Business intelligence firm MicroStrategy revealed that it sold some of its Bitcoin (BTC) stash on Dec. It was the first sale the company has undertaken since it started acquiring BTC in August 2020. While the company subsequently bought more BTC, the sale defied its pledge never to sell any of its BTC stash. So why did the company decide to sell part of its stock, even though it bought back more? The reason for the sale, according to documents filed with the United States Securities and Exchange Commission (SEC), is purely tax. MicroStrategy sold 704 BTC and realized a loss on the transaction, but used that to offset profits in other areas.
In search of tax benefits
As reported by CriptoFácil, MicroStrategy bought 2,500 bitcoins worth around $42.8 million between November 1 and December 21, 2022. At the same time, the company sold 704 BTC for around $11.8 million on December 22nd. Then MicroStrategy went back to buy another 810 BTC two days later. The intricate operation is intended to sell at a loss to offset profit from other operations. This type of resource also exists in Brazil and is widely used by stock traders. Many traders and even long-term investors regularly sell stocks and take losses. In this way, they accumulate this loss as a kind of tax “credit”. Later, if the investor sells a share and makes a profit, he would have to pay tax depending on the profit obtained. To reduce or even avoid this tax, he uses the declared loss as a reduction in the realized profit. MicroStrategy performed the same operation, only focused on BTC trading. This is not a sale to dispose of the asset, but rather a fiscal maneuver. “MicroStrategy plans to offset capital losses resulting from this transaction against prior capital gains, to the extent such write-backs are available under federal income tax laws currently in effect, which may generate a tax benefit,” the company said. .
A Broken Promise
In the summer of 2020, MicroStrategy started its culture of accumulating BTC through its former CEO, Michael Saylor. Since then, the company has accumulated 132,251 BTC, valued at $2.2 billion at current market prices. This positions MicroStrategy as the largest holder of BTC among public companies. However, the company is counting on a huge unrealized loss of almost $2 billion, as it shelled out over $4 billion in buying its BTC. After the strong valuation of 2021, the price of BTC and other crypto assets has plummeted. The downtrend has become more pronounced in 2022, but that hasn’t dampened MicroStrategy’s BTC buying spirit. In a January interview with Bloomberg, Saylor pledged that his company would not sell its BTC holdings. “Never. No, we are not sellers. [. . .] We’re just acquiring and holding bitcoin, right? This is our strategy,” she said. That same month, Phong Le, who was MicroStrategy’s chief financial officer at the time, declared that the company would maintain a “buy and hold” policy. This reinforces the punctual and purely tax character of the unprecedented operation on December 22nd.
