The đŸ”„H.E.A.T.đŸ”„ Formula

January 24, 2025

The H.E.A.T. Formula is a radically different way to look at investing your portfolio.

‍H- Hedges, you should always have hedges and be agnostic as to being long or short. Bonds are not a hedge

‍E-Edges, you should always look for edges. Preferably these are edges with some sort of psychological underpinning, structural edges, or some sort of barrier to entry.

‍A-Asymmetric. Everything you do, be it trades or your overall portfolio, should be designed so that heads you win a lot, tails you lose a little.

‍T-Themes. You should always be invested in the top themes. Most everything else is just noise.

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The market tried to sell off yesterday, but ended up rallying into the close. If you weren’t on my webinar yesterday I suggest you listen to it. Regardless of what you think of Trump he is creating, and will continue to create, a target rich environment for investors, long and short. ChatGPT is an invaluable tool in sorting through all of this. You can put his executive orders into it and articles into it and come up with winners and losers. This morning a couple of my names and themes popping, TWLO in AI Agents, and NVO in weight loss. Also my crypto names on Trump’s executive order, more on that below.

Continue to watch rates, the market rallied despite higher rates yesterday but it will be hard to do anything meaningful in stocks while rates are rising. I do still think you ought to be adding hedges as well, the market is extended.

Crypto Theme

The order Trump signed sets up a crypto working group that is expected to propose a federal regulatory framework governing the issuance and operation of digital assets. It also calls for the group to evaluate “the potential creation and maintenance of a national digital-asset stockpile, and propose criteria for establishing such a stockpile.”

The order also prohibits the creation of a central-bank digital currency, or CBDC, in the U.S. CBDCs usually entail a digital form of a country’s fiat currency, regulated by its central bank.

This part was interesting
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Additionally, the executive order noted that the potential creation of a crypto stockpile may be derived from crypto seized by the federal government through law enforcement. If the U.S. government, which has periodically conducted sales of crypto it seized from illicit activities, stops doing so, it could provide a tailwind for digital assets, noted Bos.

The hope was that the Government would be buying crypto in the open market, if all they are doing is not selling what they seize not sure that’s quite as bullish.

I think this is massively bullish for Crypto and companies like Coinbase, but I have been thinking about the crypto miners. I asked GPT to chime in on possible impact there


Impact Rating for Crypto Miners: 7 to 8 out of 10

  • The policies outlined in the Executive Order are broadly supportive, especially with explicit mention of safeguarding mining and validating activities.

  • The exact scale of the benefit depends on implementation details—particularly, whether the “stockpile” concept leads to government purchases of Bitcoin or just official endorsement.

  • Even without direct purchases, the positive regulatory stance and potential for reduced banking barriers give miners an appreciable tailwind.

  • However, the lack of explicit purchase commitments or direct incentives keeps this from being a 9 or 10. It is still a substantial improvement over past uncertainties, hence a strong positive rating overall.

I then asked it to rate the opportunity for the miners from 1-10, it gave RIOT a 9 and MARA an 8.

This headline looked ominous, so I had GPT handicap it
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After years of raising money through stock and debt offerings to buy bitcoin, MicroStrategy owns a stash worth about $47 billion, which includes $18 billion of unrealized gains. In an unusual twist, it could have to pay federal income taxes on those paper gains—even if it never sold a single bitcoin. The tax bill could total billions of dollars starting next year, according to a new disclosure this month by MicroStrategy that has received little attention.

GPT’s take
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1. The Policy Change in Brief

  • New 15% Corporate AMT: Enacted under the Inflation Reduction Act (IRA) of 2022, this alternative minimum tax targets companies reporting more than $1 billion in annual GAAP earnings—averaged over three years—to ensure they pay at least a 15% tax on an adjusted version of their financial-statement income, rather than just taxable income under the traditional corporate tax framework.

  • Key Distinction: Historically, unrealized gains on assets (such as stocks or crypto) aren’t taxed until a sale occurs. However, the new corporate AMT framework relies on GAAP results, which can include mark-to-market adjustments. If unrealized gains are booked into GAAP earnings—and are not exempted in the AMT rules—those gains could become subject to taxation.

2. How This Impacts MicroStrategy Specifically

  1. Massive Bitcoin Holdings

    1. MicroStrategy has a large BTC position, with the article citing about $47 billion in Bitcoin holdings and $18 billion in unrealized gains.

    2. Under the new FASB accounting standard (effective in 2024–2025 for many public companies), crypto assets like Bitcoin will be carried at fair value on the balance sheet, with gains and losses flowing through the income statement.

    3. Consequently, MicroStrategy’s GAAP earnings may show large unrealized gains whenever Bitcoin prices rise—potentially triggering AMT liability.

  2. Potential Tax Bill

    1. Because MicroStrategy’s core software business isn’t highly profitable and most of its value is tied to BTC, having to pay taxes on large, unrealized BTC gains would be problematic.

    2. The article suggests the tax bill could be in the billions of dollars if the IRS doesn’t grant an exemption for crypto, forcing MicroStrategy to sell a portion of its Bitcoin just to pay the taxes.

  3. Deferred Tax Liability

    1. MicroStrategy disclosed it may record a $4.0 billion increase in deferred tax liabilities due to GAAP unrealized gains, indicating the scale of the tax exposure if no exclusion applies for BTC.

  4. Comparisons to Equity Holdings

    1. Proposed AMT regulations have exemptions for unrealized gains on certain publicly traded stocks (e.g., Berkshire Hathaway’s long-held equity portfolio).

    2. Crypto is not yet explicitly exempted, leaving MicroStrategy and other crypto-heavy corporations in limbo.

  5. Outcome Hinges on IRS Rules

    1. The IRS is still drafting implementing regulations. MicroStrategy is lobbying for crypto gains to be treated similarly to equity securities—i.e., excluded from the AMT.

    2. Political winds matter. The article posits that under a more crypto-friendly administration, MicroStrategy may secure a favorable ruling. However, this is not guaranteed.

3. Could This Affect Other Crypto-Holding Corporations?

Yes. Any public (or large private) company with significant Bitcoin or crypto holdings that materially mark up their GAAP earnings could, in theory, face the same exposure to the new 15% corporate AMT. Examples might include:

  • Block (SQ): Formerly Square, with Bitcoin holdings and significant BTC trading on Cash App.

  • Tesla (TSLA): Held BTC on its balance sheet in the past, though it sold most of it, so the current holdings might be smaller.

  • Smaller Public Companies: Some have pivoted to hold BTC but may or may not meet the $1 billion GAAP threshold.

4. How Big a Problem Is This?

Here’s a 1–10 rating (1 = negligible problem, 10 = existential threat) for MicroStrategy and other companies using corporate cash to buy Bitcoin:

  • Risk Rating: ~7/10

    • Material Impact: For a company like MicroStrategy, which has bet its entire treasury strategy on BTC, the potential tax bill could be enormous—easily in the billions—if unrealized gains are included.

    • Uncertainty: The IRS could still exempt crypto assets, mitigating or eliminating the risk. This “regulatory unknown” is significant, making the ultimate impact impossible to pin down precisely.

    • Forcible BTC Sales: If the exemption is denied, MicroStrategy may need to liquidate some of its Bitcoin to pay taxes, undermining its stated corporate strategy.

    • Broader Precedent: If the IRS does not exempt crypto from the AMT and enforces taxation on unrealized gains, it raises existential questions about whether corporations will continue to view Bitcoin as a viable treasury asset.

5. Key Considerations and Takeaways

  1. Risk of a ‘Wealth Tax’ on Paper Gains

    1. MicroStrategy may face a scenario akin to a wealth tax, paying on gains that can evaporate if Bitcoin’s price falls.

    2. This dynamic adds volatility to MicroStrategy’s effective tax rate—unprecedented for most publicly traded companies.

  2. Strategic Planning for BTC Companies

    1. Companies that have large unrealized crypto gains must assess the likelihood of an exemption.

    2. They may consider hedging strategies (e.g., derivatives) to reduce potential GAAP volatility—but that can add complexity.

  3. Investor Perspective

    1. Shareholders in MicroStrategy effectively own leveraged exposure to Bitcoin. An additional corporate tax burden on unrealized gains makes that leverage less attractive.

    2. Investors who want pure crypto exposure might be better off buying BTC directly, especially if MicroStrategy’s cost of capital or potential tax bills weigh on future returns.

  4. Potential Regulatory Relief

    1. If the IRS final regulations clarify that crypto assets will be treated like equity securities for AMT purposes, the problem may vanish.

    2. Timing matters. The IRS’s final stance may not be firm for months or even years. In the interim, the risk remains part of MicroStrategy’s investment profile.

6. Conclusion

Yes, this new corporate AMT creates a real (though not guaranteed) problem for MicroStrategy and any other large company that holds significant crypto. The risk primarily lies in unrealized BTC gains being taxed as part of GAAP-based “income.” If the IRS grants no exemption for digital assets, MicroStrategy may face substantial tax bills in future years—potentially requiring forced Bitcoin sales.

Overall Risk Rating: 7/10 for MicroStrategy’s business model.

  • If the exemption is granted, the risk sharply recedes.

  • If denied, the company’s strategy of holding massive Bitcoin positions on its balance sheet is far less tax-efficient and could jeopardize its viability as a crypto proxy in the equity markets.

AI Theme

Second order thinking on AI from MarketWatch, I love it
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Articles like this that just list a ton of companies are tailor made for GPT. I put the article in and asked it to rate them by opportunity, from 1-10


  • Oracle (ORCL): 9

  • Nvidia (NVDA): 10

  • Microsoft (MSFT): 8

  • SoftBank (9984): 6

  • Arista (ANET): 9

  • Ciena (CIEN): 8

  • Coherent (COHR): 7

  • Lumentum (LITE): 7

  • Fabrinet (FN): 7

  • Corning (GLW): 6

  • Vertiv (VRT): 9

  • Schneider Electric (SU): 7

  • Digital Realty (DLR): 8

  • Equinix (EQIX): 8

  • Amazon (AMZN): 7

  • Meta (META): 6

  • Alphabet (GOOGL): 7

  • Apple (AAPL): 5

  • Micron (MU): 8

  • SK Hynix (000660): 7

  • Astera Labs (ALAB): 7

AI Agent Theme

Twilio sees artificial intelligence playing into its future, through “smarter, more consumer-aware autonomous agents” and more personalized services that take into account customer data from prior communications. The company has partnerships with OpenAI and Amazon.com Inc.’s Amazon Web Services, among others.

Weight Loss Drug Theme

Sometimes it’s better to be lucky than good, but this highlights how you just need to be in these themes, you don’t know when news look this can come out
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