michael saylor’s (nasdaq:mstr) micro-strategy made global headlines in 2020 when he announced he would convert his entire corporate treasury to btc.
The company initially bought over $250 million worth of BTC and has since raised billions in debt to buy more BTC coins. microstrategy CEO michael saylor has bought the “bitcoin as wholesale digital gold narrative and has been busy telling anyone who wants to listen to it to get involved ever since.”
Reading: U.s. sec rejects microstrategy’s bitcoin accounting strategy
However, the nasdaq-listed company is now facing trouble on two fronts: btc has tumbled in recent months with no signs of recovery in sight, and the sec has now officially rejected its btc accounting strategy.
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what’s wrong with microstrategy accounting methods?
U.S. Securities and Exchange Commission (SEC), headed by Chairman Gary Gensler, opposes MicroStrategy’s adjustment for BTC impairment charges using non-GAAP measures.
gaap stands for generally accepted accounting principles for those not in the accounting game. As it is, GAAP offers no rules on how to report the value of digital assets such as digital currencies or NFTs.
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To cut a long story short, this means that companies that don’t qualify as investment firms must record digital assets at historical cost and only adjust if the value declines. consequently, once the value of holdings declines (impairs), they cannot revise the value again if and when the price recovers.
microstrategy told the sec that it had used this strategy to give its investors a broader view of its finances. the firm feels that just showing temporary declines in value would not represent the full picture for investors.
sec rejected this setting and asked microstrategy to remove it from future submissions. microstrategy indicated that it would comply.
However, after microstrategy and hundreds of other companies wrote to the financial accounting standards board in 2021 asking it to develop better rules for dealing with digital currencies, the board agreed to start work on the issue. perhaps, over time, better accounting practices will be developed. Until then, the sec stands firm.
saylor once again in the bad books of the sec
the sec’s rejection of microstrategy accounting methods is the equivalent of saying, “nice try, mate, but let’s see what you’re trying to do!”
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for those who don’t know her story, this isn’t the first time saylor has run into the regulator. At the height of the dot-com bubble in 2000, the SEC officially opened an investigation into Saylor, charging him with fraud. The case ended with a settlement and Saylor neither admitted nor denied the allegations. ended up paying more than $8 million to investors and a $350,000 fine to the regulator.
What did the SEC officially find in the investigation? To a large extent, that micro-strategy was actually losing money rather than making a profit and that the company was surviving on capital from new investors thanks to the hype and mania surrounding the dot-com bubble. sound familiar?
btc works exactly the same way. Those who understand Bitcoin know that BTC is doomed to economic failure and inherently useless. the only way holders of the coin make a profit is by getting paid when other investors buy at a higher price. this is similar to how pyramid schemes work, but btc escapes classification as such because an item (even a digital one) classified as a real product changes hands.
It remains to be seen how the microstrategy will circumvent the SEC’s rejection of its accounting strategy and whether Saylor himself will face any sanctions when this bubble inevitably bursts. Meanwhile, the company’s shares are taking a hit, having fallen more than 17.8% on January 21, when the announcement was made.
Watch: Security Commissioner Hester Peirce Speaks on Bitcoin Association Blockchain Policy Issues
new to bitcoin? check out coingeek’s bitcoin for beginners section, the ultimate resource guide for more information on bitcoin such as as originally conceived by satoshi nakamoto—and blockchain.
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