Explainer | Why bitcoin may prompt companies to write down losses or book zero profit growth even in a rally
- Listed companies holding bitcoin would have to write-down its value in a falling market, and in some cases could see zero net profit gains even when it rises
- Directors of listed companies must ensure firms have enough controls to safeguard bitcoin investments, HKEX says
Users of beauty app maker Meitu often praise the listed company for its glammed-up selfies, but investors concerned about its decision to invest its cash reserves into cryptocurrencies would probably prefer a stripped-down reality check on its financials.
There is currently no specific accounting standard that deals with cryptocurrency investments, but the volatility of digital assets such as bitcoin, whose price has rallied 10 times over the past 12 months after dropping over 80 per cent in 2019, has raised questions about how their value will be treated by corporate investors.
Unlike property investments or bank deposits where investors can track yields, cryptocurrencies offer no yield and price drivers are unclear.
There is no rule barring listed companies in Hong Kong from diversifying their investments into digital assets. However, where an issuer acquires cryptocurrencies or other digital assets, its directors have a duty to ensure such acquisition is in the interests of the issuer as a whole, an HKEX spokesman wrote in response to email inquiries from the Post.