The heavier a company's Bitcoin holdings, the more its reported profits swing like a roller coaster. There is one core reason: the accounting rules have changed. A new fair value measurement rule took effect in early 2025. It requires companies to revalue their Bitcoin holdings at market price every quarter. When the price rises, they record a gain; when it falls, they record a loss. The old rule only allowed them to record losses. Now the income statement mirrors Bitcoin's price, often having little to do with the actual business.
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The Rule Changed: From One-Way Write-Downs to Two-Way Swings
Once you understand the difference between the old and new rules, you will see why profit swings suddenly became so large.
Before (impairment model): Bitcoin was held on the books at cost. If the price dropped, the company had to record an impairment loss. If the price rose, it could not reverse that loss. The income statement only suffered the downside and never enjoyed the upside.
Now (fair value model, ASU 2023-08): At the end of each quarter, the company must revalue its holdings at market price. Both gains and losses flow into the income statement. A 10% price rise creates an unrealized gain. A 10% price drop creates an unrealized loss. The income statement has become a real-time display of Bitcoin price changes.
This rule took effect at the start of 2025. Strategy (formerly MicroStrategy) is the most typical example. In the second quarter of 2025, because Bitcoin's price rose, it reported a net profit of about $10.02 billion. Then, in the second quarter of 2026, the price dropped from its average cost of around $75,476 to roughly $64,000. It directly recognized an unrealized loss of $8.32 billion, resulting in a quarterly net loss of $8.22 billion.
Risk reminder: More than 99% of that loss was a "paper loss", not a loss from actually selling coins. But on paper, it looks like an $8.2 billion loss. The market and investors will not carefully separate "paper" from "real". If you own shares in such a company, its stock price may swing wildly after earnings, even if the underlying business is completely normal.
Heavier Holdings, Larger Swings
The impact of this accounting rule is directly proportional to the size of the holdings. Strategy currently holds about 843,775 Bitcoin. The total acquisition cost was about $63.7 billion, but at the end of July, with a market price of roughly $64,915, the holdings were worth about $54.8 billion. The paper loss was close to $9 billion.
At an average cost of roughly $75,476, every 1% drop in Bitcoin's price adds about $800 million in paper losses. Conversely, a 1% rise adds the same amount in gains. Bitcoin's price has fallen about 26% from its high this year. Strategy's profit flipped from a $10 billion profit a year ago to an $8.2 billion loss. In twelve months, the income statement swung by more than $18 billion, driven entirely by one asset's market price.
Academic research backs this up: fair value reporting significantly increases stock return volatility, but there is no evidence it makes earnings more informative. In other words, earnings swings get bigger, but they don't become more useful for investment decisions.
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Holdings Reference Guide
How to check: Open such a company's financial report and look for notes on "digital assets" or "Bitcoin holdings". Find the fair value adjustment. If the change in this number already exceeds the profit from the core business, the company has essentially become a leveraged proxy for Bitcoin.
Next steps: If you hold such stocks, watching the company's earnings is less useful than following Bitcoin's weekly chart. The stock price's volatility is usually several times that of BTC. Before deciding to buy or sell, assess your tolerance for Bitcoin's price moves. Strategy's single-quarter loss from the fair value rule reached $8.3 billion, while its software business quarterly revenue was just $122 million—a difference of more than 60 times.
