A growing number of publicly traded companies, including distillers, cannabis producers, and energy storage firms, are adding Bitcoin to their balance sheets. This trend, inspired by MicroStrategy’s successful pivot, involves leveraging debt to acquire digital assets but carries significant risks if Bitcoin’s price declines or the firms face cash flow issues.
Experts warn that such firms might be forced to sell their Bitcoin holdings at a loss or become acquisition targets in distressed scenarios. Ben Werkman, CIO at Swan Bitcoin, noted that highly creditworthy companies could consolidate these firms by buying Bitcoin at discounted prices during downturns.
MicroStrategy, which began buying Bitcoin in 2020 and has since shifted away from software development, now holds approximately 582,000 Bitcoin valued over $61 billion, about 2.7% of the total available supply. Other public companies hold a much smaller share.
Matt Cole, CEO of Strive Asset Management, acknowledges the risk of forced Bitcoin liquidations but currently views the potential market impact as limited. He also highlighted possible future acquisition opportunities arising from distressed Bitcoin treasury companies.
According to Coinbase’s David Duong, near-term forced selling is not anticipated, thanks in part to refinancing options that may help leveraged firms avoid liquidating assets.
Companies adopting a Bitcoin treasury strategy often focus on growing Bitcoin per share rather than traditional financial metrics such as revenue or operating margin. Many use convertible bonds or bank loans to fund Bitcoin purchases, but borrowing can increase risks if market conditions worsen.
Werkman explained that larger companies benefit from established options markets, aiding bond popularity and hedging, advantages smaller firms lack initially. Firms using bank loans may face increased pressure to sell if unable to service debt, potentially losing control over their assets.
Market valuation metrics, like the multiple-to-net asset value (mNAV), often fail to fully capture differences among Bitcoin treasury firms due to varying capital structures and operating businesses.
When a company’s stock trades at a premium over its Bitcoin holdings, raising capital via stock issuance is straightforward. However, if that premium turns into a discount, the firm’s ability to raise funds and sustain operations may weaken considerably.
Some firms choose to hold Bitcoin as a hedge against inflation, swapping cash and Treasuries for digital assets to preserve purchasing power rather than replicating MicroStrategy’s playbook.
Ultimately, MicroStrategy’s strategy leverages stock price volatility and capital markets arbitrage, allowing it to increase Bitcoin per share by issuing convertible bonds and other instruments.
As more companies enter the Bitcoin treasury space, investors may distinguish between “growth” plays aiming for rapid Bitcoin accumulation and “value” plays focused on steady growth. Smaller players risk acquisition or adaptation as Bitcoin evolves as an asset class.
Werkman emphasized that these firms seek to move away from the traditional financial system toward what they perceive as the future system, gaining a first-mover advantage in the process.