The American Security and Exchange Commission (SEC) is stoking more tension in the already tense cryptocurrency market. The Commission, on Friday, rejected MicroStrategy’s Bitcoin accounting standard for bitcoin, as they stated that the company could not curtail bitcoin’s wild swings with an unofficial accounting standard.
The new update comes up as bitcoin had a correction of 7% for the second straight day, wiping out more than $100 billion of investors’ assets. The bitcoin correction came in the midst of a large-scale sell-off taking place in the Japanese market as well as the US equity market.
MicroStrategy, which is a business software developer, started investing in bitcoin in September 2020. Since that time, Michael Saylor, the company’s founder, has been voraciously buying more bitcoin and adding the same to the company’s balance sheet. At the current count, it is reported that MicroStrategy is holding up to 124,391 BTC, with its latest purchase being in December 2021.
After the Security and Exchange Commission’s statement of Friday, the MicroStrategy fell rapidly by 18% and closed at $375. And it showed an additional 3.5% drop after the market trading.
SEC Turned Down Non-GAAP Reporting Mechanism
In its Form 10-Q, MicroStrategy deployed a non-GAAP means for the quarter ending on September 30, 2021. The report showed investors what their earnings could have looked like if the company did not have to disrupt its bitcoin procurement, which has been very volatile.
The SEC rejected the report method through its letter as reported by Bloomberg. The statement said that the US widely accepted accounting principles (GAAP) does not offer specific rules for reporting the value of digital assets. Non binding guidance from the American Institute of CPAs says that companies should categorize the currency as an intangible asset, as outlined in ASC 350.
That means businesses that are not investment companies should record crypto at historical costs and adjust it only if the value decreases.
For volatile digital assets like bitcoin, the values can only be registered as shrinking, not growing. With MicroStrategy’s huge holding of bitcoin, a further downward spiral in bitcoin price can negatively affect their down-line investors.
In Q3 of 2021, MicroStrategy posted a net loss of $36.1 million. But considering the impairment of its bitcoin holdings, its non-GAAP income turns to $18.6 million. MicroStrategy’s top echelon, however, believes that if the company shows a decline in bitcoin value, it will cause an incomplete assessment of its bitcoin holdings.
No Plans to Sell $5 Billion Stash
As correction continues to trail the cryptocurrency space, Bitcoin has currently dipped more than 40% from its all-time high of $69,000. Michael Saylor has, however, said that MicroStrategy is not going to sell any part of its $5 billion worth of bitcoin holdings, adding that he is not bothered about the latest market correction in crypto. Analysts expect MicroStrategy to buy the current dip.