Bitcoin Gains to Boost Strategy’s (MSTR) Balance Sheet by $12.75 Billion

According to analysts at Bernstein, MicroStrategy, now rebranded as Strategy, is about to see a massive $12.75 billion boost to its balance sheet – all thanks to a game-changing accounting rule. But despite this major shift, the company just posted a staggering $670.8 million loss in Q4 2024, with operating expenses soaring nearly 700% year-over-year.

A big chunk of this comes from over $1 billion in Bitcoin impairment losses, a massive jump from just $39.2 million in the same quarter last year.

So, what’s really happening behind the scenes? Let’s break it down.

New Accounting Rules to Unlock Billions in Bitcoin Gains

Starting January 2025, Strategy will adopt the Financial Accounting Standards Board’s (FASB) fair-value accounting rules. This will result in a one-time $12.75 billion adjustment to its retained earnings, allowing the company to recognize unrealized gains from its Bitcoin holdings.

From Q1 2025 onward, Strategy’s Bitcoin holdings will be valued at market price, meaning any price increases can be reported as profits in its net income. This is a major shift from past accounting methods, which required the company to report impairment losses when Bitcoin’s price dropped but did not allow gains when prices rose.

How Will Bitcoin be Taxed?

While these new rules significantly strengthen Strategy’s balance sheet, analysts warn that regulatory uncertainty remains. The tax treatment of Bitcoin holdings under FASB rules and the 2022 Inflation Reduction Act could create new tax challenges for the company.

Microstrategy Is Now “Strategy”

Just before releasing its earnings, MicroStrategy officially changed its name to “Strategy”. The company’s new logo includes a stylized “₿”, emphasizing its commitment to Bitcoin. It also adopted orange as its primary color, symbolizing energy, intelligence, and Bitcoin itself.

On Monday, Strategy’s 12-week Bitcoin buying streak came to an end. The company confirmed that it did not sell any Class A common stock through its at-the-market equity offering program, meaning no new Bitcoin purchases were made between January 27 and February 2.

While this could be a temporary pause, it marks a shift after months of aggressive Bitcoin accumulation.