Dive Brief:

• Strategy, a software and bitcoin treasury company formerly known as MicroStrategy, reported an unrealized $5.91 billion loss on digital assets for the quarter ended March 31, which it expects will result in a net loss for the quarter that will be partly offset by a $1.69 billion income tax benefit, according to a Monday business update on its bitcoin holdings and other matters contained in a securities filing. 
• The Tysons Corner, Virginia-based company’s unaudited report comes as bitcoin’s market value has fallen back to levels seen just after President Trump’s election, and as new generally accepted accounting standards for certain crypto assets including bitcoin went into effect late last year, requiring companies to account for the assets at fair value rather than treating them as an intangible asset. 
• “We have adopted ASU 2023-08 [the Financial Accounting Standard Board’s accounting standards update] as of January 1, 2025,” the company, one of the largest corporate holders of bitcoin, said in its filing. “The standard is now effective, and we have applied a cumulative-effect net increase to the opening balance of retained earnings as of January 1, 2025, of $12.745 billion. Due in particular to the volatility in the price of bitcoin, we expect the adoption of ASU 2023-08 to have a material impact on our financial results, increase the volatility of our financial results and affect the carrying value of our bitcoin on our balance sheet.” 

Dive Insight:

Finance leaders that hold bitcoin are grappling with a number of moving parts as they close their books on the first quarter since new accounting standards for certain digital assets went into effect amid a bitcoin slump.

“The companies will have to report an adjustment to the opening balance in retained earnings, but not earnings, for the beginning of the period when they make the transition to ASU 2023-08,” according to Jack Castonguay, an associate professor of accounting at Hofstra University in New York, noting that the impact will depend in part on when companies acquired the assets.

“For the first quarter they adopt the standard almost all companies holding it will have to report a loss since its value has declined this quarter. It is possible some firms that bought bitcoin during the quarter could have a gain, but any firms that were holding it as of the beginning of the year will have a loss in Q1,” he said in an emailed response to questions.

Before the new crypto-specific accounting guidance, the accounting method most companies used to report crypto was a system that treated digital assets as intangible assets that were impaired to the lowest observable value within a given reporting period. Critics of that method said at times it led to underreporting crypto values.  

MicroStrategy co-founder Michael Saylor was among the heavy hitters that welcomed the change to fair value accounting when the FASB issued its long-anticipated crypto accounting standards update in December 2023. The rules became effective for all entities for fiscal years beginning after Dec. 15, 2024, as well as for interim periods within those years. 

“This upgrade to accounting standards will facilitate the adoption of $BTC as a treasury reserve asset by corporations worldwide,” Saylor wrote in a Dec. 13, 2023, social media post.

Strategy, a dot-com-era software maker which has become a bitcoin proxy, was the first public company to purchase bitcoin as a capital allocation strategy in 2023 as Saylor said it needed to embrace the asset to survive, Bloomberg reported. 

In the company’s latest quarter on March 31, MicroStrategy’s bitcoin holdings jumped to 528,185 bitcoins, which were purchased at an average price of $67,458 and had a value of $43.55 billion. During the quarter the company bought 80,715 bitcoins at an average price of $94,922.

Bitcoin has fallen about 17.6% this year to date and was trading in the $76,945 range late Tuesday afternoon, according to yahoo!finance.