- Bitcoin treasury companies now hold more than 5% of all Bitcoin.
- More than 184 firms have Bitcoin on their balance sheets.
- Some treasuries are showing cracks.
Bitcoin treasury companies just crossed a monumental milestone — 184 firms now hold over 1 million Bitcoin, nearly 5% of all the coins that will ever exist.
But the champagne is going flat as the first treasury company devalued its stocks to avoid delisting from the New York Stock Exchange — and market watchers warn it may be just the beginning.
“We’re starting to see digital asset company stock prices diverge from the underlying crypto prices, which is making investors question whether they are a worthwhile investment,” Dom Kwok, former Goldman Sachs analyst, told DL News.
He added: “We’ll continue to see downward price pressure for treasury company stock prices.”
And Kwok’s not alone in noting the bearishness.
“There might still be some downside potential left in the short term,” André Dragosch, European head of research at Bitwise, told DL News.
One in three
Their trepidation comes as the crypto treasury hype is losing steam.
Over 200 public companies have accumulated Bitcoin, hoping to replicate the success of Michael Saylor’s Strategy.
Strategy’s stock has surged about twentyfold since the software company pivoted to focus on buying Bitcoin in 2020.
But while the amount of new firms buying Bitcoin for their balance sheets continues to balloon — in the past 30 days, 22 new firms have begun a Bitcoin treasury strategy, according to BitcoinTreasuries.net — some are starting to struggle.
Despite Bitcoin hitting a new all-time high above $124,000 in August, heavy hitters like Strategy, Nakamoto Holdings, Jack Mallers’ Twenty One Capital are down 12%, 50% and nearly 27% over the past 30 days.
Making it worse, one in three of the 172 publicly listed Bitcoin treasury companies are trading below a market net asset value, or mNAV, according to Capriole Investments. That means their stock is worth less than the Bitcoin they hold.
That’s a problem. The Bitcoin treasury playbook depends on shares trading at a premium to the underlying Bitcoin. The premium allows companies to issue new stock, buy more Bitcoin, and repeat.
When it works, it’s a perpetual money printer. When it doesn’t, companies face a stark choice: get delisted or dilute shareholders into oblivion.
That’s the choice Sequans Communications, a Paris chip maker turned Bitcoin treasury firm, faced when it announced on Thursday that it’s consolidating every 10 shares into one to avoid getting kicked off the NYSE.
That’s the first time a Bitcoin treasury has made such a defensive action due to poor stock performance.
Shares for Sequans trade at $0.85, down 75% year-to-date.
Reverse split
Companies can pull so-called reverse splits when their stock price gets so low that exchanges threaten to delist them, especially because most exchanges require stocks to trade above $1.
When a company’s shares sink to penny-stock territory, they can do a reverse split to consolidate shares to boost the price.
For Sequans, the 10-to-one consolidation means shareholders who owned 1,000 shares will wake up September 17 with just 100.
The total value stays the same, but the per-share price jumps tenfold.
Not here for long
Kwok reckons most treasury companies’ days are numbered.
“While there’s been a big rise in the popularity of treasury companies, I personally believe these aren’t here to stay long-term,” he told DL News.
He argued that demand for Bitcoin treasuries will plummet because of the ongoing divergence between stock prices and underlying crypto holdings, and due to the ease of access for Bitcoin exposure that exists on the market.
US spot Bitcoin exchange-traded funds now hold $142 billion in Bitcoin on behalf of clients, and while mainstream fintech apps like Robinhood and eToro are now offering cryptocurrencies for their clients.
Even banking behemoths like Charles Schwab and Morgan Stanley are considering offering their clients crypto-trading services.
Kwok predicted that Sequans’ reverse split won’t be the last.
‘Seasonal factors’
To be sure, there’s still bullishness.
Dragosch argued that the current malaise as temporary rather than terminal, and stemmed from macro conditions, not company-level problems.
“The mNAV is heavily influenced by changes in BTC future performance expectations which have been under pressure due to seasonal factors but also a marginal decline in global growth expectations and risk appetite,” Dragosch told DL News.
He noted that if the Federal Reserve cuts interest rates, then that will unleash new liquidity into the market, which will create “a benign market environment for Bitcoin treasuries again.”
“I still remain very bullish over the medium- to long term,” he said.
Pedro Solimano is DL News’ Buenos Aires-based markets correspondent. Got at a tip? Email him atpsolimano@dlnews.com.