Meitu Announces Yet Another Impairment Loss on Crypto Investment
The Meitu Group’s board of directors has informed the company’s shareholders and potential investors that it has incurred yet another loss on its cryptocurrency investment. Due to the impairment it has suffered in its purchased cryptocurrencies, the Group’s unaudited consolidated accounts for the five months ended 31 May 2022 suggests a net loss of approximately RMB 274.9 million (about $41 million).
The loss could reach RMB 349.9 million going by the six months account ended 30 June, to have an increase of about 99.6% from the Group’s net loss of RMB137.7 million for the six months ended 30 June 2021, it announced. Affected by the volatility of the cryptocurrency market, shareholders and potential investors are advised to be cautious with the company’s shares. Meitu, a Chinese company that makes a photo editing app, started to invest a portion of its cash reserves into digital assets in Q1 2021 when it bought 15,000 units of Ether (ETH) and 379.1214267 units of Bitcoin (BTC) in open market transactions at about US$22.1 million and US$17.9 million respectively, on March 5, 2021.
Later in the month, it bought another 16,000 ETH valued at around $28.4 million and 386.086 BTC valued at approximately $21.6 million to have $50.4 million in ETH and $39.5 million in BTC. By April 2021, with the purchase of an additional $10 million worth of BTC (175.67798279 units) pursuant to its Cryptocurrency Investment Plan, the total value of Meitu’s cryptocurrency holdings reached $100 million.
Now, according to its latest announcement, the values of the purchased ETH and BTC based on the current market price as of June 30, 2022, were approximately US$32.0 million and US$18.0 million, respectively. As at press time, Bitcoin has slipped back below $20,000 which suggests that Meitu has recorded impairment losses of US$18.5 million and US$27.1 million.
While the information in the announcement signed by the Chairman of the Meitu board of directors, Cai Wensheng, is based only on the information currently available, not reviewed by the company, auditor or audit committee, the Company’s publication for the period ending June 30, 2022 is expected around August 2022.
“Despite this volatility, the Board believes that due to the rapid development of the blockchain industry development, of which cryptocurrencies are an integral part, there is ample room for growth in cryptocurrency adoption,” the company’s announcement states. It notes that cryptocurrency adoption is still in its infancy and susceptible to volatility when compared to other asset classes such as stocks, commodities, and bonds.
The Hong Kong-listed company is also optimistic with regards to crypto adoption considering that there are now more traditional financial instruments like exchange-traded open-end index funds that can provide traditional investors with access to cryptocurrencies. Its board, which approved of the crypto purchases at the time based on the belief that “cryptocurrencies have ample room for appreciation in value” and also as a way to “serve as a diversification to holding cash” which is subject to depreciation pressure, sees the recent volatility in ETH and BTC prices as “temporary and remains optimistic about the long-term prospects of purchased cryptocurrencies.”
It maintains that the Company’s cryptocurrency holdings represent only a portion of its total assets and accounted for as intangible assets on a cost model under IFRS.