There's a reason why Microstrategy is falling like a rock: the GAAP accounting of their BTC stsh is going to hurt them on next earning report:
MicroStrategy Plummets as SEC Rejects Its Bitcoin Accounting (3)MicroStrategy Inc. can’t strip out Bitcoin’s wild swings from the unofficial accounting measures it touts to investors, the SEC said.
Bad news for the MicroStrategy was compounded as the company’s shares fell as much as 20% Friday, the biggest intraday collapse since Feb. 23. Its stock closed at $375.89, down nearly 18%. Bitcoin also tumbled, and was down more than 7% around 4:15 p.m. in New York.
Why this underperformance?
U.S. generally accepted accounting principles, or GAAP, offer no rules for reporting the value of digital assets. Nonbinding guidance from the American Institute of CPAs says companies should classify the currency as an intangible asset, as outlined in ASC 350. This means businesses that don’t qualify as investment firms would record cryptocurrency at historical cost and then only adjust it if the value declines. Once their holdings get written down, or impaired, companies can’t revise the value back up if the price recovers.
So basically as the BTC must be accounted according to the formula:
GAAP PRICE=min(purchase price;observed price after purchase)
The only possible adjustment is downward, but the price shoots, there is no way to impact positively the valuation until there is a sell.
And as Micheal Saylor told us they are never going to sell his bitcoin, the benefit will be.. never registered on the balance sheets.
Next thing to do: compute the GAAP adjustment for the next quarter. Accounting test for me. Given the low 34,000 USD print it is going to be big.
Does MSTR have to pick the lowest BTC price for the quarter for the GAAP accounting? or do they pick the BTC price on a certain day of the quarter, such as the last day or some day that is within a parameter such as so long as it is a day in the last week of the quarter?