On Friday, January 21, the US Securities and Exchange Commission (SEC) rejected the company’s Bitcoin accounting standards, stating that MicroStrategy cannot exclude highly volatile price movements from the unofficial accounting standards it offers to investors.
MicroStrategy’s Bitcoin Strategy
Enterprise software giant MicroStrategy started buying Bitcoin in September 2020. In the process, the company’s founder and CEO, Michael Saylor, began to gradually add Bitcoin to MicroStrategy’s balance sheet. To date, MicroStrategy has purchased a total of 124,391 Bitcoins, with the last purchase made last month. The company’s average cost per Bitcoin rose to $30,159 after the last purchase it recorded.
Shares of MicroStrategy (NASDAQ: MSTR) tumbled 18% on Friday after the SEC’s announcement, dropping to $375 price levels.
SEC Rejects MicroStrategy’s Bitcoin Accounting Standard
According to Bloomberg’s report, the SEC is objecting to this Bitcoin accounting standard by MicroStrategy:
“US generally accepted accounting principles, or GAAP, offer no rules for reporting the value of digital assets. Non-binding guidance from the American CPA Institute says companies should classify currency as an intangible asset as specified in ASC 350.”
This means that companies that do not qualify as investment firms will save the cryptocurrency at its initial cost and can only update the value of the asset in case of depreciation, not make any revisions in case of appreciation.
MicroStrategy’s Reply to SEC
Enterprise software giant MicroStrategy wrote the following in its reply, writing that it is “less meaningful” on behalf of investors:
“We believe the inclusion of non-cash losses in Bitcoin can distract our investors from their analysis of the operating results of our enterprise software analytics business”
Additionally, speaking to Bloomberg on Thursday, Michael Saylor stated that they have not made any sales from the Bitcoin purchases they have recorded so far and that they will continue to buy Bitcoin without worrying about short-term price movements.