Bitcoin Rally Brings Strategy a $4.1 Billion Tax Windfall

Strategy, a Bitcoin-focused firm, reported a $4.1 billion income-tax benefit following a rally in Bitcoin's value. The company's Oct. 5 filing revealed that Bitcoin's fair value surpassed its cost basis as of Sept. 30, leading to a significant accounting adjustment and reduced estimated tax expenses. Strategy also noted that it reversed a deferred tax asset related to its Bitcoin holdings and released the associated valuation allowance. These figures were management-prepared and had not been audited or reviewed by KPMG.

The filing highlights how Bitcoin's price movements can impact large holders differently based on their specific positions. Strategy disclosed owning 848,000 BTC with an average purchase price of $75,440.70 as of Oct. 4. Meanwhile, BlackRock’s iShares Bitcoin Trust ETF (IBIT) had an estimated average cost of $81,188 per BTC as of Oct. 2, according to Maketo’s model, which reconstructs underlying Bitcoin costs from daily money flows and prices.

IBIT's holdings and performance were also detailed, with the fund listing about 806,038 BTC and nearly $69 billion in net assets on Oct. 5. Comparatively, its June 30 quarterly filing recorded 734,261 BTC with an investment cost of about $61 billion and a fair value of about $43.4 billion. The fund's activity included acquiring 157,501 BTC and disposing of 192,970 BTC during the six months ended June 30.

The article also discussed the implications of Bitcoin's cost-basis crossings on tax accounting and market impact. It noted that US spot Bitcoin ETFs recorded net outflows of $89.8 million on Oct. 5, while BlackRock’s fund saw inflows during the same session. The analysis emphasized the need for further observation of actual creations, redemptions, and the handling of redeemed Bitcoin to understand market impact fully.