Strategy Faces Multi-Billion Dollar Tax Hit, May Sell Bitcoin

Strategy, a prominent corporate holder of Bitcoin, is facing a significant challenge due to new taxation laws and accounting standards. The company, which has long maintained a stance of never selling its Bitcoin, may now be forced to liquidate some of its holdings to meet tax obligations. According to a July 7 Form 8-K filing, Strategy must mark its Bitcoin to market each quarter under the new accounting standard ASU 2023-08, recording unrealized gains as income. This change could lead to a multi-billion-dollar tax hit, even if the company does not sell any of its Bitcoin.

Starting in 2026, the U.S. will implement a 15% Corporate Alternative Minimum Tax (CAMT) on companies with over $1 billion in adjusted income. This tax could crystallize billions in tax bills on gains that the company hasn’t sold, as every uptick in Bitcoin’s price inflates taxable income. Strategy’s software business does not generate enough cash to cover these new obligations, and the company already carries significant debt and preferred stock, demanding over $350 million a year in interest and dividends. If cash from operations falls short, Strategy may need to borrow more, tap equity markets, or sell Bitcoin.

Strategy has acknowledged that its custodial arrangements for Bitcoin may not be foolproof. If a custodian fails, the company may not be able to access its Bitcoin, as the tokens could be treated as part of the custodian’s estate, rendering Strategy a general unsecured creditor. Despite these risks, Strategy has been transparent in outlining these threats, stating that it is not intended to spread fear, uncertainty, or doubt, but rather to summarize what is written in their official SEC filings.

Strategy’s Bitcoin holdings represent roughly 3% of the token’s total circulating supply. Any move under distress, whether to cover taxes or obligations, could considerably impact the market. The company remains one of the largest and boldest corporate holders of Bitcoin, but its own documents suggest that it understands the vulnerabilities of its Satoshi-centric model. Despite the challenges, Strategy’s CEO, Michael Saylor, has been a vocal advocate for Bitcoin and may have the answers to these doubts.