By Hedy Bi, OKG Research
Trump is at the helm again, and political trends and economic policies are reshaping the global capital landscape at an alarming speed. Against this backdrop, Strategy (formerly known as MicroStrategy, hereinafter referred to as Strategy) — a listed company known for its massive Bitcoin acquisitions, suddenly announced a suspension of new Bitcoin purchases. At the earnings conference last night, Strategy set a target of $10 billion for the annual "Bitcoin dollar earnings" in 2025. Assuming that all funds for Strategy's purchase of Bitcoin come from financing, to achieve this goal, either the price of Bitcoin will double, or Strategy will at least double its holdings at the current holding cost, under the theoretical condition that Bitcoin maintains the current price.
As the world's largest corporate Bitcoin holder, as of February 7, 2024, Strategy holds 450,000 Bitcoins, with an average cost of approximately $62,000, ranking among the top five Bitcoin holders worldwide, accounting for approximately 2.38% of the total Bitcoin supply. This proportion is comparable to the official gold reserves of the United States, which ranks first in central bank gold reserves (World Gold Council), and also shows Strategy's leading edge and strategic determination in the field of crypto assets. For this reason, Strategy's transparency and clear investment strategy make its position changes an important perspective for global investors to pay attention to cryptocurrencies.
For investors who are used to viewing Strategy as a "digital gold treasury", Strategy's recent actions have undoubtedly sparked heated discussions. How should such a "saying one thing and thinking another" strategy be interpreted? The author will analyze why Strategy changed its investment strategy of buying 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 more complicated than it seems. One of the key factors is the company's recent pressure on 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, which was mainly attributed to the large impairment of digital assets held. Under the old accounting standards, when the price of Bitcoin fell below its purchase cost, the company needed to reflect this loss in the financial statements. If the fair value of an asset is lower than its book value, an impairment loss must be recognized.
Such unexpected losses will reduce investors' confidence in the company, causing them to demand a higher rate of return to bear investment risks, making it more difficult to attract investors to buy its preferred shares. Therefore, according to Bloomberg, Strategy sold newly issued preferred shares at a 20% discount. However, for investors who are optimistic about the prospects of Strategy, the discounted issuance effectively increases the yield for buyers.
At the same time, the implementation of the new FASB (Financial Accounting Standards Board) standards will allow Strategy to recognize the unrealized gains of its Bitcoin positions for the first time, but this makes the tax issues it faces more complicated: According to the new accounting standards, Strategy needs to measure its Bitcoin holdings at fair value and reflect unrealized gains in financial statements. Although this makes the balance sheet more transparent, it also means that the company may need to pay the corporate alternative minimum tax (CAMT, about 15% tax rate) on these unrealized gains. Faced with a potential huge tax bill, Strategy must conduct financial planning to cope with tax obligations. Suspending purchases may be a means of financial risk control in order to better assess and manage future tax burdens.
In addition, since the company was included in the Nasdaq 100 Index, it has been subject to stricter information disclosure and corporate governance requirements, including stricter insider trading policies to prevent insider trading. One of the reasons for suspending the increase in Bitcoin holdings may be related to the restrictions on the lock-up period. Although the U.S. Securities and Exchange Commission (SEC) does not require companies to set up a lock-up period, many companies will take the initiative to set it for compliance reasons, especially before and after the release of financial reports. For example, Strategy's fourth-quarter 2024 financial report was released on February 5, and the lock-up period may have been implemented since January, thereby limiting its Bitcoin holdings during this period.
Simply put, Strategy has not lost confidence in the prospects of Bitcoin, and its "inconsistent" behavior is not affected by external market factors, but more due to its own internal financial compliance and other reasons.
Other institutions in the market will not follow Strategy's lead in stopping purchases. On the contrary, the United States, represented by states, is promoting Bitcoin as a strategic asset from the bottom up. Currently, 16 states have submitted relevant bills, and two of them are progressing faster. According to the figure below, 28,312 Bitcoins are likely to be purchased for investment. States in the "Pending" state do not mean that they are not supporters of digital currencies such as Bitcoin. Just today (February 7), Kentucky Congressman TJ Roberts initiated the HB376 bill, proposing to invest 10% of state funds in digital assets with a market value of more than $750 billion.
According to Kentucky's 2023 General Fund revenue, 10% of the funds will be invested in Bitcoin, which is about $1.51 billion. If all 16 states use this data as a reference, about $24 billion of funds will flow into the Bitcoin market. This amount of money is almost equivalent to 1.25% of Bitcoin's current market value (as of February 7), and is also equivalent to 3.24% of the US gold reserves. According to statistics from the World Gold Council, the US gold reserves are worth about $740 billion. And this scale of capital inflow has not been through the background of any national reserve construction, but is purely driven by state government policies. This means that in addition to companies like Strategy, other institutions or governments are also buying Bitcoin. In less than a month since Trump officially moved into the White House again, Bitcoin's position in the global financial system is constantly improving at a speed that is both unconventional and unprecedented.
This is just a microcosm of the new policies under the Trump era, full of uncertainty but also full of imagination.
