Bitcoin treasury companies are reaching a significant milestone, with 184 firms now holding over 1 million Bitcoin, which accounts for nearly 5% of the total supply of the cryptocurrency. This development comes amid growing concerns about the sustainability of these treasury firms, particularly as some show signs of financial strain.
Recent reports indicate a troubling trend: various digital asset companies are witnessing their stock prices diverging from their underlying crypto values. As market analysts like Dom Kwok, a former Goldman Sachs analyst, observe, this disconnect is prompting investors to reevaluate the value of their investments. Kwok warns of potential downward price pressure on treasury company stocks, a sentiment echoed by André Dragosch, European head of research at Bitwise, who suggests there may still be more downside risk in the short term.
Despite the increasing number of firms adopting a Bitcoin treasury strategy—22 new companies in just the past 30 days—some are struggling under the weight of their investments. Notable players like Strategy and Nakamoto Holdings have seen their stock prices drop significant percentages, with declines of 12%, 50%, and nearly 27% during the last month, even as Bitcoin reached an all-time high of over $124,000.
Compounding these issues, approximately one in three of the 172 publicly listed Bitcoin treasury companies are trading below their market net asset value (mNAV), meaning their stocks are worth less than the Bitcoin they hold. This situation is problematic as the success of the Bitcoin treasury model relies on maintaining a stock price premium over the underlying cryptocurrency. Such a premium enables companies to issue new shares, acquire more Bitcoin, and create a cycle of growth. Conversely, failing to do so places firms in a precarious position—either face delisting or dilute shareholders significantly.
A striking case is Sequans Communications, a Paris-based chip maker that transitioned into a Bitcoin treasury firm. It recently announced a consolidation of shares, reversing every 10 shares into one to fend off NYSE delisting threats. With shares trading at just $0.85, down 75% for the year, this marks the first time a Bitcoin treasury has had to resort to such measures.
Companies may opt for reverse splits when their stock price plummets to penny-stock territory to avoid exchange delisting, consolidating shares to elevate prices. For Sequans, the 10-to-one conversion will reduce a shareholder’s number of shares while maintaining overall value, effectively boosting the per-share price.
Kwok expresses skepticism about the long-term viability of many treasury companies, suggesting that demand for Bitcoin treasuries will diminish as investors find it easier to gain exposure to Bitcoin through various other platforms. The burgeoning market for U.S. spot Bitcoin exchange-traded funds (ETFs), which currently manage $142 billion in Bitcoin for clients, coupled with offerings from mainstream fintech firms and traditional banks, presents ample alternatives for investors.
On a more optimistic note, Dragosch considers the current challenges as temporary, influenced more by broader macroeconomic conditions than inherent company-specific issues. He highlights that external factors like seasonal influences and shifts in global growth expectations are impacting Bitcoin’s market performance. Dragosch remains hopeful that if the Federal Reserve lowers interest rates, it could inject liquidity back into the market, subsequently fostering a more favorable environment for Bitcoin treasuries.
Overall, while the Bitcoin treasury landscape is marked by significant achievements and growing participation, substantial risks and challenges loom on the horizon, prompting a careful reevaluation of these firms’ business models and future prospects.
