Author: Weilin, PANews
Cryptocurrency treasuries have become a 'fashionable strategy' for listed companies. According to incomplete statistics, at least 124 listed companies have included Bitcoin in their financial strategies as a 'weapon' on their balance sheets to attract widespread attention from the crypto market. At the same time, treasury strategies for Ethereum and altcoins like Sol and XRP have also been adopted by some listed companies.
Nevertheless, several industry insiders, including Nic Carter, a partner at Castle Island Ventures, recently expressed potential concerns: these listed investment tools are compared to the Grayscale GBTC of the past — a trust fund that traded at a long-term premium, which later turned into a discount, becoming the catalyst for the collapse of multiple institutions.
Geoff Kendrick, head of digital asset research at Standard Chartered Bank, also issued a warning that if Bitcoin's price falls below 22% of these cryptocurrency treasury strategy companies' average purchase price, it could trigger forced selling by companies. If Bitcoin falls below $90,000, about half of the companies' holdings may face a risk of loss.
MicroStrategy has attracted a number of imitators, but what about the leverage risks behind the high premiums?
As of June 4, Strategy holds approximately 580,955 Bitcoins, with a market value of about $61.05 billion, but its company market value is as high as $107.49 billion, with a premium of nearly 1.76 times.
In addition to MicroStrategy, some of the latest companies adopting Bitcoin treasury strategies also have impressive backgrounds. Twenty One is supported by SoftBank and Tether, listed through Cantor Fitzgerald's SPAC, raising $685 million entirely for purchasing Bitcoin. Nakamoto Corp, founded by Bitcoin Magazine CEO David Bailey, merged with a listed medical company, raising $710 million to purchase Bitcoin. Trump Media & Technology Group has announced it will raise $2.44 billion to build a Bitcoin treasury.
PANews recently reviewed that Strategy's Bitcoin treasury strategy has attracted a large number of imitators, including SharpLink, which plans to buy Ethereum, Upexi, which is accumulating SOL, and a group of listed companies like VivoPower that are accumulating XRP.
However, several cryptocurrency insiders pointed out that the operational trajectories of these companies are structurally very similar to the GBTC arbitrage model of the past. Once a bear market arrives, its risks could be released in a concentrated manner, forming a 'stampede effect', meaning that when the market or asset prices show signs of decline, investors may panic-sell collectively, triggering a chain reaction of further price drops.
The lesson from Grayscale GBTC: leverage collapse led to institutional defaults.
Looking back at history, Grayscale Bitcoin Trust (GBTC) was once glorious from 2020 to 2021, with premiums reaching as high as 120%. However, after entering 2021, GBTC quickly turned to a negative premium and eventually became a factor that triggered the defaults of institutions like Three Arrows Capital (3AC), BlockFi, and Voyager.
The mechanism design of GBTC can be described as a one-way transaction of 'only in, not out': investors must lock their GBTC for 6 months after purchasing it in the primary market before they can sell it in the secondary market, and cannot redeem it for Bitcoin. Due to high early market barriers for Bitcoin investments and heavy tax burdens on returns, GBTC once became a legitimate channel for qualified investors (through 401(k) retirement plans, etc.) to enter the crypto market, which kept its secondary market premium long-term.
But it is precisely this premium that has given rise to large-scale 'leveraged arbitrage games': investment institutions borrow BTC at ultra-low costs, deposit it into Grayscale to purchase GBTC, and sell it in the premium secondary market after holding for 6 months, obtaining stable returns.
According to public documents, BlockFi and 3AC's combined GBTC holdings once accounted for 11% of the circulating shares. BlockFi had converted customer-deposited BTC into GBTC and used it as collateral to pay interest. 3AC even utilized up to $650 million of unsecured loans to increase their GBTC holdings and pledged GBTC to DCG's lending platform Genesis to obtain liquidity, enabling multiple rounds of leverage.
In a bull market, such operations work well. But after Canada launched a Bitcoin ETF in March 2021, demand for GBTC plummeted, turning a premium into a negative premium, and the flywheel structure collapsed instantly.
BlockFi and 3AC began to experience continuous losses in a negative premium environment — BlockFi had to sell GBTC on a large scale, yet still accumulated losses exceeding $285 million in 2020 and 2021, with industry insiders estimating its losses on GBTC to be close to $700 million. 3AC was liquidated, and Genesis eventually issued a statement in June 2022 stating it had 'disposed of a large counterpart's' pledged assets. Although not named, the market generally believes this counterparty is 3AC.
This 'explosion' that began with premiums, flourished with leverage, and collapsed due to liquidity collapse, has become the prologue to the systemic crisis in the crypto industry in 2022.
Will the cryptocurrency treasury flywheel of listed companies lead to the next systemic industry crisis?
After Strategy, more and more companies are forming their own 'Bitcoin treasury flywheel', with the main logic being: stock price rises → additional financing → purchase BTC → boost market confidence → stock price continues to rise. This treasury flywheel mechanism may accelerate in the future as institutions gradually accept cryptocurrency ETFs and cryptocurrency holdings as loan collateral.
On June 4, news broke that JPMorgan plans to allow its trading and wealth management clients to use some assets linked to cryptocurrencies as loan collateral. According to insiders, the company will start providing financing against cryptocurrency ETFs as collateral in the coming weeks, beginning with BlackRock's iShares Bitcoin Trust. Insiders said that in certain cases, JPMorgan will also start to include clients' cryptocurrency holdings when assessing their overall net assets and liquid assets. This means that when calculating clients' available asset collateral limits, cryptocurrencies will receive treatment similar to stocks, cars, or artwork.
However, some bears believe that the treasury flywheel model seems self-consistent in a bull market, but its essence is to directly link traditional financial methods (such as convertible bonds, corporate bonds, ATM issuance) with cryptocurrency prices; once the market turns bearish, the chain may break.
If the price of cryptocurrencies plummets, the company's financial assets will quickly shrink, affecting its valuation. Investor confidence collapses, stock prices fall, limiting the company's financing capacity. If there is debt or margin call pressure, the company will be forced to liquidate BTC to cope. A large amount of BTC selling pressure will be released, forming a 'sell wall', further driving down prices.
More seriously, when these companies' stocks are accepted as collateral by lending institutions or centralized exchanges, their volatility will further transmit to the traditional financial or DeFi systems, amplifying the risk chain. And this is exactly the script that Grayscale GBTC has experienced.
A few weeks ago, famous short-seller Jim Chanos announced that he was shorting Strategy and going long on Bitcoin, based on his negative views on its leverage. Although MicroStrategy's stock has risen 3,500% over the past five years, Chanos believes its valuation has seriously detached from the fundamentals.
Some cryptocurrency treasury consultants point out that the current trend of 'equity tokenization' may exacerbate risks, especially if these tokenized stocks are also accepted as collateral by centralized or DeFi protocols, which could trigger uncontrollable chain reactions. However, some market analysts believe that it is still in the early stages, as most trading institutions have yet to accept Bitcoin ETFs as margin collateral — even issuers like BlackRock or Fidelity.
On June 4th, Geoff Kendrick warned that currently, 61 listed companies collectively hold 673,800 Bitcoins, accounting for 3.2% of the total supply. If Bitcoin's price falls below 22% of these companies' average purchase price, it could trigger forced selling by companies. Referring to the case in 2022 when Core Scientific sold 7,202 Bitcoins when the price fell below cost by 22%, if Bitcoin falls below $90,000, about half of the companies' holdings may face a risk of loss.
What is the risk of MicroStrategy's explosion? Recently, a discussion on the Web3 101 podcast (Bitcoin whale MicroStrategy and its capital game) has attracted market attention. The discussion mentioned that although MicroStrategy has been referred to as 'leveraged Bitcoin' in recent years, its capital structure is not a traditional high-risk leveraged model, but rather a highly controllable 'ETF-like + leveraged flywheel' system. The company raises funds to purchase Bitcoin through issuing convertible bonds, perpetual preferred stocks, and at-the-market (ATM) offerings, building a volatility logic that continually attracts market attention. More importantly, the maturity dates of these debt instruments are mostly concentrated in 2028 and beyond, virtually eliminating short-term repayment pressure during periodic corrections.
The core of this model is not merely hoarding coins, but rather forming a self-reinforcing flywheel mechanism in the capital market through dynamically adjusting financing methods under the strategy of 'leveraging at low premiums and selling stocks at high premiums.' Michael Saylor positions MicroStrategy as a financial proxy for Bitcoin volatility, allowing institutional investors who cannot directly hold crypto assets to hold a Bitcoin asset with options properties in the form of traditional stocks 'without barriers.' Because of this, MicroStrategy not only constructs strong financing and anti-fragile capabilities but also becomes a 'long-term stable variable' in the volatility structure of the Bitcoin market.
Currently, the cryptocurrency treasury strategies of listed companies are becoming a focus of attention in the crypto market, raising controversies about their structural risks. Although MicroStrategy has constructed a relatively robust financial model through flexible financing means and periodic adjustments, whether the overall industry can maintain stability amid market fluctuations remains to be seen. Whether this round of 'cryptocurrency treasury craze' will replicate the risk paths of GBTC is an uncertain and unresolved question.
