MicroStrategy Reports $170M Impairment Charge on Bitcoin Holdings in Q1

MicroStrategy (MSTR) took a non-cash digital asset impairment charge of $170.1 million in the first quarter, up from $146.6 million in the fourth quarter, according to its latest earnings report.

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

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 if their value is impaired, or goes down. But if the price rises, that does not get reported unless an asset is sold.

For 2021, MicroStrategy posted total digital asset impairment losses of $831 million, versus $71 million in 2020.

The company's 129,218 bitcoins held at the end of March 31, 2022, were acquired for $3.97 billion, reflecting an average cost per bitcoin of approximately $30,700, the company reported. At bitcoin’s current price of about $37,662, the value of those holdings is approximately $4.9 billion.

Led by bitcoin maximalist Michael Saylor, MicroStrategy has continued to accumulate bitcoin at a rapid pace. At the end of March, MicroStrategy secured a $205 million loan from Silvergate Bank (SI) backed by its existing bitcoin holdings to potentially buy more bitcoin.

MicroStrategy's CFO Phong Le said on the company's earnings call Tuesday that bitcoin would need to fall about half from current levels before a margin call would occur on the Silvergate loan. However, Le added that MicroStrategy could contribute more bitcoin to the collateral package and avoid that scenario.

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 were down about 0.1% to $343.20 in after-hours trading Tuesday. Shares have fallen around 37% year to date.

Read more: MicroStrategy’s Saylor Lays Out Ways Firm Could Generate Yield From Its Massive Bitcoin Holdings

UPDATE (May 3, 22:24 UTC): Added commentary from the earnings conference call.

Michael Bellusci contributed reporting for this story.