The Zhitong Finance App learned that the Benchmark report said that adopting the new accounting standards may change the rules of the game for MicroStrategy (MSTR.US), Bitcoin's largest corporate holder. The move could significantly boost the software company's earnings, giving it an opportunity to join the S&P 500 index.

Benchmark analyst Mark Palmer notes that since MicroStrategy began holding Bitcoin on its balance sheet in 2020, the company has recorded a cumulative impairment loss of $2.27 billion due to US financial accounting standards. As of March 19, MicroStrategy held 214,246 bitcoins, worth $13.6 billion at the price last Friday afternoon.

According to US financial accounting standards, companies treat cryptocurrencies as intangible assets for an indefinite period of time, such assets include trademarks, copyrights, and other items that rarely change hands. As a result, the company records cryptocurrencies at the historical prices they paid and reviews asset depreciation on a quarterly basis. Even if the price of a cryptocurrency falls temporarily during the reporting period, its holdings are considered depreciated, and if the price recovers, its value cannot be revised upward.

However, last year, the US Financial Accounting Standards Board proposed new accounting standards that allow companies to immediately record gains and losses, and classify crypto assets as financial assets. The new regulations will come into effect on January 1, 2025, but companies can choose to implement them early.

Palmer said that in the case of MicroStrategy, the revenue impact “will be significant: the company estimated in its 2023 10-K report that adopting the new accounting standards earlier would increase its retained earnings balance at the beginning of 2024 by about $3.1 billion.”

MicroStrategy is scheduled to announce results for the first quarter of 2024 after the US stock market on April 29. Analysts on average expect the company to have an adjusted loss of $0.13 per share, a loss of $5.62 per share in the previous quarter, and a loss of $30.59 per share in the same period last year. The sharp fluctuation in MicroStrategy's earnings coincided with Bitcoin's price fluctuation. Palmer believes that if MicroStrategy chooses to adopt fair value accounting standards as soon as possible, earnings per share for the first quarter could exceed $300.

“However, we also believe that the tax implications associated with adoption may cause MicroStrategy to delay choosing this option,” he added.

The report said that since MicroStrategy's stock is highly liquid, has a market capitalization of over $18 billion, and 50% of its tradable shares are tradable, the company has met almost all requirements for inclusion in the S&P 500 index. Another criterion for the Standard & Poor's Dow Jones Index Committee to consider a stock for inclusion in the S&P 500 index is that the company's earnings for the most recent quarter were positive. But as Palmer points out, MicroStrategy lost money in 10 of the past 14 quarters.

However, MicroStrategy could have met this requirement even earlier by adopting the new accounting standards.

“Being included in the S&P 500 Index will continue to boost MicroStrategy's stock valuation as large amounts of passive capital will flow in,” the report said.