MicroStrategy Inc. plans to continue investing in bitcoin despite recent declines in the value of the cryptocurrency asset and a call by U.S. securities regulators to revise its disclosure in future filings.
The Tysons Corner, Va.-based software company is one of a handful of companies with bitcoin holdings, alongside auto maker Tesla Inc. and payment company Square, which recently renamed itself Block Inc.
“Our strategy with bitcoin has been to buy and hold, so to the extent we have excess cash flows or we find other ways to raise money, we continue to put it into bitcoin,” Chief Financial Officer Phong Le said.
The company held $2.41 billion of the cryptocurrency as of Sept. 30, up from $1.05 billion at the end of 2020. MicroStrategy also said it purchased bitcoins for $2.04 billion in cash for the first nine months of 2021, up from $425 million in the prior-year period.
The company is scheduled to release its fourth quarter earnings on Feb. 1.
Bitcoin fell to $36,800 late Monday—down nearly half from its record high of $68,990.90 in November—after hitting a seven-month low in the morning. Market volatility is among the top reasons many CFOs are avoiding putting corporate cash into crypto assets. The lack of defined accounting standards has also spooked them.
MicroStrategy will continue buying bitcoin this year, Mr. Le said, though it is unclear if it would buy more than it did last year; the company has no plans to sell the asset. MicroStrategy is also considering buying bitcoin-backed bonds if the market becomes more liquid, possibly in the next year or two, he said. “We’re constantly looking at other ways to be additive to our shareholders as it relates to bitcoin,” he said.
MicroStrategy’s own stock has declined 19% since Thursday, closing at $370.45 on Monday. Mr. Le attributed the drop largely to the broader selloff of technology and bitcoin-related stocks.
In letters made public last week, the Securities and Exchange Commission told MicroStrategy to revise the way it discloses its bitcoin holdings in future filings. The SEC’s corporate-finance division often sends comment letters to public companies to inquire on their disclosures or accounting practices.
MicroStrategy has been stripping out bitcoin volatility when using measures not defined under U.S. generally accepted accounting principles, or GAAP.
“We object to your adjustment for bitcoin impairment charges in your non-GAAP measures,” the regulator wrote in a Dec. 3 letter.
In an October letter to the SEC, Mr. Le had said the inclusion of such impairment losses, as later sought by the SEC, could distract from investors’ analysis of the company’s operating results. On Dec. 16, however, MicroStrategy told the SEC it would revise its disclosures accordingly.
“Accounting is black and white, but disclosures tend to be gray,” Mr. Le said on Monday, adding that the SEC’s comments made sense.
The SEC, meanwhile, is working to clarify the rules for the approximately $2 trillion cryptocurrency market.
Companies with crypto holdings account for them as indefinite-lived intangible assets—similar to trademarks and website domains—based on nonbinding guidelines from the Association of International Certified Professional Accountants.
Under those guidelines, businesses have to review the value of these assets at least once a year. Companies have to write down the value if it drops below the purchase price, depending on the result of their impairment test. But if the value rises, companies need only record a gain when they sell the assets, not while holding them.
In a September letter to the Financial Accounting Standards Board, MicroStrategy said this approach doesn’t 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 recognize losses and gains in value immediately and treat the digital assets as financial assets, not as intangibles.
MicroStrategy has made more than $750 million on its bitcoin investment at the current price, said Brent Thill, a senior analyst at Jefferies Group LLC, a financial-services firm. But some investors are concerned 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, widening from a loss of $14.2 million in the prior-year period. Revenue, meanwhile, grew 0.5% to $128 million for the quarter from a year earlier.
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