So Microstrategy recently took a $918M impairment charge on its Bitcoin holdings. What does it really mean?
For BTC , US GAAP requires you to value its bitcoin at its lowest point during a quarter and recognize a loss if that number is below the purchase price. Digital assets like bitcoin are classified as “intangible assets with indefinite lives” under GAAP. In simple terms, this accounting treatment requires companies to report a loss when digital asset prices fall below the cost; however, it prohibits marking up digital assets to it’s true value if prices later recover.
The treatment is similar in the international standard IFRS. Except one key difference. Under IFRS, companies are allowed to *markup* the asset and report a profit if the price later recovers.
The US accounting board that oversees GAAP, called FASB, is aware of this discrepancy and is expected to fix it soon. The crypto industry is expecting the board to adapt a fair-market-value-based approach that is consistent with the international standards and allows the companies to markup and down the assets, as necessary.
So for Microstrategy the recent breathless reporting is just an accounting number update. Nothing else. They didn’t ‘suffer losses’ and they certainly didn’t ‘sell their bitcoins’. They still hold the same number of BTC as before. Most professional analysts understand that this reported value may be different than their fair value on open markets. Basically a nothingburger. And the stock price has actually gone up since the announcement.