Reading Francine McKenna’s article posted today on the risks with Bitcoin, she mentions an impairment charge. I could guess what it meant from the context, but I wanted to be sure I wasn’t running on thinking I knew, so I looked it up.
An impairment charge is the writing down of a sudden, unexpected loss of the book value of an asset compared to its market value.
So then I looked up the meaning of an impairment charge versus depreciation, and it said what I expected – that depreciation is the calculated, steady, known, accepted writing down in the book value of a wasting asset over a set period of time.
If this is new territory for you, think of a car that loses value over the years until it is more or less valueless. The company owns the car and ‘writes down’ or ‘depreciates’ or lowers the value of the car over a set number of years in the company’s books. It knows at the outset what an acceptable rate of depreciation is in the world of cars and car buyers and company finance, so it can calculate the loss right from the start.
Not so with an asset that is volatile, such as Bitcoin with its big unpredictable ups and downs.
I guess the question is whether Bitcoin is like the Earth in its early days – volcanoes and earthquakes – and will settle down when it ‘matures’ or whether there is (as some analysts say) nothing to mature and it is a puff of wind.
This is the article in which I read about ‘an impairment charge’.
Francine McKenna, The Digging Company LLC, 2020 writes The Dig on Substack