Key Insights
- A new proposal from the US tax authorities aims to tax companies for unrealized investment gains.
- It so happens that MicroStrategy holds nearly $30 billion in unrealized gains.
- If this rule comes into effect, MicroStrategy could owe nearly $3 billion to the US tax authorities.
- MicroStrategy’s stock has already reacted to this by taking a near-6% nosedive over the last day.
- The crypto-friendliness of the Trump administration could be a positive indicator for the company.
MicroStategy, the world’s largest corporate holder of Bitcoin might be finding itself under problems soon.
The company is facing a possible increase in scrutiny due to the evolution of rules from the US tax authorities.
The agency is now looking towards taxing companies for unrealized crypto gains.
In essence, certain companies may now be expected to pay tax for profits they do not necessarily have yet.
This is a problem for the MicroStrategy stock, because as far as the industry knows, the company has over 460,000 BTC in its treasury, which is valued at approximately $20 billion in unrealized gains.
This massive stash of Bitcoin could be the source of massive financial repercussions if these new policies come into play, and here are all the updates so far..
The Taxation Debate
The 2022 Inflation Reduction Act (IRA) sits at the heart of this discussion, and is a new rule that proposes taxing unrealized gains for corporations.
While the act currently outlines a 15% corporate alternative minimum tax on adjusted earnings, it still remains unclear if MicroStrategy’s unrealized gains in particular, fall under this category.
If it is, the company could possibly owe close to $3 billion worth of taxes on its Bitcoin holdings.
However, the interesting thing is that this taxation policy is still speculative, considering how taxing unrealized gains is still merely a proposal.
According to analysts, the Internal Revenue Service (IRS) could be open to exempting crypto assets from these rules and treat them just like stocks.
Still, this positive speculation hasn’t been enough to save the MicroStrategt stock, which has crashed by as much as 5% over the last day, along with several other major tech stocks like Tesla and Nvidia.
MicroStrategy Stock Prediction from CoinCodex shows a possible resurgence from a current price of around $353 to around $493 by the end of February.
CoinCodex data also shows that a possible decline could occur in April, bringing the stock price to a still-bullish, but lower $397 apiece.
Trump Administration’s Crypto-Friendly Legacy
Another positive indicator for MicroStrategy could be the legacy of Us president Donald Trump.
So far, the Donald Trump administration has demonstrated a pro-crypto stance, which could be a saving grace for MicroStrategy.
The Trump administration has implemented a hiring freeze for federal agencies excluding the IRS, which might reduce enforcement efforts and possibly provide relief for high net-worth entities like MicroStrategy.
Analysts generally believe that this environment could offer temporary protection to MicroStrategy and other similar companies from aggressive taxation measures.
Expanding Shareholder Equity
MicroStrategy’s shareholders have already begun anticipating the financial strains from this move, and have approved a significant increase in the company’s authorized shares.
The firm’s Class A shares recently surged from 330 million to 10.3 billion, while preferred stock shares rose from 5 million to 1 billion.
This move from the board aims to support the company goal of raising $42 billion through equity and convertible note offerings before the next two years.
The company also announced its intention to redeem its 0.0% Convertible Senior Notes worth $1.05 billion by February.
Investors will be able to convert these notes into Class A common stock at a rate of 7.0234 shares per $1,000 of principal.
This would also equate to a conversion price of $142.38 per share.
The proceeds from this move will reportedly be used to fund more Bitcoin purchases and reinforce the company’s commitment to its crypto strategy.
