[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 taxation on virtual assets starting next year, a recent analysis suggests that actual investment returns on Bitcoin could differ depending on the method of investment. While shares in Digital Asset Treasury (DAT) companies, which adopt strategies of holding virtual assets as financial assets, may be more advantageous compared to holding Bitcoin directly, investors should take note that after-tax returns can fluctuate depending on the value of the assets held relative to the company’s valuation.

According to the recent BitPlanet Research Lab report, "Same Bitcoin Investment, Different Returns," Bitcoin investment methods can be categorized into four types: direct Bitcoin holding, overseas-listed spot Bitcoin Exchange-Traded Funds (ETFs), domestically listed DAT company shares, and overseas-listed DAT company shares. The report states that actual after-tax returns and associated risks vary according to the chosen investment method. Domestically listed DAT shares include companies such as BitPlanet, while representative overseas-listed DAT shares include U.S.-based Strategy and Japan’s Metaplanet.

First, the applicable tax rates differ by method. From January 1 of next year, a 22% tax (inclusive of local income tax) will be levied on profits from the transfer or lending of virtual assets, with a basic deduction of up to KRW 2.5 million per year. Both overseas-listed spot ETFs and overseas stocks are also subject to a 22% tax on capital gains exceeding KRW 2.5 million per year. However, foreign currency gains and losses are taken into account due to conversion to won at the exchange rate on the trade settlement date. Domestically listed shares are exempt from capital gains tax for minority shareholders, but shares listed on KOSDAQ are subject to a 0.2% securities transaction tax on the total sale proceeds.

It is worth noting that the 22% tax on virtual assets and overseas stocks is imposed on capital gains, whereas the 0.2% tax on domestic shares is levied on the entire sale amount. If capital gains are equivalent to 50% of the sale proceeds, the actual tax burden differential narrows from 21.8 percentage points to 10.8 percentage points. In the case of DAT stock prices, valuations are determined not solely by the price of Bitcoin but also by the company’s capital management competency. Specifically, share prices are calculated as the Bitcoin price multiplied by both the per-share Bitcoin growth rate and the market Net Asset Value multiple (mNAV). The per-share Bitcoin growth rate reflects the increase in the amount of Bitcoin held per ordinary share. mNAV is an index that divides the company’s corporate value or market capitalization by the market value of Bitcoin held.

Based on these premises, assuming a 100% increase in Bitcoin price, the after-tax profit on an investment principal of 100 would be: 78 for direct Bitcoin holding, 99.6 for domestically listed DAT shares, and, for overseas-listed spot Bitcoin ETFs, between 77.6 (for a one-year holding period) and 74.1 (for a ten-year holding period). Notably, in the case of domestically listed DAT shares, if mNAV is maintained and the per-share Bitcoin growth rate increases by 5%, the after-tax return rises to 109.6. This is due to the combined effect of tax advantages and additional profits arising from increased per-share Bitcoin holdings.

The variable that can offset the tax advantages of DAT shares is a decline in mNAV. If the per-share Bitcoin growth rate remains steady and the price of Bitcoin rises by 20%, a mere 3.5% drop in mNAV will render returns from DAT shares equivalent to direct Bitcoin holding. Similarly, a 50% increase in Bitcoin price is offset by a 7.1% fall in mNAV, and a 100% increase is neutralized by a 10.8% decline. In practice, the price of Strategy shares dropped 10% last year despite an 18% increase in Bitcoin price. Even with a 26% per-share Bitcoin growth rate over the first through third quarters of that year, the price decline could not be prevented, demonstrating that in periods of mNAV decline, share prices can significantly underperform Bitcoin’s growth rate.

From the perspective of DAT stock investors, it is essential to first assess the mNAV level: whether it is under 1, or is in the range of 1.5 to 2. If mNAV is already excessively high, there is a significant risk that even if Bitcoin rises, share prices may decrease during the process of multiple normalization. In this case, investors should consider avoiding entry or adjusting their allocation. Furthermore, for Bitcoin holdings, rather than considering total holdings, investors should check whether the amount of Bitcoin allotted per share is actually increasing. Instruments such as convertible bonds (CB) or bonds with warrants (BW) can dilute the rate of per-share Bitcoin growth. Therefore, if the issue price of new shares or CBs is significantly lower than the existing per-share Bitcoin value, the company may not be suitable as a long-term investment destination.

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