MicroStrategy Pursues Long-Term BTC Strategy: Employed Short-Term sale for Tax Benefit

• MicroStrategy sells some of its BTC for tax benefits.
• Sold nearly 704 BTC at the then rate of $16,776.
• They have previously vouched never to sell. 

Microstrategy continues to love Bitcoin, even though the business-software company had to sell some of its holdings for tax purposes. This was a part of the strategy that should help other long-term fans, easing their pain in the month-long slide. 

On December 22, 2022, Microstrategy sold nearly 704 BTC, priced at the time at $16,776; this was the first time the company took such a step, as they vouched to never sell. But this sale was followed by a few purchases of about 2,395 tokens for nearly $17,871 each from November 1 to December 21, 2022. 

The SEC filing by the company says that the losses generated by the sale would be used to diminish previous capital gains, which would, in turn, result in tax benefits. The BTC holding of the company added nearly 2,501 units by the start of November; this number added to their previous holding of 130,000 by the end of September. 

Brian T. Stoner, a LA based certified public accountant, says:

“This gives a short-term capital loss of $770,880 before commissions, which can be used to offset both long and short capital gains generated during the year plus allow a $3,000 loss against ordinary income if there are any excess losses. Any excess over that can be carried over to 2023 to offset more capital gains the same way.”

The clever strategy utilizes the advantage of BTC’s status as a commodity, which does not follow wash-sale rules for securities, which dictates a seller must wait 30 days to repurchase an investment to book the tax loss. 

The Vice president of treasury and investor relations at Microstrategy says that the company’s BTC strategy hasn’t changed, and they will keep acquiring and holding BTC for the long term. 

Retail investors can also use similar tax-harvesting strategies; moreover, a $3,000 reduction against ordinary income is significant. But Jeffrey Blockinger, the general council of Quadrata, feels that as cryptocurrency moves towards mass adoption, future chances of pulling out a similar stunt could be slim. 

Jeffery also says that MicroStrategy would love to have more cash on its balance sheets for funding several initiatives that could later be used to buy back or buy more and more of BTC. 

MicroStrategy does have some cash as per the balance sheets; in the filing, the company said that it took advantage of the September 9, 2022, agreement of selling stock to Cowen & Co. and BTIG, issuing 218,575 class A shares from October 1, 2022, to December 2022, for a total of $46.4 million with an average price of $213.16. The equivalent amount for the purchase of 2,501 BTC in November and December 2022.

Although it’s still unclear whether the funds were raised for the purchase, the SEC filings indicate that proceeds were to be used for general corporate purposes and the acquisition of cryptocurrency. 

Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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