Suspending purchases may be a financial risk control measure to better assess and manage future tax burdens.
By Hedy Bi, OKG Research
With Trump at the helm again, the political climate and economic policies are rapidly reshaping the global capital landscape. In this context, Strategy, a publicly traded company known for its large-scale Bitcoin acquisitions, suddenly announced a halt to new Bitcoin purchases. During the earnings call last night, Strategy set a target of $10 billion for its annual "Bitcoin dollar revenue" by 2025. Assuming that all funds for purchasing Bitcoin come from financing, to achieve this target, either the price of Bitcoin must double, or Strategy must at least double its holdings at the current cost basis, under the theoretical condition that Bitcoin maintains its current price.
As the world's largest corporate holder of Bitcoin, as of February 7, 2024, Strategy holds 450,000 Bitcoins, with an average cost of about $62,000, ranking among the top five global Bitcoin holders, accounting for approximately 2.38% of the total Bitcoin supply. This ratio is comparable to the official gold reserves of the United States, which ranks first in central bank gold reserves (World Gold Council), and demonstrates Strategy's leading advantage and strategic determination in the crypto asset field. For this reason, Strategy's transparency and clear investment strategy make its holding changes an important perspective for global investors focusing on cryptocurrencies.
For those investors who are accustomed to viewing Strategy as a "digital gold treasury," the recent actions of Strategy have undoubtedly sparked intense discussions. How should this "inconsistent" strategy be interpreted? The author will analyze why Strategy has changed its investment strategy for purchasing Bitcoin and the impact this move will have on the Bitcoin market.
Why did Strategy choose to suspend purchases after Trump took office? The answer is far more complex than it appears on the surface. One key factor is the recent pressure on the company's performance and accounting treatment.
First, although Strategy's Bitcoin holdings doubled in the fourth quarter of 2024, it recorded a net loss of $3.03 per share, far exceeding analysts' expectations of a loss of $0.12 per share, primarily due to significant impairment charges on its digital assets. Under the old accounting standards, when the price of Bitcoin falls below its purchase cost, the company must reflect this loss in its financial statements. If the fair value of the asset is lower than its book value, an impairment loss must be recognized.
Such unexpected losses can undermine investor confidence in the company, leading them to demand higher returns to bear investment risks, making it more difficult to attract investors to purchase its preferred shares. This is why we saw that, according to Bloomberg, Strategy sold newly issued preferred shares at a 20% discount. However, for investors optimistic about Strategy's prospects, the discounted issuance effectively increases the buyers' yield.
At the same time, the implementation of new FASB (Financial Accounting Standards Board) standards allows Strategy to recognize unrealized gains on its Bitcoin positions for the first time, but it complicates its tax issues: under the new accounting standards, Strategy must measure its held Bitcoin at fair value and reflect unrealized gains on its financial statements. While this makes the balance sheet more transparent, it also means the company may need to pay the Corporate Alternative Minimum Tax (CAMT, approximately 15% tax rate) on these unrealized gains. Faced with the potential for a hefty tax bill, Strategy must engage in financial planning to address its tax obligations. Suspending purchases may be a financial risk control measure to better assess and manage future tax burdens.
Additionally, since the company was included in the Nasdaq 100 index, it must comply with stricter information disclosure and corporate governance requirements, including stricter internal trading policies to prevent insider trading. One reason for suspending Bitcoin purchases may be related to restrictions on lock-up periods. Although the U.S. Securities and Exchange Commission (SEC) does not mandate companies to establish lock-up periods, many companies proactively set them for compliance reasons, especially around earnings releases. For example, Strategy's fourth-quarter earnings report for 2024 was released on February 5, and the lock-up period may have begun in January, thereby limiting its ability to increase Bitcoin holdings during this time.
In simple terms, Strategy has not lost confidence in Bitcoin's prospects, and its "inconsistent" performance is not influenced by external market factors, but rather by internal financial compliance and other reasons.
Other institutions in the market will not choose to follow suit and halt purchases due to Strategy's internal reasons. On the contrary, states in the U.S. are actively promoting Bitcoin as a strategic asset at the state level. Currently, 16 states have submitted related bills, with two states making faster progress. According to the chart below, 28,312 Bitcoins are likely to be purchased for investment. The states in "Pending" status do not mean they are not supporters of Bitcoin and other digital currencies. Just today (February 7), Kentucky State Representative TJ Roberts initiated HB376, proposing to invest 10% of state funds in digital assets with a market capitalization exceeding $750 billion.
A $750 billion investment, if most of it is realized in Bitcoin investments, would amount to nearly 39% of Bitcoin's current market value (as of February 7) and would be equivalent to two-thirds of the U.S. gold reserves. According to the World Gold Council, the value of the U.S. gold reserves is approximately $1.1 trillion. This scale of capital inflow has not been built through any national reserve construction background but is purely driven by state government policies. This means that, in addition to companies like Strategy, other institutions or governments are also purchasing Bitcoin. The status of Bitcoin in the global financial system is continuously rising at an unprecedented speed with non-traditional characteristics.
This is just a microcosm of the new policies under the Trump era, filled with uncertainty yet full of imagination.
This article is the third in the series on “Trumponomics.”
OKG Research has specially planned the “Trumponomics” series to analyze the future trends and core logic of the crypto market as Trump 2.0's new policies continue to advance.
Other articles in this series:
“Trump's Return: Bitcoin, Oil, and Gold in the New Economic Era” focuses on the impact of Bitcoin on the international financial landscape.
“Trump's Comeback: Stablecoins and Bitcoin, Who Can Solve the U.S. Debt Dilemma?” delves into the traditional financial core asset of U.S. debt, analyzing how the $36 trillion U.S. debt market can leverage blockchain technology and tools in the crypto space to further consolidate and expand the dollar's dominant position in the global financial system.
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