Bitcoin treasuries are booming — but they could just as easily bust as they scale up.
The problem is that half of the 61 listed companies who have copied Michael Saylor’s stockpiling strategy have bought Bitcoin at prices higher than $90,000.
And Geoffrey Kendrick, head of digital assets at Standard Chartered, the UK bank, said that could be an issue down the road.
“Bitcoin treasuries are adding to Bitcoin buying pressure for now, but we see a risk this may reverse over time,” he said in a report sent to clients this week.
Pressure and volatility
These companies “could become a source of downside price pressure and volatility,” said Kendrick.
Standard Chartered said the five dozen or so companies pursuing the Bitcoin treasury approach hold 3.2% of Bitcoin’s total supply. That’s 673,897 Bitcoin worth about $72 billion.
Bitcoin’s price was at $106,661 in late afternoon trading UK time.
If for whatever reason these companies are forced to sell their Bitcoin en masse, they have the scale to torpedo the market.
A 22% drop from their entry price could turn them into “forced sellers,” the bank’s analysis said.
First, there would be a cascade of liquidations and if the companies’ balance sheets break, so, too, would the Bitcoin-as-treasury model.
100,000 Bitcoin
The warning comes just as the Bitcoin treasury craze is accelerating. Just last week, Trump Media & Technology Group, or TMT, said it was planning to raise $2.5 billion to buy Bitcoin.
On May 28, GameStop, the video game retailer turned meme stock, announced it had bought 4,710 Bitcoin.
In just two months, firms that aren’t Saylor’s Strategy have doubled their holdings to nearly 100,000 Bitcoin, according to Standard Chartered.
Still, Strategy dominates the Bitcoin treasury market. The firm holds 86% of all corporate Bitcoin, with an average buy price of around $70,000.
Noelle Acheson, the influential macro analyst, said Saylor copycats’ convition that this scheme is not risky is “alarming.”
“Especially for those getting into the structure at a much higher BTC price,” she said.
One such risk is the NAV premium. NAV stands for net-asset value, and represents what a company’s holdings are worth on paper.
When there’s a premium — or mismatch — it means a company’s stock price gets out of line with the actual value of what it owns.
Take Metaplanet, the Japanese-version of Strategy, and former budget hotel operator. The company’s stock is priced as if Bitcoin were worth more than $596,000 — that’s more than five times the current market price.
Shorts circling
Short sellers have begun to hone in on Metaplanet. Same goes for Strategy. Legendary stock trader Jim Chanos has begun to short Strategy’s NAV premium — in a bid to buy more Bitcoin.
How long will it last?
Bitcoin is known for its boom and bust cycles. What looks like an endless bout of euphoria can quickly give way to a bear market.
And it can all come quickly down thanks to these nifty financial novelties.
“Innovative financial engineering always starts out as a fascinating new tool to generate returns,” wrote last week macro analyst Noelle Acheson in her newsletter Crypto Is Macro Now.
“But inevitably it becomes fragile as interest and risk get saturated.”
Pedro Solimano is a markets correspondent based in Buenos Aires. Got a tip? Email him at [email protected].
