Relief at MicroStrategy: New regulations for Bitcoin ownership

On August 11, 2020, American software company MicroStrategy rocked the Bitcoin (BTC) world by becoming the first publicly traded company to add the digital asset to its balance sheet. Accounting regulations require MicroStrategy to include its assets, including Bitcoin, in its financial reporting. Given BTC’s volatility, this may cause some problems, but new regulations will help MicroStrategy tremendously.

Bitcoin holdings get new rules

The task is to define and improve accounting and financial reporting standards Financial Accounting Standards Board (FASB). This is an independent non-profit organization in the United States.

The FASB agreed to change the way companies report their finances at a meeting on Wednesday. Specifically, the FASB voted to restrict companies from using “Accounting at fair value for reporting their crypto holdings.

This means that assets are valued at the current market price, allowing companies to immediately report profits and losses on their income statement.

The new accounting standard will come into effect for fiscal years beginning after December 15, 2024. It is expected that the final standard will be approved by written vote before the end of the year and companies will be able to adopt the new standards from then on.

What does this mean for BTC giant MicroStrategy?

Previously, MicroStrategy had to report an impairment loss, also known as a book loss, in its financial statements if the market value of Bitcoin fell below its acquisition cost during the relevant period. Now companies can see a recovery in value after price declines, which is a big improvement over the current rules.

Since its very first BTC purchase in August 2020, the software provider has reported $2.23 billion in cumulative impairment losses. The largest impairment loss occurred in the second quarter of 2022 and amounted to $917.7 million. The huge “loss” was clearly reflected in the reporting of financial performance, although of course it is an unrealized loss.

Michael Saylor, CEO of MicroStrategy and also a Bitcoin giant bullsaid on September 6th by a News on X, formerly known as Twitter, said the change “removes a major barrier to companies adopting Bitcoin as a financial investment.”

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