Strategy expects to receive an income tax benefit of about $4.1 billion—far more than its revenue in a single quarter. It’s worth taking a closer look.
First, where does this money come from? Strategy’s core business is software, but what it has really been doing over the past few years is continually converting company funds into $BTC , buying from 2020 right through to today and continuing to add to its holdings recently. When the price of the coins it holds rises, the unrealized gains on its books can become enormous. Under current accounting rules, these assets must be recorded on the balance sheet at fair value. The resulting book gains lead to corresponding deferred tax items, and when valuation adjustments are factored in, the result can be a substantial income tax benefit.
The key point is that this is most likely an accounting figure—not cash actually refunded by the tax authorities. It affects how good the company’s net income looks; it doesn’t magically add $4.1 billion to its cash balance.
What does this mean for the company? Its financial statements will look better, and the market will continue to value it largely based on its holdings. But this benefit will also fluctuate with the coin’s price: things may look good today, only to change dramatically if the price falls next quarter.
Keep an eye on three things: first, whether it continues buying; second, whether its share price trades at a premium or discount to the value of its holdings—a narrowing premium would signal that the leverage story is cooling off; and third, the direction of the coin’s price. It tends to follow the broader market, only with much bigger swings.
First, where does this money come from? Strategy’s core business is software, but what it has really been doing over the past few years is continually converting company funds into $BTC , buying from 2020 right through to today and continuing to add to its holdings recently. When the price of the coins it holds rises, the unrealized gains on its books can become enormous. Under current accounting rules, these assets must be recorded on the balance sheet at fair value. The resulting book gains lead to corresponding deferred tax items, and when valuation adjustments are factored in, the result can be a substantial income tax benefit.
The key point is that this is most likely an accounting figure—not cash actually refunded by the tax authorities. It affects how good the company’s net income looks; it doesn’t magically add $4.1 billion to its cash balance.
What does this mean for the company? Its financial statements will look better, and the market will continue to value it largely based on its holdings. But this benefit will also fluctuate with the coin’s price: things may look good today, only to change dramatically if the price falls next quarter.
Keep an eye on three things: first, whether it continues buying; second, whether its share price trades at a premium or discount to the value of its holdings—a narrowing premium would signal that the leverage story is cooling off; and third, the direction of the coin’s price. It tends to follow the broader market, only with much bigger swings.