MicroStrategy, a company that specializes in business intelligence, made news just before New Year's Eve due to the selling of a portion of its Bitcoin holdings, which grabbed the attention of industry professionals as well as detractors.
A regulatory filing that was submitted on December 28 to the United States Securities and Exchange Commission (SEC) detailed (1) the first time the company sold some of its Bitcoin since it made headlines by adopting the most prominent crypto currency as its primary treasury asset. The filing was made with the SEC in the United States.
MicroStrategy caused a stir in the business world in 2021 when it started accumulating considerable bitcoin holdings. The company's founder, Michael Saylor, cited the asset's status as a better store of value to fiat currency as the key motivation for the move.
Because Saylor has been such a consistent advocate for Bitcoin over the past two years, the move that MicroStrategy made to sell some of its BTC attracted a lot of attention from those working in related fields. On the other hand, the company's filing with the SEC makes it very plain that they want to create a tax benefit.
Details of MicroStrategy's Bitcoin Trades
Between November 1 and December 21, 2018, MacroStrategy purchased a total of 2,395 Bitcoins at an average cost of $17,871 per Bitcoin for about $42.8 million. After that, on December 22, it sold 704 Bitcoins at an average cost of $16,776 per Bitcoin for a total of $11.8 million, underlining its intention to lower its tax bill:
"MicroStrategy plans to carry back the capital losses that resulted from this transaction against previous capital gains to the extent that such carrybacks are available under the federal income tax laws that are currently in effect, which may generate a tax benefit."
MicroStrategy plans to do this
"to the extent that such carrybacks are available under the federal income tax laws that are currently in effect."
Paying capital gains tax in the United States when selling crypto currency for a profit would be required. Some investors decide to sell some of their digital assets at a loss to lower the number of capital gains they will report for a given tax year. The term for this practice is tax losses harvesting(2).
This behavior is rather typical for those involved in the crypto currency industry since IRS considers crypto currencies like bitcoin properties subject to regulations governing capital gains and losses.
MicroStrategy took advantage of this loophole and repurchased 810 BTC for around $13.6 million cash just two days after suffering a loss on the selling of a part of its holdings. The transaction took place in a little over a week.
NFT's Offer the Same Options
The use of nonfungible tokens, commonly known as NFTs, is another possibility for lowering one's tax burden. On OpenSea, the well-known DJ Steve Aoki has already been selling a range of NFTs, and all of his transactions are available (3) to the whole public on his verified profile.
According to the reports, there is a possibility that Aoki was looking to engage in tax-loss harvesting.