Key Points

  • Strategy (formerly MicroStrategy) is a software and bitcoin treasury company. In a securities filing submitted on Monday, it disclosed an unrealized loss on digital assets of$5.91 billionfor the quarter ended March 31. The company expects a net loss for the quarter, but a $1.69 billion income tax benefit will partially offset this impact.
  • The Tysons Corner, Virginia-based company released the unaudited report as the market value of bitcoin hasfallen back to levels seen shortly after President Trump's election. Meanwhile, new generally accepted accounting principles for specific crypto assets such as bitcoin took effect late last year, requiring companies to account for such assets at fair value rather than as intangible assets.
  • "We adopted ASU 2023-08 (the Financial Accounting Standards Board's accounting standards update) effective January 1, 2025," one of the world's largest corporate holders of bitcoin said in the filing. "The standard is now effective, and we have applied a cumulative effect net increase of $12.745 billion to our opening retained earnings balance as of January 1, 2025. Given the volatility of bitcoin prices, we expect the adoption of ASU 2023-08 to have a significant impact on our financial results, increasing the volatility of financial results and affecting the carrying value of bitcoin on our balance sheet."

Deeper Dive

Finance chiefs holding bitcoin are facing multiple variables—they need to finalize first-quarter earnings reports amid the new digital asset accounting standard taking effect and a decline in bitcoin prices.

"Companies adjusting to ASU 2023-08 need to adjust their opening retained earnings balance, not current-period earnings," said Jack Castonguay, an associate accounting professor at Hofstra University in New York, noting that the impact depends in part on when companies purchased the assets.

"For the first quarter of initial adoption, almost all companies holding bitcoin will report losses because its value has declined during the quarter. Some companies that purchased bitcoin during the quarter may record gains, but any company that held bitcoin at the start of the year will have a loss in the first quarter," he said in an email response.

Before the new crypto-specific accounting guidance, most companies used an accounting method that treated digital assets as intangible assets and, during the reporting period,wrote them down to the lowest observable value. Critics argued that this method sometimes led to undervaluation of crypto assets.

MicroStrategy co-founder Michael Saylor was one of the prominent figures welcoming the fair value accounting change. The Financial Accounting Standards Board released the long-awaitedcrypto accounting standards updatein December 2023. The rule is effective for all entities for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years.

"This accounting standards upgrade will promote global corporate adoption of$BTC as a treasury reserve asset," Saylor wrote in a social media post on December 13, 2023.

Strategy is asoftware maker that started in the internet era, and has now become a proxy for bitcoin. According to Bloomberg, it was the first publicly traded company in 2023 to adopt bitcoin purchases as a capital allocation strategy, when Saylor said the company needed to embrace the asset to survive.

In the latest quarter ended March 31, MicroStrategy's bitcoin holdings increased to 528,185 coins, with an average purchase price of $67,458, for a total value of $43.55 billion. During the quarter, the company purchased 80,715 bitcoins at an average price of $94,922.

According to Yahoo Finance data, bitcoin has fallen about 17.6% year-to-date and was trading near $76,945 late Tuesday afternoon.