MicroStrategy will continue to buy Bitcoin despite market drop, says CFO

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MicroStrategy Inc. 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 future filings.

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

“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 in 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 the nine first months of 2021, compared to 425 million dollars the previous one. – period of one year.

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

Phong Le, Chief Financial Officer of MicroStrategy. Photo: MicroStrategy Inc.

Bitcoin fell to $36,800 late Monday, almost half of its November high of $68,990.90, 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.

MicroStrategy’s own shares are down 19% since Thursday, closing at $370.45 on Monday. Le attributed the drop largely to the sell-off in tech and bitcoin-related stocks.

Although the SEC has not announced any major actions against major crypto exchanges, the commission has threatened to sue companies offering crypto loans. The WSJ’s Dion Rabouin explains why this part of the crypto market has received such a strong reaction. Photo: Mark Lennihan/Associated Press

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.

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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.

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 results of operation of the company. 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 said on Monday, adding that the SEC’s comments make sense.

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

Companies 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, principal analyst at Jefferies Group LLC, 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]

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