- MicroStrategy posted a $146.6 million impairment charge for its bitcoin holdings for the fourth quarter of 2021.
- This resulted in a net loss for the enterprise software company.
- An impairment charge represents a drastic depreciation in the value of a specific asset on the balance sheet.
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MicroStrategy posted a $146.6 million impairment charge related to its bitcoin holdings for the fourth quarter of 2021, rising six-fold compared to the same period last year and resulting in a net loss for the enterprise software company.
This loss contributed to the company's operating expenses, which jumped by 125% to $248 million in the fourth quarter compared to the same period last year, based on the company's latest earnings statement Tuesday.
An impairment charge represents a drop in the carrying value of a specific asset on a firm's balance sheet.
In MicroStrategy's case, the non-cash digital asset impairment charge reflected the slide in bitcoin's current price compared to its value when it was purchased. Under applicable accounting principles, if an asset's value falls below its purchase price, the difference could be written off. This practice is typically confined to high-cost assets.
For the year, the Tysons Corner, Virginia-based firm saw its digital asset impairment losses amount to $831 million compared to $71 million in 2020.
Cumulatively, the firm has seen around $901 million in impairment charges on its bitcoin holdings since it began acquiring the asset in August 2020.
As of December 31, MicroStrategy reported holding 124,391 bitcoin at an aggregate cost of $3.8 billion, carrying a value of $2.9 billion.
This does not include the 660 bitcoins the firm bought on Tuesday for roughly $25 million in cash at an average price of $37,865 per coin. In total, MicroStrategy holds 125,051 bitcoins.
According to Bloomberg data, MicroStrategy has taken impairment charges in each of the six quarters since it began acquiring bitcoin. In five of those quarters, the firm was unprofitable. Before the firm added bitcoin to its balance sheet, it was profitable eight out of the nine quarters.
Bitcoin in January had its worst month to start the year since its 2018 crypto winter. The asset lost 18% for the month to trade around $38,000, well below its nearly $69,000 all-time high in November 2021.
Recently, the Securities and Exchange Commission has asked the company to revise its crypto accounting practices, which means MicroStrategy can't strip out bitcoin's price swings from its unofficial non-GAAP accounting measures it presents to investors.
MicroStrategy's CFO Phong Le during the Tuesday earnings call said he agrees with the agency "that on a going-forward basis, any non-GAAP financial measures we may present in future filings should retain the impact from bitcoin impairment losses."
He added that the change in the presentation of MicroStrategy's non-GAAP financial measures does not impact its strategy, operations or GAAP financial statements, or previous SEC filings.
"Our noncash bitcoin impairment charges will remain subject to market volatility of bitcoin prices," Le said. "Given the significant drop in the market price of bitcoin in January 2022, we will recognize significant impairment charges again in the first quarter of 2022."