Bitcoin has experienced a notable decline of approximately 8% recently, dropping from a peak exceeding $124,000 to around $114,000. However, the fallout has been more severe for companies linked to Bitcoin holdings, particularly for the treasury stocks of two major proponents in the space: Strategy and the Tokyo-listed Metaplanet. These companies have seen their shares plummet to multi-month lows, raising concerns among investors.
The situation has drawn the attention of industry experts, including Travis Kling, chief investment officer at Ikigai Asset Management. Kling expressed skepticism about investing in digital asset treasuries, suggesting that the current environment feels like a final attempt to spark a cycle that has failed to deliver substantive innovations.
Compounding the worries, reports indicate that nearly one in three Bitcoin treasuries are trading below the value of their actual holdings. This trend raises the specter of companies potentially forced to liquidate their Bitcoin assets to cover debts, which could trigger a wider downward spiral in the market.
The troubles began with Strategy, a company originally founded by Michael Saylor, which has positioned itself as a leading corporate holder of Bitcoin. By transforming its Bitcoin reserves into publicly traded stock, Strategy demonstrated a method for companies to leverage their balance sheets. Unfortunately, its share price has now fallen to about $323, marking a nearly five-month low and a significant drop from over $500 in July. This decline highlights a growing disconnect between Bitcoin’s value and the stocks tethered to it.
Dom Kwok, a former analyst at Goldman Sachs, noted that this divergence is causing investors to reevaluate whether digital asset companies remain worthwhile investments. Such a gap poses significant risks to Strategy’s business model, which relies on trading stock at a premium to acquire more Bitcoin. The viability of this model hinges on investors valuing the stock above the actual underlying assets.
Peer comparisons paint a concerning picture. For instance, Sequans Communications has already taken steps to reverse stock splits in an attempt to avoid delisting, a sign that the struggle within the sector is intensifying.
Meanwhile, Metaplanet has undergone a dramatic transformation from a modest hotel management company to a bold player in the Bitcoin space, adopting an aggressive pro-Bitcoin strategy beginning in April 2024. In June, it made headlines by raising $5.4 billion—the largest equity raise in Asia for Bitcoin—to help fund a target of acquiring 210,000 Bitcoin by 2027. Following this announcement, its share price surged from about $9.30 to nearly $12.90. However, that momentum has since waned, and the stock now hovers around $4.40, a staggering 60% decline from its June zenith.
The sharp downturn in Metaplanet’s share price illustrates the risks associated with aggressive share issuance, where the transition from being accretive to extractive can occur rapidly. Matthew Sigel, head of digital assets at VanEck, cautioned in June that when trading at net asset value, shareholder dilution can undermine the strategic advantages of raising capital through stock.
As these developments unfold, investors are increasingly faced with difficult choices in navigating the turbulent waters of the Bitcoin and digital asset treasury markets.
