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MicroStrategy (MSTR) is set to enhance its quarterly reporting of bitcoin (BTC) holdings, as it will no longer be required to acknowledge impairment losses in the event of cryptocurrency price declines during the relevant period. This development follows a decision by the Financial Accounting Standards Board (FASB) to revise financial reporting guidelines for companies, as outlined in a report by Berenberg, an investment bank, on Wednesday.
Since implementing its bitcoin acquisition strategy in August 2020, MicroStrategy has documented cumulative impairment losses totaling $2.23 billion, as stated in the report.
MicroStrategy’s largest impairment loss of $917.8 million was recorded in the second quarter of 2022, and the loss featured heavily in news coverage of the earnings, “giving the impression that the company’s inherent value had been negatively impacted when this was not the case,” the bank said.
“The change should help MSTR and other companies that hold digital assets to eliminate the poor optics that have been created by impairment losses under the rules that FASB has had in place,” analysts led by Mark Palmer wrote.
On Wednesday, the FASB made a decision to permit companies to employ fair-value accounting. This decision will enable companies to promptly reflect gains and losses on their income statements. The FASB is anticipated to officially endorse the final wording later this year, allowing companies to adopt these new standards at that juncture.
Michael Saylor, executive chairman of MicroStrategy, said in a tweet that the rule update “eliminates a major impediment to corporate adoption of bitcoin as a treasury asset.”
Berenberg reports that while the FASB has announced that the new regulations will officially take effect in 2025, companies will be granted the flexibility to adopt them earlier if they choose to do so. Berenberg also notes that MicroStrategy intends to take advantage of this option.
The German bank has given MicroStrategy shares a favorable 'buy' rating, setting a price target of $510. As of Thursday's closing, the stock was valued at $353.07.
Stifel, a prominent U.S. investment bank, has suggested that American companies may become more inclined to include digital assets in their financial portfolios, particularly during bullish market phases, as this can potentially yield positive effects on their overall financial performance.
