bitcoin has been buy and hold, so to the extent that we have excess cash flow or find other ways to raise cash, we continue to put it into bitcoin,” Chief Financial Officer Phong Le said.

The company held $2.41 billion of the cryptocurrency as of September 30, up from $1.05 billion at the end of 2020. MicroStrategy also said it purchased bitcoin for $2.04 billion in cash for first nine months of 2021, compared to $425 million in the prior period. period of the year.

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The company is expected to release its fourth quarter results on February 1.

Bitcoin fell to $36,800 late on January 24 — down nearly half from its all-time high of $68,990.90 in November — after hitting a seven-month low in the morning. Market volatility is one of the main reasons many CFOs shy away from investing corporate cash in crypto assets. The lack of defined accounting standards also frightened them.

MicroStrategy will continue to buy bitcoin this year, Le said, though it’s unclear if it will buy more than last year; the company does not intend to sell the asset. MicroStrategy is also considering buying bitcoin-backed bonds if the market becomes more liquid, perhaps in a year or two, he said. “We are constantly looking for other ways to be additive to our shareholders when it comes to bitcoin,” he said.

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MicroStrategy’s own shares are down 19% since Jan. 21, closing at $370.45 on Jan. 24. The attributed the decline largely to the sell-off in tech and bitcoin-related stocks.

In letters made public last week, the Securities and Exchange Commission asked MicroStrategy to review how it discloses its bitcoin holdings in future filings. The SEC’s corporate-finance division often sends comment letters to public companies asking about their disclosures or accounting practices.

MicroStrategy has removed volatility from bitcoin when using measures not defined by U.S. Generally Accepted Accounting Principles, or GAAP.

“We oppose your adjustment for bitcoin depreciation charges in your non-GAAP measures,” the regulator wrote in a Dec. 3 letter.

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In an October letter to the SEC, Le said the inclusion of such impairments, as later requested by the SEC, could distract investors from analyzing the company’s operating results. . On December 16, however, MicroStrategy told the SEC it would revise its disclosures accordingly.

“Accounting is black and white, but disclosures tend to be gray,” Le Monday said, adding that the SEC’s comments make sense.

The SEC, meanwhile, is working to clarify rules for the roughly $2 billion cryptocurrency market.

Businesses holding crypto assets account for them as indefinite-lived intangible assets — similar to trademarks and website domains — based on non-binding guidelines from the Association of International Certified Professional Accountants.

Under these guidelines, companies must review the value of these assets at least once a year. Companies must write down the value if it falls below the purchase price, depending on the outcome of their impairment test. But if the value increases, companies only need to record a gain when they sell the assets, not when they own them.

In a September letter to the Financial Accounting Standards Board, MicroStrategy said that approach does not accurately reflect its financial condition and results of operations. Instead, MicroStrategy and others have pushed to apply fair value accounting rules to digital assets. Under fair value accounting, companies immediately recognize losses and gains in value and treat digital assets as financial assets and not as intangible assets.

MicroStrategy has made more than $750 million on its bitcoin investment at the current price, said Brent Thill, senior analyst at Jefferies Group, a financial services firm. But some investors worry the company isn’t focusing enough on its core business, he said.

MicroStrategy reported a net loss of $36.1 million for the quarter ended Sept. 30, compared with a loss of $14.2 million in the year-ago period. Revenue, meanwhile, rose 0.5% to $128 million for the quarter from a year earlier.

Write to Mark Maurer at [email protected]

This article was published by Dow Jones Newswires

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