Think MicroStrategy, the Bitcoin-hoarding software company, did well in 2021 as the price of BTC went from $29,000 to as high as $68,000?

Not on paper. And not on the stock market today either as its share prices hit their lowest level since December 2020.

The U.S. Securities and Exchange Commission (SEC) nixed the company's accounting method, which would have allowed it to avoid using an impairment for Bitcoin.

For all of you non-CPAs, we got you. Under generally acceptable accounting principles (GAAP), you have to adjust the value of Bitcoin on your balance sheet when the price goes down, which it did in between bull runs. This is called an impairment. If the price goes up, however, you make no such adjustment, meaning you can't claim your company is now worth more because the value of your crypto holdings went up.

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As Decrypt wrote back in July when discussing a $23 million impairment in Q2 2021 from Tesla's $1.5 billion Bitcoin buy, it's a "quirk in accounting rules rather than an actual loss." Regardless, impairments affect the net worth of a company and its value in the eyes of investors.

"We object to your adjustment for bitcoin impairment charges in your non-GAAP measures," the SEC's Division of Corporation Finance wrote in a letter dated December 3 that was released yesterday. "Please revise to remove this adjustment in future filings."

The company responded on December 16 that it would do so. This means that MicroStrategy's next quarterly earnings statement will show that the company is worth less on paper than currently claimed.

MicroStrategy is ostensibly a cloud software company but in the last two years has transformed itself into a de facto Bitcoin fund. Under CEO Michael Saylor, the publicly traded firm has bought up 124,391 BTC since August 2020, which are now worth approximately $4.5 billion. According to Saylor, the coins, bought in chunks over time, cost $3.75 billion to purchase. So, they're still profitable in terms of unrealized gains.

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With more than half of the business's treasury held in Bitcoin (at last count), buying MSTR stock is one way for everyday investors to get exposure to the crypto asset. That exposure hasn't done it any favors today because Bitcoin lost 11% of its value in 24 hours.

MSTR stock closed the day down even worse, sinking 18% to $375.89 per share—and continuing to decline in after-hours trading.

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