6 months ago
46
By Hedy Bi, OKG Research
Donald Trump’s return to the White House is already reshaping global capital markets at an astonishing pace, with shifts in political winds and economic policies. Against this backdrop, Strategy (formerly known as MicroStrategy) — the public company famous for its massive Bitcoin acquisitions — has abruptly announced a halt to additional Bitcoin purchases. Yet, in an earnings call early this morning, Strategy set an ambitious 2025 target of $10 billion in “Bitcoin dollar returns.”
Assuming all Bitcoin purchases are financed through debt, achieving this target would require either Bitcoin prices doubling or Strategy doubling its current holdings, assuming Bitcoin remains at its current price.
As the world’s largest corporate Bitcoin holder, Strategy owns 450,000 BTC as of February 7, 2024, at an average cost of $62,000 per Bitcoin. This puts Strategy among the top five global Bitcoin holders, accounting for approximately 2.38% of the total Bitcoin supply. This proportion is comparable to the United States’ gold reserves as the world’s largest central bank holder, underscoring Strategy’s leadership and commitment to crypto assets. As a result, the company’s transparency and clearly defined investment strategy have made its Bitcoin moves a key focus for global investors tracking the cryptocurrency market.
For investors who see Strategy as a “digital gold treasury,” its recent actions have sparked heated debates. Why this apparent contradiction between words and actions? Let’s analyze why Strategy has adjusted its Bitcoin purchase strategy and what this means for the broader Bitcoin market.
The reasons are far more complex than they appear. A key factor lies in the company’s recent struggles with earnings and accounting practices.
First, despite doubling its Bitcoin holdings in Q4 2024, Strategy reported a net loss of $3.03 per share, significantly exceeding analysts’ expectations of a $0.12 loss per share. This was primarily due to substantial impairment charges on its digital assets. Under the old accounting rules, when Bitcoin prices fall below purchase costs, companies are required to reflect these losses on their financial statements. If the fair value of an asset is below its book value, impairment losses must be recognized.
This unexpected loss has likely shaken investor confidence, leading them to demand higher returns to compensate for risk. This makes it harder for Strategy to attract buyers for its preferred stock. According to Bloomberg, Strategy recently sold new preferred shares at a 20% discount. For investors confident in the company’s future, however, this discount effectively boosts their potential returns.
Meanwhile, the implementation of new FASB (Financial Accounting Standards Board) rules, which allow Strategy to recognize unrealized gains on its Bitcoin holdings for the first time, has added tax complexities. Under these rules, Strategy must measure its Bitcoin holdings at fair value and reflect unrealized gains on its financial statements. While this improves balance sheet transparency, it also means the company may face a significant tax burden under the Corporate Alternative Minimum Tax (CAMT) at a 15% rate. Pausing purchases may be a way to mitigate these potential tax liabilities and reassess its financial strategies.
Additionally, since being included in the Nasdaq-100 index, Strategy faces stricter disclosure and corporate governance requirements, including tighter insider trading policies. One possible reason for halting Bitcoin purchases could be restrictions linked to blackout periods. While the SEC does not mandate blackout periods, many companies adopt them voluntarily, particularly around earnings releases. For example, Strategy’s Q4 2024 earnings were released on February 5, suggesting a blackout period may have been in effect since January, restricting Bitcoin purchases during this time.
In short, Strategy’s pause in Bitcoin acquisitions does not signal a loss of confidence in Bitcoin’s future. Instead, it reflects internal challenges such as financial planning and regulatory compliance.
Other institutions are unlikely to follow Strategy’s lead in halting Bitcoin purchases due to its specific circumstances. In fact, U.S. states are actively pushing forward initiatives to recognize Bitcoin as a strategic asset at the state level. Sixteen states have introduced related legislation, with two making significant progress.
As shown below, an estimated 28,312 BTC could be purchased by state governments for investment purposes. States classified as “Pending” in the chart should not be mistaken for Bitcoin skeptics. For instance, on February 7, Kentucky Representative TJ Roberts introduced House Bill 376, proposing that 10% of the state’s funds be invested in digital assets with a market cap exceeding $750 billion.
Based on Kentucky’s 2023 General Fund revenue, a 10% allocation to Bitcoin would amount to $1.51 billion. If all 16 states were to adopt similar policies, over $24 billion could flow into Bitcoin — equivalent to 1.25% of Bitcoin’s current market cap (as of February 7) or 3.24% of the value of U.S. gold reserves. According to the World Gold Council, U.S. gold reserves are worth approximately $740 billion.
This scale of investment would occur without national reserve backing, driven purely by state-level policy initiatives. This means that, beyond companies like Strategy, other institutions and governments are also entering the Bitcoin market. In less than a month since Trump’s return to the White House, Bitcoin’s role in the global financial system is evolving at an unprecedented pace, marked by a mix of non-traditional characteristics and rapid growth.
This is just one snapshot of the new policy dynamics under the Trump administration — filled with both uncertainty and immense potential.
English (US) ·