[Bitcoin Now] How Will Changing Taxes by Investment Method Affect Your Bitcoin Strategy?

Holding DAT Company Shares
Can Yield Higher Returns
Than Direct Bitcoin Ownership
But mNAV and Other Factors Must Be Considered

With the implementation of virtual asset taxation set to begin next year, an analysis suggests that actual investment returns could differ significantly depending on how one invests in Bitcoin. Shares of Digital Asset Treasury (DAT) companies—a strategy that involves holding virtual assets as financial assets—might be more advantageous than holding Bitcoin itself. However, as the post-tax return varies based on the value of assets held relative to the company’s market capitalization, investors should be cautious.

According to the "Same Bitcoin Investment, Different Returns" report recently published by Bitplanet Research Lab, there are four main ways to invest in Bitcoin: direct holding of Bitcoin, overseas-listed spot Bitcoin Exchange-Traded Funds (ETFs), shares in domestically listed DAT companies, and shares in overseas-listed DAT companies. The report highlights that post-tax actual returns and risk factors differ according to the investment method. Domestically listed DAT stocks include companies such as Bitplanet, while leading overseas-listed DAT stocks include U.S. companies such as Strategy and Japan’s Metaplanet.

First of all, taxes differ. Starting January 1 next year, profits earned from the transfer or lending of virtual assets will be taxed at 22% (including local income tax), with an annual basic deduction of up to 2.5 million won. Overseas-listed spot ETFs and foreign stocks are also subject to a 22% tax on capital gains exceeding 2.5 million won per year, but gains and losses from foreign exchange are included in the tax base as they are converted to Korean won based on the purchase or sale settlement date exchange rate. For domestically listed stocks, capital gains are not taxed for minor shareholders, but for KOSDAQ-listed stocks, a securities transaction tax of 0.2% of the sale amount is imposed.

However, while the 22% tax rate for virtual assets and foreign stocks is imposed on capital gains, the 0.2% for domestic stocks is levied on the entire sale amount. If the capital gain is about 50% of the sale amount, the effective tax burden difference narrows from 21.8 percentage points to 10.8 percentage points. The share price of DAT companies is determined not only by the price of Bitcoin but also by the company's capital management capability. The price is calculated by multiplying the price of Bitcoin by both the per-share Bitcoin growth rate and the market Net Asset Value multiplier (mNAV). The per-share Bitcoin growth rate refers to the rate at which the amount of Bitcoin held per common share increases. The mNAV is a metric obtained by dividing the company's market capitalization or value by its held Bitcoin’s market value.

Based on these assumptions, if the price of Bitcoin were to rise by 100%, post-tax profits, based on an initial investment of 100, would amount to 78 for direct holding of Bitcoin, 99.6 for domestically listed DAT company shares, and for overseas-listed spot Bitcoin ETFs, 77.6 (one year) to 74.1 (ten years), depending on the holding period. Notably, in the case of domestically listed DAT stocks, if the mNAV remains unchanged and the per-share Bitcoin growth rate increases by 5%, the return would rise to 109.6. This is because, in addition to the tax advantage, additional profit is generated from the growth in per-share Bitcoin holdings.

The variable that offsets the tax advantage of DAT shares is a decline in mNAV. Assuming the per-share Bitcoin growth rate is maintained, if the price of Bitcoin rises by 20%, a drop of just 3.5% in mNAV would make the performance of DAT shares comparable to direct Bitcoin holding. If the price rises by 50%, a 7.1% mNAV decrease would be the breakeven point, while if the price doubles (rises by 100%), a 10.8% decrease in mNAV would lead to breakeven. In reality, the share price of Strategy fell by 10% last year despite an 18% rise in Bitcoin’s price. During the first to third quarters of the same year, the per-share Bitcoin growth rate was 26%, which was not enough to prevent the stock price from declining. This illustrates that in a period of declining mNAV, share prices can significantly underperform Bitcoin's appreciation.

For DAT stock investors, it is essential to first examine the mNAV level: whether it is below 1 or in the range of 1.5 to 2. If mNAV is already excessively high, there is a significant risk that the stock price will move in the opposite direction during the normalization process, even if Bitcoin rises. In such cases, investors should avoid entry or adjust their exposure. Additionally, in terms of Bitcoin holdings, investors must confirm whether the amount of Bitcoin per share they receive is actually increasing, rather than focusing on the total amount held. The per-share Bitcoin growth rate can be diluted by issuance of convertible bonds (CBs) or bonds with warrants (BWs). Therefore, if newly issued shares or the CB issuance price is significantly lower than the existing per-share value of Bitcoin, the stock is unsuitable as a long-term investment.

This content was produced with the assistance of AI translation services.