MicroStrategy Inc. can’t strip out Bitcoin’s wild swings from the unofficial accounting measures it touts to investors, the SEC said.

Bad news for the MicroStrategy was compounded as the company’s shares fell as much as 20% Friday, the biggest intraday collapse since Feb. 23. Its stock closed at $375.89, down nearly 18%. Bitcoin also tumbled, and was down more than 7% around 4:15 p.m. in New York.

The enterprise software maker, which said in 2020 that buying and holding Bitcoin was one of its key business strategies, used non-GAAP measures in its Form 10-Q for the quarter that ended Sept. 30, 2021 to show investors what its income would have been if it didn’t have to impair the volatile cryptocurrency.

The Securities and Exchange Commission objected, a comment letter released Thursday shows.

U.S. generally accepted accounting principles, or GAAP, offer no rules for reporting the value of digital assets. Nonbinding guidance from the American Institute of CPAs says companies should classify the currency as an intangible asset, as outlined in ASC 350. This means businesses that don’t qualify as investment firms would record cryptocurrency at historical cost and then only adjust it if the value declines. Once their holdings get written down, or impaired, companies can’t revise the value back up if the price recovers.

For a volatile asset like Bitcoin, that’s a problem; on-the-books value can only be recorded as shrinking, never growing. For MicroStrategy, with material holdings of Bitcoin, downward swings in the digital currency’s value hit the company’s bottom line hard.

For the quarter ending Sept. 30, 2021, MicroStrategy reported a net loss of $36.1 million. Adding back in its share-based compensation expense and the impairment of its digital assets made the company’s unofficial, or non-GAAP, income flip to $18.6 million, its filing shows.

MicroStrategy did not immediately respond to a request for comment.

The company told the SEC it used non-GAAP measures to give investors a fuller picture of its finances. If the company only showed declines in value, it would give “an incomplete assessment” of its Bitcoin holdings that would be “less meaningful to management or investors” in light of the company’s strategy to acquire and hold Bitcoin.

“We further believe that the inclusion of bitcoin non-cash impairment losses may otherwise distract from our investors’ analysis of the operating results of our enterprise software analytics business,” the company wrote.

The SEC disagreed. In a letter dated Dec. 3, the market regulator told MicroStrategy it objected to the adjustment and told the company to remove it from future filings. In its Dec. 16 response, MicroStrategy said it would comply.

MicroStrategy has been a vocal advocate of changing the current cryptocurrency accounting rules. It wrote to the Financial Accounting Standards Board in 2021 asking the U.S. accounting rulemaker to write rules better reflecting the true value of cryptocurrencies. Hundreds of other letter writers followed suit.

FASB had long rejected calls to write new rules for digital assets but high-profile investments in Bitcoin by MicroStrategy and Tesla Inc. have changed the conversation. In December, the rulemaker’s board said it would start researching the issue.

-With assistance from Crystal Kim of Bloomberg News

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