At the 4pm close of trading in New York, MicroStrategy will hear the determination of its highly anticipated bid to join the prestigious NASDAQ 100 index. The well-publicized event has already attracted bids from investors who view MicroStrategy as highly qualified for approval.
After the NASDAQ committee’s announcement, there are a variety of other catalysts on the horizon for MicroStrategy, including year-end tax loss harvesting, the presidential inauguration, and quarterly earnings announcements.
However, in addition to these, there’s also an idiosyncratic catalyst on its near-term calendar: a bitcoin (BTC)-specific, Financial Accounting Standards Board (FASB) rule change.
The FASB establishes generally accepted accounting principles (GAAP) for US public companies and maintains financial accounting and reporting standards for Securities and Exchange Commission (SEC) filings.
In its rulebook, the FASB forces public companies to treat BTC assets in a manner that disadvantages MicroStrategy on its balance sheet and earnings reports.
Specifically, the FASB has categorized BTC as an “indefinite-lived intangible asset.” As relevant to financial reports, this designation requires a public company to permanently mark down the value when its BTC declines in USD price.
Read more: MicroStrategy bitcoin purchases aren’t stopping premium decline
Rather than an asset on a balance sheet that can subsequently increase in value, the FASB has only allowed BTC losses to pass through as an expense/loss on the income statement.
MicroStrategy CEO Michael Saylor had been lobbying the FASB to change its BTC accounting rules for years. The board has agreed to implement his suggestions starting January 1, 2025, per rule change ASU 2023-08.
No more permanent mark-downs for bitcoin
As a result, MicroStrategy will soon be able to list its bitcoin holdings on its balance sheet at its current USD value — including increases from quarter to quarter.
Read more: MicroStrategy’s average bitcoin purchase price exceeds $58,000
On its first-quarter income statement — and every quarter thereafter — the FASB will finally permit MicroStrategy to list both positive and negative price changes of its bitcoin since the start of each quarter.
In addition to enhanced transparency and a standardized number on MicroStrategy financials that quantitative traders can easily compare across thousands of stocks, this FASB rule change will also impact another catalyst.
By allowing MicroStrategy to recognize its USD gains from BTC’s appreciation, these values will improve MicroStrategy’s candidacy for other indices that use GAAP reporting standards, including the world’s largest index, the S&P 500.
