Michael Saylor’s Firm Adopts New Accounting Rule, Registers $5.9 Billion Paper Loss

Michael Saylor’s company, Strategy, has announced that it will record an unrealized $5.9 billion loss in the first quarter after adopting a new accounting standard that values digital assets at market prices, Bloomberg reports.

The change, approved last year, requires firms holding cryptocurrencies to recognize fluctuations in their value, leading to increased volatility in reported earnings.

Following the announcement, shares of the former software company—now widely considered a leveraged Bitcoin proxy—fell as much as 14% on Monday. The decline coincided with Bitcoin’s recent price drop, which erased most of its gains since Donald Trump’s US presidential election victory in November.

Before adopting this new standard, Strategy classified its Bitcoin holdings as intangible assets, similar to trademarks or brand recognition. This designation required the company to write down the value of its Bitcoin holdings permanently if the price dropped but did not allow for gains to be recognized until the assets were sold. Since Saylor has consistently stated he does not intend to sell, this approach often led to reports of significant losses.

By switching to a mark-to-market valuation, the company must now reflect the current market price of its Bitcoin holdings on its balance sheet. This change contributed to the $5.9 billion first-quarter loss, primarily due to a 12% decline in Bitcoin’s price. According to Bloomberg calculations, Strategy owned approximately $41.8 billion in Bitcoin at the start of the year, a figure that declined by nearly $5 billion during the quarter.

However, the accounting shift also comes with a benefit—Strategy’s retained earnings will see a nearly $13 billion boost due to the updated valuation methodology.

Strategy was the first publicly traded company to adopt Bitcoin as a core treasury asset in 2020. Saylor has repeatedly defended the move, arguing that embracing Bitcoin is essential for the company’s long-term survival. The approach drew significant attention from Wall Street, especially as Strategy’s stock soared over 2,200% since August 2020.

To expand its Bitcoin holdings, the company has used a combination of stock offerings, convertible debt, and preferred share sales. Hedge funds have played a role in the firm’s financial strategy, engaging in trades that involve purchasing Strategy’s convertible debt while shorting its stock to capitalize on market volatility.

Despite its remarkable rise, Strategy’s stock performance has slowed amid broader declines in Bitcoin and other risk assets this year. The recent price dip has raised concerns about the sustainability of the company’s financing approach, particularly as the market for securities backing its Bitcoin purchases becomes more saturated. Last week, boutique equity research firm Monness, Crespi, Hardt & Co. issued the company’s first sell rating, citing these concerns.

Saylor has remained steadfast in his commitment to Bitcoin, even stating that his digital wallet keys should be “burned” upon his death. However, as Bitcoin’s price continues to fluctuate and regulatory scrutiny increases, Strategy’s approach will likely remain a focal point for investors and analysts alike.