MicroStrategy was forced to remove data on investments in cryptocurrencies from the financial statements at the request of the SEC. The regulator justified this by the volatility of bitcoin.
MicroStrategy posted a net loss of $36.1 million in its Q3 financial statement ending September 30, 2021. However, the addition of share-based compensation expenses and the drop in cryptocurrencies resulted in the company’s unofficial non-GAAP earnings ), rose to 18.6 million.
MicroStrategy has told the Securities and Exchange Commission (SEC) that it has used non-GAAP methods to give investors a better understanding of their finances. If the company had only shown a decline in value, it would have given an “incomplete valuation” of its bitcoin holdings, which would be “less meaningful to management or investors” in light of the company’s strategy to acquire and hold bitcoin.
“We believe that the inclusion of non-cash losses from the depreciation of bitcoin may otherwise distract our investors from analyzing the operating results of our business.”
The regulator disagreed with the company and in a December 3 letter told MicroStrategy that it was opposed to the adjustment and ordered the company to remove it from future reports. In its December 16 response, MicroStrategy said it would comply with the requirements. Against the background of the adjustment of the report, the company’s shares fell by almost 18%.
It is worth noting that since last year MicroStrategy has been actively advocating a change in the current rules for accounting for cryptocurrencies. In 2021, she asked the Financial Accounting Standards Board (FASB) to ask the US accounting law maker to create rules that objectively reflect the true value of cryptocurrencies. Hundreds of other letter writers followed suit.
The FASB has repeatedly rejected calls to create a new regulation for cryptocurrencies, but large investments in bitcoin by MicroStrategy and Tesla have changed its attitude towards this issue. In December, the Council said it would begin to investigate the issue.
Just before the New Year, MicroStrategy filed a financial report with the SEC stating that it purchased 1,914 BTC between December 9 and 29. The company paid about $94.2 million in cash at an average price of $49,229 per bitcoin. As a result, on December 29, MicroStrategy became the holder of 124,391 BTC worth $3.75 billion, bought at an average price of $30,159.
If the FASB does not create an actual bill allowing the use of bitcoin data in the financial report, MicroStrategy will not be able to include them in the report. At the same time, the company announced back in May 2021 that it would issue bonds for $400 million in order to purchase bitcoins with the proceeds. Without an updated financial reporting law, MicroStrategy’s strategy to accumulate bitcoin could be technically unprofitable for the company.
