MicroStrategy records $170 million impairment charge in Q1 2022

MicroStrategy, one of the largest institutional holders of Bitcoin on its balance sheet, took a non-cash digital asset impairment charge of $170.1 million in the first quarter of 2022. This is up 16% from $146.6 million recorded in the previous quarter (Q4, 2021).

The digital asset impairment reflects the decline in the price of bitcoin (BTC) versus the price at which the bitcoin was acquired. Under standard accounting rules, the value of digital assets such as cryptocurrencies must be recorded at their cost and then only adjusted in situations where their value is impaired or goes down. But if the price rises, that does not get reported unless an asset is sold.

The company also announced that Andrew Kang will take over from Phong Le as chief financial officer, effective on May 9, after which Le will continue in his role as MicroStrategy’s president. Kang was previously the CFO of tech company Greensky Inc.

What you should know

  • The company is run by bitcoin maximalist, Michael Saylor. Under his reign, MicroStrategy has continued to accumulate bitcoin at a rapid pace. At the end of March 2022, MicroStrategy secured a $205 million loan from Silvergate Bank (SI) backed by its existing bitcoin holdings to potentially buy more bitcoin.
  • The company still holds a total of 129,218 bitcoins, acquired for $3.97 billion, reflecting an average cost per bitcoin of approximately $30,700, according to company reports. At bitcoin’s current price of about $38,050, the value of those holdings is approximately $4.92 billion.
  • MicroStrategy’s CFO Phong Le explained on the company’s earnings call that bitcoin would need to fall about half from current levels before a margin call would occur on the Silvergate Bank loan. However, Le added that MicroStrategy could contribute more bitcoin to the collateral package to avoid that scenario.
  • For 2021, MicroStrategy posted total digital asset impairment losses of $831 million, versus $71 million in 2020.
  • Between Feb. 15 and April 4, MicroStrategy acquired 4,167 bitcoin for $190.5 million, reflecting an average price of $45,714 per bitcoin.

In January, the software firm said it would stop reporting adjusted results for impairment losses and gains on sales related to bitcoin in response to objections from the U.S. Securities and Exchange Commission.

MicroStrategy shares trade on the NASDAQ at a price of $343.20 per share. Although the share price is up 1.01% in pre-market skirmish, it is down almost 40% in Year-to-Date performance.

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