Despite Bitcoin’s recent declines in value and a request from US securities regulators to change its disclosure in future filings, MicroStrategy Inc. wants to continue investing in bitcoin.
MicroStrategy Inc. wants to continue investing in Bitcoin
Along with automaker Tesla Inc. and payments company Square, which has just rebranded itself as Block Inc., the Tysons Corner, Va.-based software company is one of the few companies with bitcoin holdings.
“Our strategy with bitcoin has been buy and hold,” said chief financial officer Phong Le. “To the extent that we have excess cash flow or find other methods to acquire cash, we continue to invest it in bitcoin.”
As of September 30, the company had $2.41 billion in cryptocurrency, up from $1.05 billion at the end of 2020. MicroStrategy also revealed that it had paid $2.04 billion in cash for bitcoins in the first nine months of 2021, up from $425 million the previous year. .
On February 1, the company is expected to release its fourth quarter results. After hitting a seven-month low in the morning, bitcoin fell below $36,800 on Monday evening, down nearly half from its high of $68,990.90 in November. Market volatility is one of the main reasons why many CFOs are hesitant to invest company funds in crypto assets. They were also frightened by the lack of clearly defined accounting rules.
Le said MicroStrategy will continue to buy bitcoin this year, though it’s unclear how much more it will buy 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, which it predicts will happen within the next year or two. “We are always looking for new ways to bring value to our shareholders in terms of bitcoin,” he said.
MicroStrategy shares have fallen 19% since Thursday, ending at $370.45 on Monday. Le blamed the drop on a broader sell-off in tech and bitcoin-related stocks.
The Securities and Exchange Commission advised MicroStrategy in letters made public last week that the company should adjust how it reports its bitcoin holdings in future filings. The Corporate Finance Division of the SEC frequently sends comment letters to public companies requesting information about their disclosures or accounting policies.
When using measures not defined by U.S. Generally Accepted Accounting Standards, or GAAP, MicroStrategy filtered out bitcoin’s volatility.
In a letter dated Dec. 3, the regulator said, “We object to your adjustment for bitcoin depreciation charges in your non-GAAP measures.”
Mr. Le wrote to the SEC in October, saying the inclusion of such impairments, as the SEC later requested, could hurt investors’ views of the company’s operating results. MicroStrategy, on the other hand, notified the SEC on Dec. 16 that the company would amend its disclosures accordingly.
Meanwhile, the SEC is seeking to clarify the regulations governing the $2 trillion bitcoin industry.
Based on the non-binding rules of the Association of International Certified Professional Accountants, companies holding crypto assets account for them as indefinite-lived intangible assets, analogous to trademarks and website domains.
According to Brent Thill, principal analyst at Jefferies Group LLC, MicroStrategy has made over $750 million on its bitcoin investment at the current price. However, he claimed that some investors are unhappy that the company is not focusing enough on its core industry.
MicroStrategy announced a net loss of $36.1 million for the quarter ending September 30, compared with $14.2 million a year earlier. Meanwhile, revenue rose 0.5% year over year to $128 million for the quarter. On Monday, Mr Le said: “Accounting is black and white, but disclosures tend to be gray,” adding that the SEC’s comments made sense.