Building a Bitcoin Treasury Strategy

Join an expert panel as they discuss holding Bitcoin on the balance sheet, including considerations on corporate governance, accounting, exchange and custody, and tax.

Learn best practices and key considerations when adopting bitcoin as a treasury reserve asset.

Putting bitcoin on the balance sheet requires a considerable amount of meticulous research and due diligence for any corporation. It is incumbent upon fiduciaries considering this novel treasury strategy to hear directly from industry experts and experienced practitioners able to provide the best-possible insights, proven methodologies, and established techniques. 

Watch this session to hear a panel of experts from MicroStrategy and Deloitte who will discuss the various considerations of holding Bitcoin on the balance sheet, including considerations on corporate governance, accounting, exchange and custody, and tax.

Expert speakers include:

• Phong Le, President & Chief Financial Officer, MicroStrategy
• Rob Massey, Partner, Global & US Tax Blockchain & Digital Assets, Deloitte
• Amy Park, Partner, US Audit & Assurance Blockchain & Digital Assets, Deloitte
• W. Ming Shao, Senior Executive Vice President & General Counsel, MicroStrategy
• Jeremy Price, Senior Vice President of Financial Planning & Analysis, MicroStrategy

Hello, everyone. I'm excited to host the second segment of Bitcoin corporations where we dive a little bit deeper into Bitcoin Treasury and how corporations might consider integrating Bitcoin into their organization. I just really enjoyed the last conversation between Michael Saylor and Jack Dorsey. It's great to have two brilliant minds speaking together on the topic of Ford and Bitcoin, and one of the last things Jack said. It really defines the ethos of this conference and why we're about to have this conversation. He said if there's anything you learn about Bitcoin in general and at this conference, we only get better if we share it. And so this is about sharing knowledge that MicroStrategy has gathered over the last couple of years by putting Bitcoin on our balance sheet and also working with partners like Deloitte at looking at different options as we went through this journey, being the first publicly traded company to put Bitcoin on our balance sheet, and obviously we've done in a big way. So before we get started, I just want everyone to quickly introduce ourselves. My name is Phong Le. I'm the president and CFO of MicroStrategy. I'm Amy Park. I'm an audit partner at Deloitte's national office. spend a lot of time on crypto accounting. 

Forward to today's discussion. Excellent, Rob. Hi there, Rob Massie, I'm a tax partner at Deloitte, focusing exclusively on digital assets, collaborating with you and Amy and Phong Jeremy Ming looking for this conversation? Thanks, rob, and Thanks to Amy for being here, Ming. Hi, my name is Ming on the general counsel of MicroStrategy. I've been with the company for over 20 years now. And have worked extensively with all the people on this call on our Bitcoin Treasury strategy and look forward to sharing some of the insights and experiences we've developed 20 years. That means 10% of your career has been focused on Bitcoin. Yeah, that's right. The last 10 percent, let's say, Jeremy. Hi Jeremy Price, Senior Vice President, financial planning and analysis at MicroStrategy. I'm responsible for all the companies Treasury functions, and I haven't been here quite as long as Ming 18 plus years, but but almost got 20 so and very, very closely involved with this team and in our Bitcoin strategy. Awesome, so we're going to jump right into this, and last year, for those who join our conference, we really laid the groundwork for how a corporation would want to think about entering into a Bitcoin strategy. We talked about legal regulatory framework, accounting, tax custody, exchange. And as you know, we open source quite a few of the documents that we used are working documents, if you will, this year. 

The intent is not to rehash all of that, but really to cover things that have changed. Things have developed in the last year and things we've learned. So in that respect, I'm going to start right off with you, Ming. And just let's talk about what has changed in the last year as it relates to the legal and regulatory framework of Bitcoin as it relates to corporations. Thanks, Phong. And I think that's a really good question to start this discussion off with because Bitcoin and digital assets generally have been in the news a lot over the last year, and there have been some significant legal developments. For example, there are some new ETFs that got approved recently for the very first time. There are also some ETF applications that did not get approved, and it's unclear if and when those are going to be approved and under what conditions. It's also pretty clear that there is a growing amount of interest and activity at the SEC in congress, even at the White House, to clarify and establish maybe new rules and regulations governing the digital asset space. And so with all those things going on, I think it's a very fair and reasonable and good question to ask here at the outset whether there have been any changes to the legal framework for a buy and hold strategy. 

The fact of the matter is that there really haven't been any over the last year and maybe a good, just very brief way to explain why that is to win that clock. Back to a year ago, when we did the first Bitcoin summit, we held a panel discussion that focused on the five main legal lessons that MicroStrategy learned in implementing its buy-and-hold strategy. By the way, that video, I think, was recorded and it's still on our website. So for those who are interested in that broader discussion and see it, you can find it on our website in any event. In that discussion, we laid out the five main legal lessons that we learned, which I think form the general legal framework for a buy-and-hold strategy. I'm not going to go through all of them here today because we don't have that time or opportunity. But what I will say is that all of them remain valid and there really haven't been any material changes to them. Now, having said that, I think there's one lesson the lesson about regulatory considerations that's worth recapping here because it's just so important to the overall legal framework. And that is that if you're a company that's merely buying and holding Bitcoin on its balance sheet, there really aren't many regulations that directly apply to you. It turns out that there are some Bitcoin related activities that are highly regulated. So for example, if you're offering a service that enables people to buy and sell Bitcoin or you're offering to custody other people's bitcoin, there are a lot of laws that directly apply to you. Anti-money laundering laws, commodity regulations, potentially money service, business laws, et cetera. And that makes a lot of sense because those laws are there in part to protect the users of that service. But if you're just doing a buy and hold strategy, those laws typically aren't going to be directly applying to you. It's going to be the vendors that you use who are going to have to be mindful of and comply with those regulations. And so it does behoove you to engage reputable, sophisticated vendors to make sure that the transactions you're involved in are legally compliant. But again, those aren't laws that are going to be directly applying to you, and that's an important operational distinction. The other really important thing I just quickly want to say here and emphasize is something that Michael actually said in the last presentation, which is it's really, really helpful that Bitcoin is not considered a security. 

The SEC has this test a four-part test called the How we test they use to determine whether something's a security or not. Well, it turns out that Bitcoin does not meet at least one out of those four parts of that test, and so it's not considered by the staff, the SEC staff, to be a security. And that's a really, really big deal because if Bitcoin were considered a security, then all the security laws would apply to Bitcoin related activities and among other things, for a holder of bitcoin, it would mean you'd have to take into account things like the Investment Company Act. But if you're a company like MicroStrategy holding Bitcoin on its balance sheet, even a lot of Bitcoin because it's not a security, you don't have to. Think about things like the Investment Company act, in any event, all that stuff that I just mentioned about the regulatory context was true a year ago. It's still true today. And Phong, that's why or it's a main reason why I can say that legal framework hasn't really changed in the last year. Excellent main thing, Thanks. Anything anyone else wants to add on this topic. All right. So, so I guess the other piece, you know, you started going down this path a little bit, the coin is different from other, I'll call it digital assets for one reason you mentioned, which is it's really considered property, not as security. Is that true with other coins? Or what's the view outside of bitcoin? Yeah so let's take a first step back a little bit and just compare it a little bit to a typical or conventional investment assets. So Bitcoin is really unlike traditional assets. If you take, for example, stocks, bonds, and real estate as being classic examples in that, you know, Bitcoin doesn't represent an obligation to an issuer or a debtor. 

It's not physical, it's not a physical asset. And when you transact in Bitcoin, you know, there's no registration statement, there's no private placement memorandum. There aren't even any financial account terms and conditions to do those transactions. But separate apart from that, even with respect to other digital assets, Bitcoin is quite unique, right when it was released in 2008 for example. You know, it was really the first decentralized digital asset in history. I forget that sometimes and I'm just thinking about bitcoin, but that's true. And maybe in part because of that, it is the most well-known digital asset. It's got the highest market cap. It's almost a trillion today, and some past periods it's been over a trillion. It's famously limited to 21 million coins. It's a hard cap. A lot of other cryptocurrencies do not have a hard cap. And then, unlike many other digital assets, you know, nobody controls Bitcoin and yet everyone can use it. And I think that's a really simple, layman's term way of explaining why the sec, in part, doesn't view Bitcoin as a security, and that's probably not true with respect to a lot of other cryptocurrencies. There's one other unique asset aspect of Bitcoin I do want to highlight, and that is that bitcoin, when it was created was very much purpose-built, right? It was designed to be a means of payment, a store of value, a unit of account, right? And that's just not true of a lot of other cryptocurrencies out there. 

Take, for example, Ethereum or Solana, right? They're much more like virtual computing. I don't know, operating systems where you can build applications on top of or with it, Bitcoin. On the other hand, it was really meant to do those things I just mentioned, and I think that's why it's widely viewed as a store of value like digital gold. That's why MicroStrategy, of course, is most interested in it. Maybe, maybe I can chime in. I couldn't agree with you more, meaning I think when we think about bitcoin, that it's that focus, right? It's the focus of a platform and an asset. It enables a store of value and a transfer of that value very efficiently. And it is that it is that focus versus other platforms and it can do that and they facilitate people. They inspire people to build stuff on top of decentralized applications and other things. I mean, it's just a difference. And maybe the way the architecture and the focus of that, like if you have a fork, right, if you catch it, there's little Pendleton there, right? Use a fork, deep pasta. I'm Italian, right? I can try and eat soup with this. It's not very effective, right? But this is like, you know, choose your protocol, choose your asset carefully as to what it does, the different attributes. So that's the way our sort of people talk about this a lot debating and contrasting the attributes. But I think that's where it goes. The other thing I'll latch on to very briefly following is, you know, Amy and I played the game a lot. What's the thing? And so where the main was talking about, what are these digital assets mean in terms of the SEC or other regulators? They mean something unique for tax and for GAAP accounting and IFRS and all the rest. And so you really need to say, you know what, lens are you putting on these things? Make sure you got it right because it does have different implications, not on digital assets or treated equal and also the way that you're using them. They may have different implications depending upon what regulator you're thinking about. So just a little added color. 

For one thing, I would just mention just given a lot of the uniqueness around bitcoin, I do want to take the opportunity to emphasize the lesson or one of the lessons we talked about a year ago, which was the importance of corporate governance. It really is something that you do have to study. You have to learn up on. And for many of the reasons that Rob and I just talked about, you need to think about what's its role going to be right with your business? Is it just going to be a Treasury asset or are you going to use it for other purposes? And it does have these different statuses under different regulatory regimes, right under tax, under the CFTC, under the securities laws, et cetera. And so. You really a company really does benefit itself by starting off doing that, learning early for governance purposes. Yeah, I think it's a fundamental point, and a lot of people approach digital assets as an individual and the obligation of owning a digital asset as an individual is a lot different than if you are a corporation, a lot different a public company, which we are. And so knowing what that thing is, you know, that game that you play in tax and you play an accounting, you play in legal. It's actually fundamental before you figure out where you want it to integrate into your strategy, you have to understand these individual things. Is it a fork? Is it a knife? Is it a spoon? And to understand there's a lot of an onion to peel back, right? And you go into, you sort of have to go back to what was originally intended to do. So I think it's fascinating. Now, rob, did you actually have that fork ready for that analogy or did you come up with that analogy on the floor lunch? I'm hungry, so I'm getting ready for lunch. It's going to be pasta. Yeah, Yeah. So, so on that point of sort of, you know, as a corporation, there's a lot you need to understand before you sort of go into this. You want to share a little bit about what have we updated in terms of some of our open source documents that we provided last year? Because a lot, if you read through those documents, you start to understand the thinking we had to go through before we entered into our Bitcoin strategy. Yeah so a year ago, is this fun was just mentioning we outsource or open sourced and publish on our website, probably half a dozen documents that are based on our experience, that we thought might be helpful to others who are interested in doing something similar. Those documents included a project roadmap, our very own Treasury reserve policy, our Bitcoin trading policy, and I think a handful of other documents that outline the main legal, tax, and accounting considerations. 

The great news for us is that all of those documents have really stood the test of time. We've really not had to modify them in any material way to the extent we have updated and modified them. We have open-source the latest versions. I think they're available now on our website. But but they've been terrific. We hope we're hoping that they're going to be helpful to other people or interested in something similar. Now there are a couple of updates that I would mention. One is a new document that is essentially a checklist for the considerations in engaging with a digital asset payment processor. We had occasion to deal with one in 2021 because our outside directors made the decision to take all of their board service fees in the form of Bitcoin rather than in US dollars, which is what we had been paying them in. And they did that because they wanted to show a support show support for our corporate strategy around Bitcoin and also to show support for the long term. The proposition of Bitcoin is a long term store of value. And so to implement that, we engage with a payment processor who would take on a quarterly basis, the US dollar amount that we would owe our outside directors in the form of board fees and convert them on a payment date into Bitcoin. And so this document just helps to outline some of the considerations that we went through in engaging with a digital asset payment processor. 

I think, Jeremy, you you may have some probably more knowledge about how it works mechanically, but from my vantage point, it seemed like a very straightforward process. I think our outside directors formed or created electronic wallets, and it all seem to move pretty smoothly. Would you say that? That's right. Look, I think first, you know, our strategy of acquiring and hodling Bitcoin obviously has influenced how we approach Bitcoin transaction. So as we made the change to pay our outside directors using Bitcoin. You know, it's important that the company didn't have to transact using our existing Bitcoin. It would kind of be inconsistent, right for us to turn around after acquiring the Bitcoin and saying, we're going to hold it to then use it for payment. And so our use case is pretty straightforward. As you outlined, you know, we've essentially engaged a payment processor to transact with our outside directors. So the company established an account with that payment processor, similar to how many companies work with respect to payroll and paying wages to employees. And then the company distributes or disperses Fiat currency into that account with instructions on how to allocate the funds across the recipients are outside directors. The outside directors also work with that payment processor to provide the wallet address or addresses that they wanted to have their Bitcoin deposited. And then the payment processor takes the Fiat currency that we send and. Transfers it to Bitcoin into the director's wallets, so the company never actually acquires any Bitcoin in the transaction, it's purely us funding via Fiat and then the payment processor settling into the director's wallets with Bitcoin. Its chairman thanks, Ming, so so we're sort of moving into the area that's a little bit newer for MicroStrategy, which is Bitcoin for payment purposes, and obviously you can also receive payments in Bitcoin. I see other companies doing that. Maybe this is a time for Rob or Amy. Tell us a little bit more about beyond MicroStrategy what you're seeing happening in the Bitcoin corporation's world? Yeah, Thanks. I can start and then we're free to chime in. 

For sure. We saw a lot of companies as MicroStrategy. MicroStrategy started the trend to look at investing, but the investing quickly turned into, well, what else can I do with my crypto? And I think a lot of that was driven partially by market demand. So you have a new class of customers who are eager to pay in Bitcoin or paying crypto. I think now you'll see a lot of times if you're buying something online, there's usually something there that says pay with Bitcoin. And so we definitely, at least at Deloitte, have worked with a lot of companies who have just asked. I have customers who now want to start paying me a Bitcoin. How do I do that? I'd say it ranges from two populations, one our companies who have already kind of engaged and started dabbling in crypto. And so they're ready to kind of take the next step and have thought through some of the considerations similar to what MicroStrategy has thought through what do what do we do when we're starting to use it now as a form of payment? And then we have the other class or the other side of companies who maybe haven't really started to hold or do anything with respect to crypto, but now are getting or seeing the demand from different customers who want to start paying, paying in crypto, as well as, you know, vendors who also want to get paid and crypto, et cetera. We're seeing some interest as well for some of the native crypto companies who want to do advertising and say, I want, I'd like to pay for that advertising in the form of some type of crypto. 

So we're definitely seeing a lot more questions. To your point, a lot of the things that MicroStrategy has started to think about and that we talked through last year in terms of the overall getting the whole organization together, thinking about governance, educating yourself, all the different considerations, those are all still very relevant to the people who are starting to think of it. Think about it as a form of payment. There are some follow on considerations specific to accounting and tax how you contract that the terms potentially you could have embedded derivatives in there, which I say embedded derivatives and everybody's like, I want that. But there are some additional follow on. But the base of the I say the groundwork of what MicroStrategy has done and we've talked through over the last year has been equally as relevant to those folks as well. It's there's to think about and you know, you guys, I think, did a good job of getting ahead of it and being very thoughtful and being able to carefully consider who you're working with. How do you contract which payment process or what is the cadence of hygiene look like when you're going to interact with digital assets as a mode of payment? You know, a lot of our clients, they get caught off guard. It's like, Oh gosh, this is really important customer and they want to pay us in crypto, how do we do that? And then they're kind of backed into a corner. Or there's a vendor that's critical in your supply chain, for various reasons and they have a need. And so I think, you know, of course you can do it quickly, but it makes sense to get ahead of it. It seems like it's a trend which is going to continue down this path. 

Then you want to have the range to be thoughtful about the considerations and not get backed into a corner. So we MicroStrategy started with Bitcoin on our balance sheet. We started then as the next step, use it for payment purposes with our directors and we may do more things beyond that. Are you seeing it go the other way around. Or are you seeing companies who are receiving payment or making payment in Bitcoin then start to integrate it into their balance sheet? Yeah yeah, it starts from a few different places, right? It'll start by saying, wow, there's this really important customer that wants to engage. HMM, I wonder if there's something there. And then it starts with, OK, let's just convert it to Fiat real-time because you don't worry about the volatility. But then there's a thoughtful treasure that says, hold on a second. Should we take a chapter and learn something from MicroStrategy? Why are they doing it? Should we consider that? What should we tell the board? So I think these are questions that happen quickly. So you want to arm yourself with a really good answer. You see, people get inspired because there's a really important customer that wants it or a vendor or their treasurer, and then it quickly rounds out and says, what are the other? What are the other reasons to do or not to do this and to keep an open mind again, taking lessons for you in your bold moves? That's Amy Tan. 

I think it also depends on the companies you I think what a lot of people are seeing is that, hey, we can accept it from our customers, even if we don't want to hold it. And you know, you can use a payment processor who do similar to what Jeremy you and Ming just talked about. But it's that like knowing that you can and that education of, OK, why do we maybe as a company, we're not ready to have it on our balance sheet or for some reason, we don't want to. That's company specific right after thinking through all the different considerations. But I think the process of understanding how it can be done and that it is manageable is getting out there. And I think we'll see more and more companies who are starting to look towards continuing to do that and then potentially expanding it into. We'll look at how MicroStrategy has done or look how others have done when they've started holding it. Should we diversify our assets if we start including some of it? I think those are on conversations that we're going to be hearing. Great, thank you. So let's move on to our next topic. My my favorite, my favorite, least favorite topic, which is Bitcoin accounting. And Amy, I know you and I have talked about this at length with our finance team of how Bitcoin is accounted for. But maybe just let's do sort of the quick recap and then talk about where we think this is going. Well, I'm guessing Phong, it's your least favorite because you don't like the Bitcoin model. And the Bitcoin model is that you don't like the Bitcoin model, Amy. 

A lot of people don't like the Bitcoin model. OK basically, you have to account for it as an indefinite, lived intangible asset. And so what that means is every time the value of it goes down. So when it's traded on a public exchange and you can see an active and orderly price, you have to write it down, but you never get to write it up until you actually ultimately sell it. So for a company like MicroStrategy, whose long, long, long term buy and hold, you're not going to realize any future appreciation so that you actually sell the crypto. That leads to a lot of challenges because people think economically, what I should be able to value my asset is what somebody else is willing to pay for it today. And so, you know, I think there's a lot in your camp who don't like that, that model, unfortunately, that's where kind of takes you if you go through the different definitions of what currency is, inventory is a financial asset or financial instrument. But I will say industry and practice has pretty much coalesced and agreed that is the model. You won't see a lot of companies who have financial statements where they're accounting for an outside of an intangible asset. Now I will say there are certain entities that have special accounting, so investment companies have to account for all their assets at fair value. Broker dealers get special accounting, but general corporations, you're not going to see much in terms of straying away from this intangible model. 

OK, so so you don't like the accounting, know, it's good, good to understand your view. No, I'm just joking. So there was an open comment period. I think it was about six months ago or so that the FASB had an open comment period and multiple accounting standards. And I think somewhere in the range of 500 folks responded to the FASB that this is something they should take up and address. How does that process work? Where are we in that process? Yeah so Thanks for reminding me there is hope for potentially a different accounting model if we take ourselves back to last year's conference. I had talked about the FASB meeting publicly in October of 2020, right after MicroStrategy made your initial investment or their initial investment. And the board at that time voted 7 to 0 not to add a project onto their agenda. If you look at where the market and the activity has come since then to now, obviously there's been a lot of change, a lot more companies, a lot more public companies as well who are holding material positions and just a broader interest in digital assets in and of itself. So the FASB has a process called an invitation to comment. Basically, they reach out to all of their stakeholders. And say, hey, world. Tell us what you want us to work on because the whole purpose of the FSB is to help standard setting for all their different stakeholders. 

And a lot of times that process happens when you have a new chair. And so we have rich Jones, a new chair that's come in recently, and it's really to help him formulate his agenda and vision for where the FSB is going to go in the next couple of years. One of the topics that they asked for feedback on was related to digital assets. You know, do you like the accounting model? What are some of the challenges? How material is it, et cetera? And I will say they got a lot of feedback specifically on digital assets from maybe two to I know MicroStrategy submitted a response and there were several responses I saw that said, we agree with MicroStrategy, and that was their whole letter. But there is a lot of interest from different stakeholders, companies, investors, auditors and preparers as well. That kind of outlined reasons why they thought the FSB should add a project now. Brian, you know, I spent a couple of years at the factory standard setting is difficult. There's a lot of things that a lot of people want and there's not enough people to come up with standards. And if the FASB were to take on every single project that came about, we would never have any standards know any new standards that come about. 

So they go through their process of due diligence on looking at which of the priorities of the board should focus on which ones have solutions, which ones are pervasive. If you think about limited resources, you want to get the biggest bang for your buck. So where are we going to provide the most amount of relief to the largest group of stakeholders that are really having an issue, and they're tackling that related to crypto, as well as all the other topics that they asked about, as well as all the topics that people randomly said, I don't like this about gap. I don't like that about gap. So that process, it takes a long time. I mean, they got over 500 letters. They need to go through each and every one of them and do research. The board did meet in December of last year just to kind of say, here's all the responses that we've gotten. Here's the topics we're looking at. They did add crypto to their research agenda, which basically just means that they're researching it. I wouldn't get your hopes up because we really need something to get on to the technical agenda in order for us to see standard setting. But the time is to be determined. So they haven't announced when they're going to talk about it yet. But the idea would be that they have to talk in a public board meeting about the different feedback that they received and how the board is planning on addressing it. And that will be the critical board meeting to see whether or not they add a project. Um, personally, I think there will be some challenges, because if you think about MicroStrategy is really focused on Bitcoin. Some other companies are focused on cryptocurrency number 1,002 on the list. And then a lot of cryptocurrencies or these intangible assets have very similar characteristics to commodities. Do we want to open up the can of worms and reinvents kind of everything related to commodities? So there is a lot of questions about scope. I think that the staff basically has to work through as they present a potential idea to the board to take on the project. So we'll see. OK, well, we're making progress, it sounds like we've made progress in the last year, for sure. You know, I think having 500 folks chime in really does speak at least a bit to the pervasiveness of the issue or at least the strength in opinion on the issue. 

You know, as you work with other corporations and public companies, is this accounting issue? Does does it does it stop companies in their tracks? Is it sort of making it more difficult for them to adopt Bitcoin as part of their corporate strategy? You know, Phxong, I love accounting, and I wish I would say accounting drives businesses and business decisions. I don't think accounting is quite at that level now. I will say a lot of companies that I talk with complain about the accounting because it makes other parts of their business hard. So the operational challenges around having to pretty much create two sets of books, one for GAAP accounting and one for management reporting, or to be able to track your cost basis in order to do the right level of impairment. When You have a lot of transactions like that's hard and companies complain about it. Have I heard somebody tell me, Amy because of those accounting rules? I'm not going to do this. I haven't. 

We haven't quite gotten there. Usually there's a business decision why a company will move forward with their strategy, and operationally companies just have to comply and do what they need to do in order to meet the accounting rules. Maybe one day, we'll get to a point where accounting drives and drives business, but I don't think in this space people are saying at least I haven't heard of people say, well, because of that accounting, I'm not going to do this. OK, well, thank you, Thanks for that perspective. Let's move to tax for a minute and maybe Rob similar to what Ming and Amy did and sort of just presenting sort of a quick foundation, why don't you give us a foundation on some of the key concepts when it comes to corporations tax in bitcoin? Yeah, absolutely. And I think they span the range is anything from when you're, you know, investing in or using it in the business. But some of the key considerations are starting with, you know, what's the thing and how does that come into play? And we may define Bitcoin or other digital assets depending upon the rules that are applicable, be they, you know, withholding taxes associated with payroll. They could be looking at Amy's accounting rules. Sorry, Amy, but that plays in from a revenue recognition or a mark to market standpoint how you use it in the business. Do some of Amy's rules would say that you mark it down, but you don't mark it back up for tax? You may not mark it down unless you actually have a transaction, you use or dispose. 

So there's some of the key differences there. But then some, some individuals, some businesses. If if you're using it in a certain way or trading it or dealing in it, then that may allow you to make an election to mark it up or down. So it all depends on what's the thing and how you're using it in the business. We talk a lot about appropriate segregation of assets, in particular, different tranches. So people like yourself who bought in over time, in different tranches, at different values, we want to make sure that basis is respected associated with each tranche. In your example, they differ significantly as it does with others. There's some crypto edges out there that have Bitcoin at very, very low basis. And if they decide to use some in their business, you want to make sure that you're not triggering gain on your base, your Bitcoin that you had at $100 versus that which you bought in 40 or 50 or 60. And so there's some hygiene put in place, even going to how you custody it. And if you're self accessing or if you use a custodian, then weighing out, how do you want to appropriately segregate your assets. So that you can choose? No, I want to use. We need to pay a vendor. I want to use the Bitcoin that I, you know, bought it for me, given today's price and just trigger a little bit of loss versus the stuff that I had at $100 and trigger a bunch of gain. So there's some operational hygiene that comes into play. And again, that differs and to how you custody it, how you use it in the business, you think about character. If if you're holding it for investment purposes, that's probably going to be a capital asset, probably versus if you use it in the business and normal course, maybe that becomes ordinary property. And so we have a lot of discussion around how you characterize it and documenting the intentions behind it so that you make sure that the character you wish to apply is respected, you know, used in the business. Things like what is the value of the crypto used? If you're paying somebody and that needs to go on a form 10, any nine, the thing that came out in the fall, the bipartisan infrastructure bill really put the definition of digital assets in the Internal Revenue Code. 

It is now defined it was that bill did pass. And so that was applicable to people facilitating payments of crypto and really relates to section 6,040 five, which is does it go into 1080 nine? There's rumors that it's the 10 any nine day four digital asset, which I personally think is pretty cool if we're going to nerd on that. But there's things like what value do you put on the form, right? It moves all the time. And so how do you how do you build processes and hygiene to make sure that gets done correctly? And then the other one that has come up again, the same bill passed it. And that is if you're a US business and you're in receipt of $10,000 or more of crypto starting January 120 three, then you do actually have to report that kind of like going back in the day when you see people walking into the bank with a suitcase full of cash that they can't put on a form. That rule still exists. People don't do that much anymore, but now you have that with crypto, so you need to put that on. So, you know, we don't have a ton of new rules in place, but I would say the uptake means that people are taking it more serious as more options out there for four processors and custodians and a lot of considerations to get ahead of. Rob, for you just to chime in quickly, you said you always joke and say the accounting or morals. That's right. For the record, they are not my rules. Yeah, but your rules, your tax rules and my accounting rules also sometimes don't jive. So one of the things that you and I talk about is this valuation valuation is hard. Sometimes some people view it better to use an average of multiple prices, but gap really doesn't allow averages. You need to go for your principal market. And so you may have differences in the accounting rules and the tax rules that you need to also think about, which add, you know, just a little bit more complexity where, you know, working together as a group is oftentimes really helpful. That's right, your principal market may not work for my rules that require aggregators. 

So you're right. And so together, this is what we do all day, every day, can you tell? We work on how do we make this work for our clients that satisfy everybody's world and try and keep it simple? Yeah well, I think it'd be really cool if there is a 1099 DA for digital assets. The rumor is it's not credentials, but that was rumor. I thought it was pretty cool. So, so tell me a little bit about, you know, we talked about in some cases, companies are accepting payment via crypto or being asked to. In some cases, those are foreign countries, you know, companies or foreign customers. You are asking to do that. What are some of the complications associated with owning cryptocurrencies internationally as it relates to tax? Sure you know, we have a lot of uncertainty in the rules here and that equally exists abroad. And so looking at the local rules in terms of revenue, recognition and valuation, all the rest. But some of the more common topics are indirect. So vat and HST and GST and all the rest and how that differs from normal Fiat based transactions. And it does, by the way, in most countries around the world, there's a few governments that do accept crypto, some form of payment, most only accept Fiat currency today. And so then you're stuck having to convert. Someone's got to convert to Fiat and remit that to the government. The government's in the terms of indirect taxes, so the application is interesting and different, requires some study. There are some trends evolving and I think the most published guidance out there, if you were to like, pull all the different countries around the world, there's probably more published points of view of different government agencies on tax on the application of VAT than anything else. So that's the good news. But the bad news is we're just not built to enable high volume commercial transactions on something that's not Fiat based. So that gets clunky to be compliant. But people, people do it. The other is, you know, with the US lens, then we have different rates, different tax rates applied depending upon the type of transactions that if you have a non-u.s. subsidiary, how it's engaging in business. And so, you know, normal rates 21% right now for corporates, but there's a beneficial rate if it's guilty. And so some transactions may, may come into play there. 

So some interesting considerations, but most of it, I'd say, relates to indirect. All right. Thanks, Rob. So let me turn to another topic, and Jeremy, maybe you can start the discussion on this Bitcoin exchange in custody. Obviously, that's an area that MicroStrategy has spent a lot of time as we've looked at different exchanges, different custodians and also have diversified or started the process of diversifying. Tell me a little bit about, you know, again, sort of the baseline sort of what a company's want to look at when considering exchange and custodian partners. Yeah and I think, you know, this will evolve with your strategy, the company's strategy and how that evolves. But certain things remain unchanged, right for corporations, especially publicly traded companies. You know, you need to make sure you found a safe and secure place to store your assets. You need to do that, obviously in advance of acquiring Bitcoin. And so, you know, you need to find a custody vendor that has, you know, controls in place to safeguard your assets. You can demonstrate the effectiveness of their controls and their system and the design of the system that really comes down to having SOC one type 2 certification that those companies have those controls in place and that those controls are operating effectively. That's what the type 2 designation gives you. I see me smiling because, you know, I've learned my accounting event though I am not the accountant of the group. So look, I think in addition to that, you need to work very closely with your internal audit team, your external auditors, your vendors, audit team to vet the controls because it's not as simple as someone producing that SOC one type 2 certification, there's a lot of detail that you need to get through and make sure that you understand as an organization from a business perspective, and you need help translating sometimes the lingo from the audit world and making sure that you're very comfortable with how that entity, that vendor that you're going to use works. You know, there have been a lot of changes in the landscape over the past year. There's been an influx of qualified vendors, both in the custody and the exchange space. I think in custody, you see a lot more vendors that have that SOC one type 2 certification and that have started to work with companies more and more. And they've evolved. I think you're seeing a lot of competition in the marketplace as a result and a lot of diversity in the marketplace, and I can talk about that a little bit more when we talk about diversification. 

You know, I think for the exchange providers obviously being alluded to the fact that you want to make sure that they are legally able to act as an exchange and trade assets on your behalf and acquire the assets. But you know, you want a reputable company with adequate safeguards and a history of transacting right in a safe and secure manner. You also want someone who's got access to liquidity, so you are using an exchange with a deep pool of liquidity. Are you? Does the exchange also have an OTC trading service that can execute on your behalf, accessing other pools of liquidity outside of their own exchange? And you access block trades? That liquidity is a big piece that you'll want to vet when you're looking at exchange providers and trading and self-custody and did come up earlier. And I'd say for any corporation, I think that the risk is just too high of trying to self-custody your assets. There might be some, some situations where that makes sense, but generally speaking, you know, that's not advisable. And you want to use an institutional grade custodian to safeguard your assets and rely on the market leaders is what I say there and companies that are prepared to do that day in and day out and have the expertise. It seems like based on that set of diligence that you would do into selecting exchange provider or custodian and that level of the set of requirements you sort of laid out, there probably aren't many that we would consider to be institutional grade. Is that right and have more emerged over the course of the last year? Yeah, I think that more have emerged. I think, you know, like I said there, there are firms that we talked to that maybe don't have that certification and we've talked to them recently and they do. And so there's an opportunity to expand our relationships and expand the Bitcoin ecosystem through dialogue and conversations that we probably weren't willing to have previously. So I have seen it directly for us in our conversations. Amy and rob, I don't know what you guys are seeing, if you guys can corroborate that, but we're definitely seeing an uptick in, let's say, those to get through that first gate. I think there are a number of other considerations that you'll want to take into account from a security perspective, things like multifactor authentication for users, multi-level approvals or multi-approval of transactions, as well as separating roles. Having this concept of an initiator and approver with multiple approvers or consensus or majority consensus to approve transactions. Other things are controls from your provider for transactions over a certain amount. 

You may want to require video verification. Does that entity have those controls in place and will they put those in place and help you execute to further safeguard your assets? Those are all reasonable questions, but maybe I flip it back to Amy. Rob, what are you guys seeing in the market? That I think definitely a level of maturity paying attention to people like yourself who want institutional-grade solutions, but maybe even a range in the way that people custody. Some are very tailored and can accommodate, you know, customize requests. Others, you know, just types of custody. Some take a chapter from old school like HSM type custody solutions or a hybrid model to accommodate different types of digital assets. You know, the range of digital assets they accommodate is pretty interesting. Some have a wide range and they're and they're trying to keep up with everything else that's new. Others just want to focus on what it is. So I think it's just a range of different options out there. Amy and Jeremy as the editor, what you said is like music to my ears. And so for sure, over the last year, we've definitely seen more companies who are or providers who have the stock reports. I think the stock reports are also getting more fine-tuned and better in terms of the controls that are being covered. So there are more options out there. And I think that's largely driven by the demand. Like several years ago, you didn't have large public institutions who had to worry about stocks and controls who are looking into investing. And now that's we're in a different place now. So the market is demanding it and we are seeing providers respond. So I definitely think that there's more options out there and I think there will be that'll continue to happen. Right just have a few minutes left. I'll cover a couple more topics. One you know, we've gone through all the different things that a corporation might do with Bitcoin, including holding it in their treasury, receiving payment, making payments. It's the last piece back to the Treasury side is leveraging it, using it as collateral, right? Like either for the purposes of getting a loan or in some cases to lend it out and get yield off of that. What are you seeing in that space? And where do you see that that? How much is that evolved in the last year? I mean, do you want to start and I'll pick it up? Yeah, we've definitely seen a lot more happen in the lending space. I think just as companies are starting to find other ways to use their crypto and the rates that some companies are offering are pretty high on the accounting side. You didn't like the accounting for the intangible. 

You're not going to like the accounting for crypto lending. I won't go into it since we don't have that much, much time. But the AICPA task force has issued some new Q&A that we just got issued a couple of weeks ago and one deals with crypto lending. It's just another phenomenon of having a non-financial asset being used in a financial way and getting stuck in some of the accounting literature. So if you are really excited about accounting, take a look at the practices. But we are definitely seeing a lot more activity on the borrowing and the lending, using it as collateral staking as well. And on tax, the one thing, if you're using it as collateral to take out a loan in Fiat, you may get to one answer and putting some care around the contractual terms there to make sure that nothing happens to the crypto, particularly if you've got little basis and high value. If you're actually lending your Bitcoin out, then some care and making sure that you don't get advertently trigger gain if you have embedded gain in there. Some people like to analogize to the securities lending rules, and they are just that security lending rules. And so, you know, whether or not crypto falls into those rules is a discussion. And so just making sure you have a level of care in how you're analogize and how the contracts are written, and if you are going to make analogies to SEC lending, making sure that you do have a right to get it back back on demand and you do retain all the benefits and burdens of ownership sorts of analogies. So it's a big topic and one that deserves a high level of care, particularly if you have low basis, high value, but a lot, a lot of increased activity there, for sure. All right, excellent. We are out of time. And so I think we'll stop here. This is fantastic, really. Thank you, Amy. Rob Ming, Jeremy, for your contributions and for participating Bitcoin for corporations and continuing to openly share things that we've learned. Thanks for having.  

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