MicroStrategy Reported Impairment Charge of $727K on Bitcoin Holdings in Q3

MicroStrategy (MSTR) posted a minimal digital asset impairment charge of $727,000 on its bitcoin (BTC) holdings in the third quarter, down significantly from $917.8 million in the second quarter as the price of bitcoin remained relatively stable at the end of the second and third quarters, according to its latest earnings report.

The company’s digital asset impairment reflects the decline in the price of bitcoin versus the price at which the bitcoin was acquired. Under standard accounting rules the value of digital assets such as cryptocurrencies must be recorded at their cost and then only adjusted if their value is impaired, or goes down. But if the price rises, that does not get reported unless an asset is sold.

In its earnings press release, MicroStrategy noted it was encouraged by the Financial Accounting Standards Board’s recent support of the use of fair value accounting for bitcoin, which would allow companies to report losses and gains immediately, as they would other traditional financial assets. MicroStrategy’s chief financial officer, Andrew Kang, said in a statement he thought such a change would “promote additional institutional adoption of bitcoin as an asset class.”

Between Aug. 2 and Sept. 19, MicroStrategy bought 301 bitcoins for about $6 million, according to a filing with the Securities and Exchange Commission. The purchase brought MicroStrategy’s total holdings of bitcoin to almost 130,000. At bitcoin’s current price of about $20,440, the value of those holdings is approximately $2.66 billion. MicroStrategy’s entire market capitalization is roughly $2.9 billion.

As of Sept. 30, 2022, the original cost basis and market value of MicroStrategy’s bitcoin holdings were $3.983 billion and $2.532 billion, respectively, which reflects an average cost per bitcoin of approximately $30,639 and a market price per bitcoin of $19,480.51, the company reported.

Following the release of its results, MicroStrategy shares were rising 2.9% to $264.54. Shares have tumbled around 51% year to date, slightly better than bitcoin’s roughly 56% drop over the same time period.

MIcroStrategy is planning to hold an earnings call with analysts at 5 p.m. ET.

UPDATE (Nov. 1, 20:40 UTC): Added information on MicroStrategy’s digital asset impairment and updated its after-hours share price.