in Q4 2024 and 74.3% in FY 2024; Now Holds 447,470 BTC
nvestors should rely on the financial statements and other disclosures contained in the Company’s SEC filings. This KPI is merely a supplement, not a
substitute. It should be used only by sophisticated investors who understand its limited purpose and many limitations.
Item 8.01 Other Events.
The financial information set forth in this Current Report on Form 8-K has been prepared by MicroStrategy management. MicroStrategy’s independent
registered public accounting firm, KPMG LLP, has not audited or reviewed, and does not express an opinion with respect to, such financial information.
On August 7, 2024, we completed a 10-for-1 stock split of our class A and class B common stock. See Note 1(a), Summary of Significant Accounting
Policies – Basis of Presentation, to the Consolidated Financial Statements, in our Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2024 for further information. As a result of the stock split, all applicable share and per share information presented within this Current
Report on Form 8-K has been retroactively adjusted to reflect the stock split for all periods presented.
ATM Update
As previously disclosed, on October 30, 2024, the Company entered into a Sales Agreement (the “Sales Agreement”) with TD Securities (USA) LLC,
Barclays Capital Inc., The Benchmark Company, LLC, BTIG, LLC, Canaccord Genuity LLC, Cantor Fitzgerald & Co., Maxim Group LLC, Mizuho
Securities USA LLC, and SG Americas Securities, LLC, as agents (the “Sales Agents”), pursuant to which the Company may issue and sell shares of its
class A common stock, par value $0.001 per share (“Shares”), having an aggregate offering price of up to $21 billion from time to time through the Sales
Agents.
On January 6, 2025, the Company announced that, during the period between December 30, 2024 and December 31, 2024, the Company had sold an
aggregate of 319,586 Shares under the Sales Agreement for aggregate net proceeds to the Company (less sales commissions) of approximately
$101 million. The Company did not make any sales of Shares under the Sales Agreement after December 31, 2024 through the date of this Current
Report on Form 8-K. As of January 5, 2025, approximately $6.77 billion of Shares remained available for issuance and sale pursuant to the Sales
Agreement.
Bitcoin Holdings Update
On January 6, 2025, the Company announced that, during the period between December 30, 2024 and December 31, 2024, the Company acquired
approximately 1,070 bitcoins for approximately $101 million in cash, at an average price of approximately $94,004 per bitcoin, inclusive of fees and
expenses. The bitcoin purchases were made using proceeds from the issuance and sale of Shares under the Sales Agreement. The Company did not make
any purchases of bitcoin after December 31, 2024 through the date of this Current Report on Form 8-K.
As of January 5, 2025, the Company, together with its subsidiaries, held an aggregate of approximately 447,470 bitcoins, which were acquired at an
aggregate purchase price of approximately $27.97 billion and an average purchase price of approximately $62,503 per bitcoin, inclusive of fees and
expenses.
As of January 5, 2025, at 4:00 p.m. Eastern Time, the market price of one bitcoin reported on the Coinbase exchange (the Company’s principal market
for bitcoin) was $98,253.13.
Q4 2024 Financial Updates
Capital Markets Update
During the quarter ended December 31, 2024, the Company received net proceeds (less sales commissions) of $15.09 billion from the sales of Shares
under its at-the-market equity offering programs (including both under the Sales Agreement and the Company’s prior at-the-market equity sales
agreement), and net proceeds of $2.97 billion from the issuance of $3.0 billion aggregate principal amount of 0% convertible senior notes due 2029 (the
“2029 Convertible Notes”).
Capital Structure and Debt Update
As of December 31, 2024, the Company had 226,138,248 and 19,640,250 shares of class A common stock and class B common stock outstanding,
respectively.
As of December 31, 2024, the following convertible notes (collectively, the “Convertible Notes”) were outstanding:
• $1.050 billion aggregate principal amount of 0% Convertible Senior Notes due 2027 (the “2027 Convertible Notes”);
• $1.010 billion aggregate principal amount of 0.625% Convertible Senior Notes due 2028 (the “2028 Convertible Notes”);
• $3.0 billion aggregate principal amount of 2029 Convertible Notes;
• $800.0 million aggregate principal amount of 0.625% Convertible Senior Notes due 2030 (the “2030 Convertible Notes”);
• $603.8 million aggregate principal amount of 0.875% Convertible Senior Notes due 2031 (the “2031 Convertible Notes”); and
• $800.0 million aggregate principal amount of 2.25% Convertible Senior Notes due 2032 (the “2032 Convertible Notes”).
Each of the Convertible Notes were issued in a private offering.
The Convertible Notes are senior unsecured obligations of the Company and rank senior in right of payment to any of the Company’s indebtedness that
is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is
not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing
such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.
The following table summarizes certain terms of each of the Convertible Notes (principal at inception are each reported in thousands):
2027
Convertible
Notes
2028
Convertible
Notes
2029
Convertible
Notes
2030
Convertible
Notes
2031
Convertible
Notes
2032
Convertible
Notes
Issuance Date February
2021
September
2024
November
2024 March 2024 March 2024 June 2024
Maturity Date (1) February 15,
2027
September 15,
2028
December 1,
2029
March 15,
2030
March 15,
2031 June 15, 2032
Principal at Inception $ 1,050,000 $ 1,010,000 $ 3,000,000 $ 800,000 $ 603,750 $ 800,000
Stated Interest Rate (2) 0.000% 0.625% 0.000% 0.625% 0.875% 2.250%
Interest Payment Dates (3) February 15
& August 15
March 15 &
September 15
June 1 &
December 1
March 15 &
September 15
March 15 &
September 15
June 15 &
December 15
Date of Holder Put Option (4)
n/a
September 15,
2027 June 1, 2028
September 15,
2028
September 15,
2028 June 15, 2029
Initial Conversion Rate (5) 6.981 5.4589 1.4872 6.677 4.297 4.894
Initial Conversion Price (6) $ 143.25 $ 183.19 $ 672.40 $ 149.77 $ 232.72 $ 204.33
Convertible at any time after the
following date (7) (8)
August 15,
2026
March 15,
2028 June 1, 2029
September 15,
2029
September 15,
2030
December 15,
2031
Not redeemable by the Company
prior to the following date (9)
February 20,
2024
December 20,
2027
December 4,
2026
March 22,
2027
March 22,
2028 June 20, 2029
(1) (2) (3) “Maturity Date” is the stated maturity date under each applicable indenture governing such notes, unless earlier converted, redeemed, or
repurchased in accordance with their terms.
Holders may receive additional or special interest under specified circumstances as outlined under each applicable indenture governing the
Convertible Notes.
For the Convertible Notes issued in 2024, interest payments begin on (a) September 15, 2024 for each of the 2030 Convertible Notes and the 2031
Convertible Notes, (b) December 15, 2024 for the 2032 Convertible Notes, (c) March 15, 2025 for the 2028 Convertible Notes, and (d) June 1,
2025 for the 2029 Convertible Notes.
(4) (5) (6) (7) (8) (9) “Date of Holder Put Option” represents the respective dates upon which holders of the 2028 Convertible Notes, 2029 Convertible Notes, 2030
Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes each have a noncontingent right to require the Company to repurchase
for cash all or any portion of their respective notes at a repurchase price equal to 100% of the principal amount of such notes to be repurchased,
plus any accrued and unpaid interest to, but excluding the repurchase date.
The “Initial Conversion Rate” is stated in shares of the Company’s class A common stock per $1,000 principal amount. The conversion rates are
subject to customary anti-dilution adjustments. In addition, following certain events that may occur prior to the respective maturity dates or if the
Company delivers a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its respective
Convertible Notes in connection with such corporate event or notice of redemption, as the case may be, in certain circumstances as provided in
each indenture governing the respective Convertible Notes.
The “Initial Conversion Price” is stated in dollars per share of the Company’s class A common stock.
On or after the stated dates until the close of business on the second scheduled trading day immediately preceding the respective maturity dates,
holders may convert the Convertible Notes at any time. Upon conversion of the Convertible Notes, the Company will pay or deliver, as the case
may be, cash, shares of the Company’s class A common stock, or a combination of cash and shares of class A common stock, at the Company’s
election.
Prior to the respective dates, the Convertible Notes are convertible only under the following circumstances: (a) during any calendar quarter
commencing after the calendar quarter ending on June 30, 2021 for the 2027 Convertible Notes, on June 30, 2024 for the 2030 Convertible Notes
and 2031 Convertible Notes, on September 30, 2024 for the 2032 Convertible Notes, on December 31, 2024 for the 2028 Convertible Notes or on
March 31, 2025 for the 2029 Convertible Notes (and only during such calendar quarter), if the last reported sale price of the Company’s class A
common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including,
the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the respective
Convertible Notes on each applicable trading day; (b) during the five business day period after any five consecutive trading day period (the
“measurement period”) in which the “trading price” (as defined under each applicable indenture governing the respective Convertible Notes) per
$1,000 principal amount of the respective Convertible Notes for each trading day of the measurement period was less than 98% of the product of
the last reported sale price of the Company’s class A common stock and the applicable conversion rate on each such trading day; (c) if the
Company calls any or all of the respective Convertible Notes for redemption, at any time prior to the close of business on the second scheduled
trading day immediately preceding the redemption date; and (d) upon occurrence of specified corporate events as described in each applicable
indenture governing the respective Convertible Notes.
The Company may redeem for cash all or a portion of the Convertible Notes at its option, on or after the stated dates, if the last reported sale price
of the Company’s class A common stock has been at least 130% of the conversion price of the respective Convertible Notes then in effect for at
least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a
notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on
which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes
to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
If the Company undergoes a “fundamental change,” as defined in the respective indentures governing the Convertible Notes prior to maturity, subject to
certain conditions, holders may require the Company to repurchase for cash all or any portion of their respective Convertible Notes at a fundamental
change repurchase price equal to 100% of the principal amount of the respective Convertible Notes to be repurchased, plus any accrued and unpaid
interest to, but excluding, the fundamental change repurchase date.
The respective indentures governing the Convertible Notes contain customary terms and covenants, including that upon certain events of default
occurring and continuing, either the Trustee or the holders of at least 25% in principal amount outstanding of the respective Convertible Notes may
declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the respective Convertible Notes to be due and payable.
Although the Convertible Notes contain embedded conversion features, the Company accounts for the Convertible Notes in their entirety as a liability
because the conversion features are indexed to the Company’s class A common stock and meet the criteria for classification in stockholders’ equity and
therefore do not qualify for separate derivative accounting.
Collective Convertible Notes Disclosures
As of December 31, 2024, the maximum number of shares into which the Convertible Notes could have been potentially converted if the conversion
features were triggered at the conversion rates then in effect based on the Convertible Notes then outstanding on such date was 7,330,050 shares,
5,513,489 shares, 4,461,600 shares, 5,341,600 shares, 2,594,314 shares, and 3,915,200 shares for the 2027 Convertible Notes, 2028 Convertible Notes,
2029 Convertible Notes, 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes, respectively.
The Convertible Notes were not convertible at the option of the holders during the year ended December 31, 2024. The Convertible Notes may be
convertible in future periods if one or more of the conversion conditions is satisfied during future measurement periods. As of December 31, 2024, the
last reported sale price of the Company’s class A common stock for at least 20 trading days during the 30 consecutive trading days ending on, and
including, December 31, 2024 was greater than or equal to 130% of the conversion price of each of the 2027 Convertible Notes, 2028 Convertible
Notes, 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes on each applicable trading day. Therefore, the 2027 Convertible
Notes, 2028 Convertible Notes, 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes are convertible at the option of the
holders of the respective Convertible Notes during the first quarter of 2025.
As of December 31, 2024, the Company has not redeemed any of the Convertible Notes.
As of December 31, 2024, the net carrying value of the Convertible Notes were considered long-term liabilities.
The following is a summary of the Company’s convertible debt instruments as of December 31, 2024 (in thousands):
December 31, 2024
Outstanding Unamortized Net Carrying Fair Value
Principal Amount Issuance Costs Value Amount Leveling
2027 Convertible Notes $ 1,050,000 $ (8,648) $1,041,352 $ 2,134,125 Level 2
2028 Convertible Notes 1,010,000 (11,457) 998,543 1,927,828 Level 2
2029 Convertible Notes 3,000,000 (24,963) 2,975,037 2,447,682 Level 2
2030 Convertible Notes 800,000 (14,828) 785,172 1,657,323 Level 2
2031 Convertible Notes 603,750 (9,274) 594,476 877,559 Level 2
2032 Convertible Notes 800,000 (12,583) 787,417 1,324,602 Level 2
Total $ 7,263,750 $ (81,753) $7,181,997 $10,369,119
The fair value of the Convertible Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end
of the reporting period of identical instruments in the over-the-counter market (Level 2).
For the year ended December 31, 2024, the Company incurred $36.0 million in interest expense and paid $16.5 million in interest related to the
Convertible Notes and to the Company’s 0.750% Convertible Senior Notes due 2025, which were fully converted or redeemed during 2024. The
Company has not paid any additional interest or special interest related to the Convertible Notes to date.
Other long-term secured debt
In June 2022, the Company, through a wholly-owned subsidiary, entered into a secured term loan agreement in the amount of $11.1 million, bearing
interest at an annual rate of 5.2%, and maturing in June 2027. The loan is secured by certain non-bitcoin assets of the Company that are not otherwise
serving as collateral for any of the Company’s other indebtedness. After monthly payments made under the terms of the agreement, the loan had a net
carrying value of $9.7 million and an outstanding principal balance of $9.8 million as of December 31, 2024.
Maturities
The following table shows the maturities of the Company’s debt instruments as of December 31, 2024 (in thousands). The principal payments related to
the 2028 Convertible Notes, 2029 Convertible Notes, 2030 Convertible Notes, 2031 Convertible Notes, and 2032 Convertible Notes are included in the
table below as if the holders exercised their right to require the Company to repurchase all of the respective convertible notes on their respective Date of
Holder Put Option.
Payments due by
period ended
December 31,
2027
Convertible
Notes
2028
Convertible
Notes
2029
Convertible
Notes
2030
Convertible
Notes
2031
Convertible
Notes
2032
Convertible
Notes
Other
long-term
secured
debt Total
2025 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 569 $ 569
2026 0 0 0 0 0 0 600 600
2027 1,050,000 1,010,000 0 0 0 0 8,634 2,068,634
2028 0 0 3,000,000 800,000 603,750 0 0 4,403,750
2029 0 0 0 0 0 800,000 0 800,000
Thereafter 0 0 0 0 0 0 0 0
Total $1,050,000 $1,010,000 $3,000,000 $ 800,000 $ 603,750 $ 800,000 $ 9,803 $7,273,553
Bitcoin Update
The following table presents a roll-forward of the Company’s bitcoin holdings, including additional information related to the Company’s bitcoin
purchases and digital asset impairment losses during the quarter ended December 31, 2024:
Source of
Capital
Used to
Purchase
Digital Asset
Original Cost
Basis
(in thousands)
Approximate
Number of
Bitcoins Held
Digital Asset
Impairment
Losses
(in thousands)
Digital Asset
Carrying Value
(in thousands)
Approximate
Average
Purchase Per
Balance at September 30, 2024 $ 9,903,699 $(3,052,820) $ 6,850,879 252,220 $ 39,266
Digital asset purchases (a) 18,064,549 18,064,549 195,250 92,520
Digital asset impairment losses (1,006,055) (1,006,055)
Balance at December 31, 2024 $27,968,248 $(4,058,875) $ 23,909,373 447,470 $ 62,503
(a) In the fourth quarter of 2024, the Company purchased bitcoin using $15.09 billion of the net proceeds from its sales of class A common stock
under its at-the-market offering programs and $2.97 billion of the net proceeds from its issuance of the 2029 Convertible Notes.
The following table shows the approximate number of bitcoins held by the Company at the end of December 31, 2024, as well as market value
calculations of its bitcoin holdings based on the lowest, highest, and ending market prices of one bitcoin on the Coinbase exchange (the Company’s
principal market for bitcoin) during the quarter, as further defined below:
Market Value of
Approximate
Number of
Bitcoins
Held at End
of Quarter
Bitcoin Held at
End of Quarter
Using Lowest
Market Price (in
thousands) (b)
Lowest Market
Price Per
Bitcoin During
Quarter (a)
Highest Market
Price Per
Bitcoin During
Quarter (c)
Market Value of
Bitcoin Held at
End of Quarter
Using Highest
Market Price (in
thousands) (d)
Market Price
Per Bitcoin at
End of Quarter
(e)
Market Value of
Bitcoin Held at
End of Quarter
Using Ending
Market Price (in
thousands) (f)
December 31, 2024 447,470 $ 58,863.90 $ 26,339,829 $ 108,388.88 $ 48,500,772 $ 93,390.21 $ 41,789,317
(a) (b) (c) (d) (e) (f) The “Lowest Market Price Per Bitcoin During Quarter” represents the lowest market price for one bitcoin reported on the Coinbase exchange
during the quarter, without regard to when the Company purchased any of its bitcoin.
The “Market Value of Bitcoin Held at End of Quarter Using Lowest Market Price” represents a mathematical calculation consisting of the lowest
market price for one bitcoin reported on the Coinbase exchange during the quarter multiplied by the number of bitcoins the Company held at the
end of the period.
The “Highest Market Price Per Bitcoin During Quarter” represents the highest market price for one bitcoin reported on the Coinbase exchange
during the quarter, without regard to when the Company purchased any of its bitcoin.
The “Market Value of Bitcoin Held at End of Quarter Using Highest Market Price” represents a mathematical calculation consisting of the highest
market price for one bitcoin reported on the Coinbase exchange during the quarter multiplied by the number of bitcoins the Company held at the
end of the period.
The “Market Price Per Bitcoin at End of Quarter” represents the market price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time
on the last day of the quarter.
The “Market Value of Bitcoin Held at End of Quarter Using Ending Market Price” represents a mathematical calculation consisting of the market
price of one bitcoin on the Coinbase exchange at 4:00 p.m. Eastern Time on the last day of the quarter multiplied by the number of bitcoins the
Company held at the end of the period.
Bitcoin and bitcoin markets may be subject to manipulation and the spot price of bitcoin may be subject to fraud and manipulation. Accordingly, the
Market Value amounts reported above may not accurately represent fair market value, and the actual fair market value of the Company’s bitcoin may be
different from such amounts and such deviation may be material. Moreover, (i) the bitcoin market historically has been characterized by significant
volatility in price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory
landscape, potential
susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks that are, or may be,
inherent in its entirely electronic, virtual form and decentralized network and (ii) the Company may not be able to sell its bitcoins at the Market Value
amounts indicated above, at the market price as reported on the Coinbase exchange (the Company’s principal market for bitcoin) on the date of sale, or
at all.
During the three months ended December 31, 2024 and for the year ended December 31, 2024, the Company incurred digital asset impairment losses of
$1.01 billion and $1.79 billion, respectively.
Recent Accounting Standards
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-08, Intangibles—Goodwill and
Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”). ASU 2023-08 requires in-scope crypto
assets (including the Company’s bitcoin holdings) to be measured at fair value in the statement of financial position, with gains and losses from changes
in the fair value of such crypto assets recognized in net income each reporting period. ASU 2023-08 also requires certain interim and annual disclosures
for crypto assets within the scope of the standard. The Company adopted this guidance effective January 1, 2025 on a prospective basis, with a
cumulative-effect adjustment to the opening balance of retained earnings. Prior periods will not be restated.
Prior to January 1, 2025, the Company accounted for its digital assets, which are comprised solely of bitcoin, as indefinite-lived intangible assets in
accordance with Accounting Standards Codification (“ASC”) 350, Intangibles—Goodwill and Other. The Company’s digital assets were initially
recorded at cost. Subsequently, they were measured at cost, net of any impairment losses incurred since acquisition. Impairment losses were recognized
as “Digital asset impairment losses” in the Company’s Consolidated Statements of Operations in the period in which the impairment occurred. Gains (if
any) were not recorded until realized upon sale, at which point they were presented net of any impairment losses in the Company’s Consolidated
Statements of Operations. In determining the gain to be recognized upon sale, the Company calculated the difference between the sales price and
carrying value of the specific bitcoins sold immediately prior to sale.
Although the Company will continue to initially record its bitcoin purchases at cost, upon adopting ASU 2023-08, any subsequent increases or decreases
in fair value will be recognized as incurred in the Company’s Consolidated Statements of Operations, and the fair value of the Company’s bitcoin will be
reflected within the Company’s Consolidated Balance Sheets each reporting period-end. Upon adopting ASU 2023-08, the Company will no longer
account for its bitcoin under a cost-less-impairment accounting model and will no longer establish a deferred tax asset related to bitcoin impairment
losses. Instead, the Company will establish a deferred tax liability if the market value of bitcoin at the reporting date is greater than the average cost
basis of the Company’s bitcoin holdings at such reporting date, and any subsequent increases or decreases in the market value of bitcoin will increase or
decrease the deferred tax liability.
The Company estimates that the adoption of ASU 2023-08 will result in a net increase to its 2025 beginning retained earnings balance in the range of
approximately $12.7 billion to $12.8 billion, which reflects a $17.9 billion increase in digital assets due to the difference between the impaired carrying
value and the fair market value of the Company’s bitcoin holdings as of December 31, 2024, offset by a $3.9 billion to $4.0 billion increase in deferred
tax liabilities, and a $1.2 billion decrease in deferred tax assets. For purposes of this estimate, the Company estimates that its effective tax rate for the
year ended December 31, 2024 will be in the range of 28.3% to 28.8% based on its current federal tax rate and estimated state effective tax rate.
Risk Factor Updates
You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impact us, our business,
our bitcoin holdings, or our securities.
If any of the following risks occur, our business, financial condition, or results of operations could be materially adversely affected. In such case, the
market price of our class A common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business in General
Our quarterly operating results, revenues, and expenses may fluctuate significantly, which could have an adverse effect on the market price of our
stock
For many reasons, including those described below, our operating results, revenues, and expenses have varied in the past and may vary significantly in
the future from quarter to quarter. These fluctuations could have an adverse effect on the market price of our class A common stock.
Fluctuations in Quarterly Operating Results. Our quarterly operating results may fluctuate, in part, as a result of:
• fluctuations in the price of bitcoin, of which we have significant holdings and with respect to which we expect to continue to make
significant future purchases, and potential fair value changes associated therewith;
• any sales by us of our bitcoin at prices above or below their carrying value, which would result in our recording gains or losses upon sale
of our bitcoin;
• the incurrence of tax liabilities on future unrealized gains on our bitcoin or as result of the cumulative-effect net increase to the opening
balance of our retained earnings as of January 1, 2025 in connection with the adoption of ASU 2023-08 on January 1, 2025, which we
estimate to be in the range of approximately $12.7 billion to $12.8 billion;
• regulatory, commercial, and technical developments related to bitcoin or the Bitcoin blockchain, or digital assets more generally;
• the incurrence of additional fixed interest charges or dividend obligations on preferred stock;
• the impact of war, terrorism, infectious diseases (such as COVID-19), natural disasters and other global events, and government responses
to such events, on the global economy, the market for and price of bitcoin;
• significant changes to our software business, including significant changes in our software sales or operating expenses, or the timing of
announcements of new offerings or research and development projects by us or our competitors;
• our profitability and expectations for future profitability and their effect on our deferred tax balances, and net income for the period in
which any adjustment to our net deferred tax asset valuation allowance may be made; and
• increases or decreases in our unrecognized tax benefits.
Limited Ability to Adjust Expenses. We base our operating expense budgets on expected revenue trends and strategic objectives. Many of our expenses,
such as interest expense on our debt, tax liabilities, office leases and certain personnel costs, are relatively fixed. We may be unable to adjust spending
quickly enough to offset any unexpected shortfall in our cashflow. Accordingly, we may be required to take actions to pay expenses, such as selling
bitcoin or using proceeds from equity or debt financings, some of which could cause significant variation in operating results in any quarter.
Based on the above factors, we believe quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is
possible that in one or more future quarters, our operating results may be below the expectations of public market analysts and investors. In that event,
the market price of our class A common stock may fall.
We may not be able to regain profitability in future periods
We have generated net losses in recent periods, primarily due to digital asset impairment losses. Our digital asset impairment loss for the year ended
December 31, 2024 is $1.79 billion, which we expect will result in a net loss for the year ended December 31, 2024. We may not be able to regain
profitability in future periods, particularly if we incur significant fair value losses related to our digital assets. As a result, our results of operations and
financial condition may be materially adversely affected.
As of December 31, 2024, we had deferred tax assets in excess of $1.4 billion. The largest deferred tax asset relates to the impairment on our bitcoin
holdings, which will be reversed upon adoption of ASU 2023-08. If the market value of bitcoin at a future reporting date is less than the average cost
basis of our bitcoin holdings at such reporting date, we may be required to establish a valuation allowance against our non-bitcoin related U.S. deferred
tax assets. Additionally, if we are unable to regain profitability in the future, we may also be required to increase the valuation allowance against the
remaining deferred tax assets. A significant increase in the valuation allowance could result in a charge that would materially adversely affect net income
in the period in which the charge is incurred.
A significant decrease in the market value of our bitcoin holdings could adversely affect our ability to service our indebtedness
As of December 31, 2024, our outstanding indebtedness was $7.274 billion, and our annual contractual interest expense was $35.1 million. As part of
our bitcoin strategy, we expect to incur or continue to incur additional indebtedness and other fixed charges such as preferred stock dividend obligations.
Our enterprise analytics software business may not generate sufficient cashflow to service our debt and cash dividend obligations, in which event we
intend to use cashflow generated by equity or debt financings to service our debt and cash dividend obligations. Our ability to obtain equity or debt
financing may in turn depend on, among other factors, the value of our bitcoin holdings, investor sentiment and the general public perception of bitcoin,
our strategy and our value proposition. Accordingly, a significant decline in the market value of our bitcoin holdings or a negative shift in these other
factors may create liquidity and credit risks, as such a decline or such shifts may adversely impact our ability to secure sufficient equity or debt
financing to service our debt and cash dividend obligations. These risks could materialize at times when bitcoin is trading below its carrying value on
our balance sheet or our cost basis. As bitcoin constitutes the vast bulk of assets on our balance sheet, if we are unable to secure equity or debt financing
in a timely manner, on
favorable terms, or at all, we may be required to sell bitcoin to satisfy these obligations. Any such sale of bitcoin may have a materially adverse effect on
our operating results and financial condition, and could impair our ability to secure additional equity or debt financing in the future. Our inability to
secure additional equity or debt financing in a timely manner, on favorable terms or at all, or to sell our bitcoin in amounts and at prices sufficient to
satisfy our cash obligations, could cause us to be in default of such obligations. Any default on our current or future indebtedness or any preferred stock
we may issue in the future may have a material adverse effect on our financial condition. See “Risks Related to Our Outstanding and Potential Future
Indebtedness” for additional details about the risks which may impact us if we are unable to service our indebtedness.
Unrealized fair value gains on our bitcoin holdings could cause us to become subject to the corporate alternative minimum tax under the Inflation
Reduction Act of 2022
The U.S. enacted the Inflation Reduction Act of 2022 (“IRA”) in August 2022. Unless an exemption applies, the IRA imposes a 15% corporate
alternative minimum tax (“CAMT”) on a corporation with respect to an initial tax year and subsequent tax years, if the average annual adjusted financial
statement income for any consecutive three-tax-year period preceding the initial tax year exceeds $1 billion. On September 12, 2024, the Department of
Treasury and the Internal Revenue Service issued proposed regulations with respect to the application of the CAMT.
On January 1, 2025, we adopted ASU 2023-08. ASU 2023-08 requires us to measure our bitcoin holdings at fair value in our statement of financial
position, with gains and losses from changes in the fair value of our bitcoin recognized in net income each reporting period. Additionally, as a result of
our adoption of ASU 2023-08, as of January 1, 2025, we estimate we will be required to apply a cumulative-effect net increase to the opening balance of
our retained earnings in the range of approximately $12.7 billion to $12.8 billion. For purposes of calculating the adjusted financial statement income,
we will be required to ratably allocate from 2025 through 2028 this increase to our retained earnings. When determining whether we are subject to
CAMT and when calculating any related tax liability for an applicable tax year, the proposed regulations provide that, among other adjustments, our
adjusted financial statement income must include this ratable amount in addition to any unrealized gains or losses reported in the applicable tax year.
Accordingly, as a result of the enactment of the IRA and our adoption of ASU 2023-08 on January 1, 2025, unless the IRA is amended or the proposed
regulations with respect to CAMT, when finalized, are revised to provide relief (or other interim relief is granted), we could become subject to the
CAMT in the 2026 tax year and beyond. If we become subject to the CAMT, it could result in a material tax obligation that we would need to satisfy in
cash, which could materially affect our financial results, including our earnings and cash flow, and our financial condition.
We may have exposure to greater than anticipated tax liabilities
We are subject to income taxes and non-income taxes in a variety of domestic and foreign jurisdictions. Our future income tax liability could be
materially adversely affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates, earnings that are higher
than anticipated in jurisdictions where we have higher statutory rates, changes in the valuation of our deferred tax assets and liabilities, changes in the
amount of our unrecognized tax benefits, or changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, if we sold any
of our bitcoin at prices greater than the cost basis of the bitcoin sold, we would incur a tax liability with respect to any gain recognized, and such tax
liability could be material.
Changes in the tax laws of foreign jurisdictions could arise, including as a result of the project undertaken by the Organisation for Economic
Co-operation and Development (“OECD”) to combat base erosion and profit shifting (“BEPS”). The OECD, which represents a coalition of member
countries, has issued recommendations that, in some cases, make substantial changes to numerous long-standing tax positions and principles. These
changes, many of which have been adopted or are under active consideration by OECD members and/or other countries, could increase tax uncertainty
and may adversely affect our provision for income taxes.
After enactment of the U.S. Tax Cuts and Jobs Act, most of our income is taxable in the U.S. with a significant portion taxable under the Global
Intangible Low-Taxed Income (“GILTI”) regime. Beginning in fiscal year 2027, the deduction allowable under the GILTI regime will decrease from
50% to 37.5%, which will increase the effective tax rate imposed on our income. The U.S. also enacted the IRA in August 2022. On September 12,
2024, the Department of Treasury and the Internal Revenue Service issued proposed regulations with respect to the application of the CAMT. Unless an
exemption applies, the IRA imposes (i) a 1% excise tax on certain stock repurchases made by publicly traded U.S. corporations, and (ii) a 15% corporate
alternative minimum tax on a corporation with respect to an initial tax year and subsequent tax years, if the average annual adjusted financial statement
income for any consecutive three-tax-year period preceding the initial tax year exceeds $1 billion. As discussed in greater detail under the risk factor
heading “Risks Related to Our Business in General—Unrealized fair value gains on our bitcoin holdings could cause us to become subject to the
corporate alternative minimum tax under the Inflation Reduction Act of 2022,” as a result of the enactment of the IRA and our adoption of ASU 2023-08
on January 1, 2025, unless the IRA is amended or the proposed regulations with respect to CAMT are, when finalized, revised to provide relief (or other
interim relief is granted), we could become subject to the CAMT in the 2026 tax year and beyond. If we become subject to these new taxes under the
IRA for these or any other reasons, it could result in a material tax obligation that we would need to satisfy in cash, which could materially affect our
financial results, including our earnings and cash flow, and our financial condition. Further, other existing U.S. tax laws, statutes, rules, regulations or
ordinances could be interpreted, changed, modified or applied in a manner that negatively impacts us.
Our determination of our tax liability is subject to review by applicable domestic and foreign tax authorities. Any adverse outcome of such reviews
could have an adverse effect on our operating results and financial condition. The determination of our worldwide provision for income taxes and other
tax liabilities requires significant judgment and there are many transactions and calculations, including in respect of transactions involving bitcoin,
where the ultimate tax determination is uncertain. Moreover, as a multinational business, we have subsidiaries that engage in many intercompany
transactions in a variety of tax jurisdictions where the ultimate tax determination is uncertain.
We also have contingent tax liabilities that, in management’s judgment, are not probable of assertion. If such unasserted contingent liabilities were to be
asserted, or become probable of assertion, we may be required to record significant expenses and liabilities in the period in which these liabilities are
asserted or become probable of assertion.
As a result of these and other factors, the ultimate amount of tax obligations owed may differ from the amounts recorded in our financial statements and
any such difference may materially affect our financial results in future periods in which we change our estimates of our tax obligations or in which the
ultimate tax outcome is determined.
Risks Related to Our Bitcoin Strategy and Holdings
Our bitcoin strategy exposes us to various risks, including risks associated with bitcoin
Our bitcoin strategy exposes us to various risks, including the following:
Bitcoin is a highly volatile asset. Bitcoin is a highly volatile asset that has traded below $40,000 per bitcoin and above $105,000 per bitcoin on the
Coinbase exchange (our principal market for bitcoin) in the 12 months ended December 31, 2024. The trading price of bitcoin significantly decreased
during prior periods, and such declines may occur again in the future.
Bitcoin does not pay interest or dividends. Bitcoin does not pay interest or other returns and we can only generate cash from our bitcoin holdings if we
sell our bitcoin or implement strategies to create income streams or otherwise generate cash by using our bitcoin holdings. Even if we pursue any such
strategies, we may be unable to create income streams or otherwise generate cash from our bitcoin holdings, and any such strategies may subject us to
additional risks.
Our bitcoin holdings significantly impact our financial results and the market price of our class A common stock. Our bitcoin holdings have
significantly affected our financial results and if we continue to increase our overall holdings of bitcoin in the future, they will have an even greater
impact on our financial results and the market price of our class A common stock. See “Risks Related to Our Bitcoin Strategy and Holdings – Our
historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our bitcoin holdings.”
Our assets are concentrated in bitcoin. The vast majority of our assets are concentrated in our bitcoin holdings. The concentration of our assets in
bitcoin limits our ability to mitigate risk that could otherwise be achieved by holding a more diversified portfolio of treasury assets.
We purchase bitcoin using primarily proceeds from equity and debt financings. Our ability to achieve the objectives of our bitcoin strategy depends in
significant part on our ability to obtain equity and debt financing. If we are unable to obtain equity or debt financing on favorable terms or at all, we may
not be able to successfully execute on our bitcoin strategy.
Our bitcoin strategy has not been tested over an extended period of time or under different market conditions. We are continually examining the risks
and rewards of our strategy to acquire and hold bitcoin. This strategy has not been tested over an extended period of time or under different market
conditions. For example, although we believe bitcoin, due to its limited supply, has the potential to serve as a hedge against inflation in the long term,
the short-term price of bitcoin declined in recent periods during which the inflation rate increased. If bitcoin prices were to decrease or our bitcoin
strategy otherwise proves unsuccessful, our financial condition, results of operations, and the market price of our class A common stock would be
materially adversely impacted.
We are subject to counterparty risks, including in particular risks relating to our custodians. Although we have implemented various measures that are
designed to mitigate our counterparty risks, including by storing substantially all of the bitcoin we own in custody accounts at U.S.-based, institutional-
grade
custodians and negotiating contractual arrangements intended to establish that our property interest in custodially-held bitcoin is not subject to claims of
our custodians’ creditors, applicable insolvency law is not fully developed with respect to the holding of digital assets in custodial accounts. If our
custodially-held bitcoin were nevertheless considered to be the property of our custodians’ estates in the event that any such custodians were to enter
bankruptcy, receivership or similar insolvency proceedings, we could be treated as a general unsecured creditor of such custodians, inhibiting our ability
to exercise ownership rights with respect to such bitcoin, or delaying or hindering our access to our bitcoin holdings, and this may ultimately result in
the loss of the value related to some or all of such bitcoin, which could have a material adverse effect on our financial condition as well as the market
price of our class A common stock.
The broader digital assets industry is subject to counterparty risks, which could adversely impact the adoption rate, price, and use of bitcoin. A series of
recent high-profile bankruptcies, closures, liquidations, regulatory enforcement actions and other events relating to companies operating in the digital
asset industry have highlighted the counterparty risks applicable to owning and transacting in digital assets. Although these bankruptcies, closures,
liquidations and other events have not resulted in any loss or misappropriation of our bitcoin, nor have such events adversely impacted our access to our
bitcoin, they have, in the short-term, likely negatively impacted the adoption rate and use of bitcoin. Additional bankruptcies, closures, liquidations,
regulatory enforcement actions or other events involving participants in the digital assets industry in the future may further negatively impact the
adoption rate, price, and use of bitcoin, limit the availability to us of financing collateralized by bitcoin, or create or expose additional counterparty risks.
Changes in the accounting treatment of our bitcoin holdings could have significant accounting impacts, including increasing the volatility of our results.
We have adopted ASU 2023-08 as of January 1, 2025, which requires us to measure our bitcoin holdings at fair value in our statement of financial
position, and to recognize gains and losses from changes in the fair value of our bitcoin in net income each reporting period beginning January 1, 2025.
ASU 2023-08 also requires us to provide certain interim and annual disclosures with respect to our bitcoin holdings. The standard is now effective, with
a cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2025. Due in particular to the volatility in the price of
bitcoin, we expect the adoption of ASU 2023-08 to have a material impact on our financial results in future periods, increase the volatility of our
financial results, and affect the carrying value of our bitcoin on our balance sheet. As described in greater detail under the risk factor heading “Risks
Related to Our Business in General—Unrealized fair value gains on our bitcoin holdings could cause us to become subject to the corporate alternative
minimum tax under the Inflation Reduction Act of 2022,” ASU 2023-08 could also have adverse tax consequences. These impacts could in turn have a
material adverse effect on our financial results and the market price of our class A common stock. Additionally, as a result of ASU 2023-08 requiring a
cumulative-effect adjustment to our opening balance of retained earnings as of January 1, 2025 and not permitting retrospective restatement of our
historical financial statements, our future results will not be comparable to results from periods prior to our adoption of the guidance.
The broader digital assets industry, including the technology associated with digital assets, the rate of adoption and development of, and use cases for,
digital assets, market perception of digital assets, and the legal, regulatory, and accounting treatment of digital assets are constantly developing and
changing, and there may be additional risks in the future that are not possible to predict.
Bitcoin is a highly volatile asset, and fluctuations in the price of bitcoin have in the past influenced and are likely to continue to influence our
financial results and the market price of our class A common stock
Bitcoin is a highly volatile asset, and fluctuations in the price of bitcoin have in the past influenced and are likely to continue to influence our financial
results and the market price of our class A common stock. Our financial results and the market price of our class A common stock would be adversely
affected, and our business and financial condition would be negatively impacted, if the price of bitcoin decreased substantially (as it has in the past,
including during 2022), including as a result of:
• decreased user and investor confidence in bitcoin, including due to the various factors described herein;
• investment and trading activities, such as (i) trading activities of highly active retail and institutional users, speculators, miners and
investors; (ii) actual or expected significant dispositions of bitcoin by large holders, including the expected liquidation of digital assets
associated with entities that have filed for bankruptcy protection and the transfer and sale of bitcoins associated with significant hacks,
seizures, or forfeitures, such as the transfers of bitcoin to (a) creditors of the hacked cryptocurrency exchange Mt. Gox which began in
July 2024, (b) to claimants following proceedings related to a 2016 hack of Bitfinex—which claims are currently being adjudicated, or
(c) the German government following the seizure of about 50,000 bitcoin in January 2024 from the operator of Movie2k.to; and (iii) actual
or perceived manipulation of the spot or derivative markets for bitcoin or spot bitcoin exchange-traded products (“ETPs”);
• negative publicity, media or social media coverage, or sentiment due to events in or relating to, or perception of, bitcoin or the broader
digital assets industry, for example, (i) public perception that bitcoin can be used as a vehicle to circumvent sanctions, including sanctions
imposed on Russia or certain regions related to the ongoing conflict between Russia and Ukraine, or to fund criminal or terrorist activities,
such as the purported use of digital assets by Hamas to fund its terrorist attack against Israel in October 2023; (ii) expected or pending
civil, criminal, regulatory enforcement or other high profile actions against major participants in the bitcoin ecosystem, including the
SEC’s enforcement actions against Coinbase, Inc. and Binance Holdings Ltd.; (iii) additional filings for bankruptcy protection or
bankruptcy proceedings of major digital asset industry participants, such as the bankruptcy proceeding of FTX Trading and its affiliates;
and (iv) the actual or perceived environmental impact of bitcoin and related activities, including environmental concerns raised by private
individuals, governmental and non-governmental organizations, and other actors related to the energy resources consumed in the bitcoin
mining process;
• changes in consumer preferences and the perceived value or prospects of bitcoin;
• competition from other digital assets that exhibit better speed, security, scalability, or energy efficiency, that feature other more favored
characteristics, that are backed by governments, including the U.S. government, or reserves of fiat currencies, or that represent ownership
or security interests in physical assets;
• a decrease in the price of other digital assets, including stablecoins, or the crash or unavailability of stablecoins that are used as a medium
of exchange for bitcoin purchase and
sale transactions, such as the crash of the stablecoin Terra USD in 2022, to the extent the decrease in the price of such other digital assets
or the unavailability of such stablecoins may cause a decrease in the price of bitcoin or adversely affect investor confidence in digital
assets generally;
• the identification of Satoshi Nakamoto, the pseudonymous person or persons who developed bitcoin, or the transfer of substantial amounts
of bitcoin from bitcoin wallets attributed to Mr. Nakamoto;
• developments relating to the Bitcoin protocol, including (i) changes to the Bitcoin protocol that impact its security, speed, scalability,
usability, or value, such as changes to the cryptographic security protocol underpinning the Bitcoin blockchain, changes to the maximum
number of bitcoin outstanding, changes to the mutability of transactions, changes relating to the size of blockchain blocks, and similar
changes, (ii) failures to make upgrades to the Bitcoin protocol to adapt to security, technological, legal or other challenges, and
(iii) changes to the Bitcoin protocol that introduce software bugs, security risks or other elements that adversely affect bitcoin;
• disruptions, failures, unavailability, or interruptions in service of trading venues for bitcoin, such as, for example, the announcement by the
digital asset exchange FTX Trading that it would freeze withdrawals and transfers from its accounts and subsequent filing for bankruptcy
protection and the SEC enforcement action brought against Binance Holdings Ltd., which initially sought to freeze all of its assets during
the pendency of the enforcement action and has since resulted in Binance discontinuing all fiat deposits and withdrawals in the U.S.;
• the filing for bankruptcy protection by, liquidation of, or market concerns about the financial viability of digital asset custodians, trading
venues, lending platforms, investment funds, or other digital asset industry participants, such as the filing for bankruptcy protection by
digital asset trading venues FTX Trading and BlockFi and digital asset lending platforms Celsius Network and Voyager Digital Holdings in
2022, the ordered liquidation of the digital asset investment fund Three Arrows Capital in 2022, the announced liquidation of Silvergate
Bank in 2023, the government-mandated closure and sale of Signature Bank in 2023, the placement of Prime Trust, LLC into receivership
following a cease-and-desist order issued by the Nevada Department of Business and Industry in 2023, and the exit of Binance from the
U.S. market as part of its settlement with the Department of Justice and other federal regulatory agencies;
• regulatory, legislative, enforcement and judicial actions that adversely affect the price, ownership, transferability, trading volumes, legality
or public perception of bitcoin, or that adversely affect the operations of or otherwise prevent digital asset custodians, trading venues,
lending platforms or other digital assets industry participants from operating in a manner that allows them to continue to deliver services to
the digital assets industry;
• further reductions in mining rewards of bitcoin, including due to block reward halving events, which are events that occur after a specific
period of time (the most recent of which occurred on April 19, 2024) that reduce the block reward earned by “miners” who validate bitcoin
transactions, or increases in the costs associated with bitcoin mining, including increases in electricity costs and hardware and software
used in mining, or new or enhanced regulation or taxation of bitcoin mining, which could further increase the costs associated with bitcoin
mining, any of which may cause a decline in support for the Bitcoin network;
• transaction congestion and fees associated with processing transactions on the Bitcoin network;
• macroeconomic changes, such as changes in the level of interest rates and inflation, fiscal and monetary policies of governments, trade
restrictions, and fiat currency devaluations;
• developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result
in the cryptography used by the Bitcoin blockchain becoming insecure or ineffective; and
• changes in national and international economic and political conditions, including, without limitation, developments and events relating to
the change of administration as a result of the 2024 U.S. presidential election, the adverse impacts attributable to the current conflict
between Russia and Ukraine and the economic sanctions adopted in response to the conflict, and the broadening of the Israel-Hamas
conflict to other countries in the Middle East.
Bitcoin and other digital assets are novel assets, and are subject to significant legal, commercial, regulatory and technical uncertainty
Bitcoin and other digital assets are relatively novel and are subject to significant uncertainty, which could adversely impact their price. The application
of state and federal securities laws and other laws and regulations to digital assets is unclear in certain respects, and it is possible that regulators in the
United States or foreign countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of bitcoin or the
ability of individuals or institutions such as us to own or transfer bitcoin.
The U.S. federal government, states, regulatory agencies, and foreign countries may also enact new laws and regulations, or pursue regulatory,
legislative, enforcement or judicial actions, that could materially impact the price of bitcoin or the ability of individuals or institutions such as us to own
or transfer bitcoin. For example, within the past several years:
• President Biden signed an Executive Order relating to cryptocurrencies instructing various federal agencies to consider potential regulatory
measures and to explore the creation of a U.S. CBDC;
• SEC Chair Gary Gensler instructed SEC staff to explore, among other regulatory initiatives, regulation of certain digital assets as securities
and of digital asset services providers as broker-dealers and securities exchanges;
• the European Union adopted Markets in Crypto Assets Regulation (“MiCA”), a comprehensive digital asset regulatory framework for the
issuance and use of digital assets, like bitcoin;
• in June 2023, the SEC filed complaints against Binance Holdings Ltd. and Coinbase, Inc., and their respective affiliated entities, relating
to, among other claims, that each party was operating as an unregistered securities exchange, broker, dealer, and clearing agency;
• in November 2023, the SEC filed a complaint against Payward Inc. and Payward Ventures Inc., together known as Kraken, alleging,
among other claims, that Kraken’s crypto trading platform was operating as an unregistered securities exchange, broker, dealer, and
clearing agency;
• in June 2023, the United Kingdom adopted and implemented the Financial Services and Markets Act 2023 (“FSMA 2023”), which
regulates market activities in “cryptoassets;”
• in November 2023, Binance Holdings Ltd. and its then chief executive officer reached a settlement with the U.S. Department of Justice,
CFTC, the U.S. Department of Treasury’s
Office of Foreign Asset Control, and the Financial Crimes Enforcement Network to resolve a multi-year investigation by the agencies and
a civil suit brought by the CFTC, pursuant to which Binance Holdings Ltd. agreed to, among other things, pay $4.3 billion in penalties
across the four agencies and to discontinue its operations in the United States;
• in China, the People’s Bank of China and the National Development and Reform Commission have outlawed cryptocurrency mining and
declared all cryptocurrency transactions illegal within the country; and
• President-Elect Trump has reportedly discussed the creation of a national bitcoin reserve, and other potential policies related to
cryptocurrencies including bitcoin.
It is not possible to predict whether, or when, new laws will be enacted that change the legal framework governing digital assets or provide additional
authorities to the SEC or other regulators, or whether, or when, any other federal, state or foreign legislative bodies will take any similar actions. It is
also not possible to predict the nature of any such additional laws or authorities, how additional legislation or regulatory oversight might impact the
ability of digital asset markets to function or the willingness of financial and other institutions to continue to provide services to the digital assets
industry, nor how any new laws or changes to existing regulations might impact the value of digital assets generally and bitcoin specifically. The
consequences of any new law or regulation relating to digital assets and digital asset activities could adversely affect the market price of bitcoin, as well
as our ability to hold or transact in bitcoin, and in turn adversely affect the market price of our class A common stock.
Moreover, the risks of engaging in a bitcoin strategy are relatively novel and have created, and could continue to create, complications due to the lack of
experience that third parties have with companies engaging in such a strategy, such as increased costs of director and officer liability insurance or the
potential inability to obtain such coverage on acceptable terms in the future.
The growth of the digital assets industry in general, and the use and acceptance of bitcoin in particular, may also impact the price of bitcoin and is
subject to a high degree of uncertainty. The pace of worldwide growth in the adoption and use of bitcoin may depend, for instance, on public familiarity
with digital assets, ease of buying, accessing or gaining exposure to bitcoin, institutional demand for bitcoin as an investment asset, the participation of
traditional financial institutions in the digital assets industry, consumer demand for bitcoin as a store of value or means of payment, and the availability
and popularity of alternatives to bitcoin. Even if growth in bitcoin adoption occurs in the near or medium-term, there is no assurance that bitcoin usage
will continue to grow over the long-term.
Because bitcoin has no physical existence beyond the record of transactions on the Bitcoin blockchain, a variety of technical factors related to the
Bitcoin blockchain could also impact the price of bitcoin. For example, malicious attacks by miners, inadequate mining fees to incentivize validating of
bitcoin transactions, hard “forks” of the Bitcoin blockchain into multiple blockchains, and advances in digital computing, algebraic geometry, and
quantum computing could undercut the integrity of the Bitcoin blockchain and negatively affect the price of bitcoin. The liquidity of bitcoin may also be
reduced and damage to the public perception of bitcoin may occur, if financial institutions were to deny or limit banking services to businesses that hold
bitcoin, provide bitcoin-related services or accept bitcoin as payment, which could also decrease the price of bitcoin. Actions by U.S. banking regulators,
such as the issuance in February 2023 by Federal banking agencies of the “Interagency Liquidity Risk Statement,” which cautioned banks on contagion
risks posed by providing services to digital assets customers, and similar actions, have in the past resulted in or contributed to reductions in access to
banking services for bitcoin-related customers and service providers, or the willingness of traditional financial institution
to participate in markets for digital assets. The liquidity of bitcoin may also be impacted to the extent that changes in applicable laws and regulatory
requirements negatively impact the ability of exchanges and trading venues to provide services for bitcoin and other digital assets.
Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our bitcoin
holdings
Our historical financial statements do not fully reflect the potential variability in earnings that we may experience in the future from holding or selling
significant amounts of bitcoin.
The price of bitcoin has historically been subject to dramatic price fluctuations and is highly volatile. In December 2023, the FASB issued
ASU 2023-08, which we adopted as of January 1, 2025.
We determine the fair value of our bitcoin based on quoted (unadjusted) prices on the Coinbase exchange (our principal market for bitcoin). Prior to our
adoption of ASU 2023-08 on January 1, 2025, we performed an analysis each quarter to identify whether events or changes in circumstances, principally
decreases in the quoted (unadjusted) prices on the active exchange, indicated that it was more likely than not that any of our bitcoin assets were
impaired. In determining if an impairment had occurred, we considered the lowest price of one bitcoin quoted on the active exchange at any time since
acquiring the specific bitcoin held. If the carrying value of a bitcoin exceeded that lowest price at any time during the quarter, an impairment loss was
deemed to have occurred with respect to that bitcoin in the amount equal to the difference between its carrying value and such lowest price, and
subsequent increases in the price of bitcoin did not affect the carrying value of our bitcoin. Gains (if any) were not recorded until realized upon sale, at
which point they would be presented net of any impairment losses. In determining the gain to be recognized upon sale, we calculated the difference
between the sale price and carrying value of the specific bitcoin sold immediately prior to sale. Due in part to the volatility of bitcoin, we incurred
$4.06 billion of cumulative impairment on our bitcoin holdings through December 31, 2024, which losses were reflected in the financial statements for
the respective periods in which the losses were incurred.
ASU 2023-08 requires us to measure our bitcoin holdings at fair value in our statement of financial position, and to recognize gains and losses from
changes in the fair value of our bitcoin in net income each reporting period. ASU 2023-08 also requires us to provide certain interim and annual
disclosures with respect to our bitcoin holdings. We have applied a cumulative-effect adjustment to the opening balance of retained earnings as of
January 1, 2025. ASU 2023-08 does not permit retrospective restatement of prior periods. Accordingly, we expect the adoption of ASU 2023-08 to
significantly affect the carrying value of our bitcoin on our balance sheet.
As a result of our adoption of ASU 2023-08, we may incur greater losses during periods when we previously would have incurred small
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