tl;dr
A growing number of publicly traded companies, including distillers, cannabis producers, and energy storage firms, are increasing their Bitcoin holdings, following MicroStrategy's successful strategy of building Bitcoin treasuries funded by debt and equity issuance. While this approach has driven sh...
Public companies are increasingly loading their balance sheets with Bitcoin, adopting strategies pioneered by Strategy (formerly MicroStrategy), which uses convertible bonds and equity issuance to fund Bitcoin acquisitions. This approach has inspired many others, leading to significant growth in the number of public firms holding Bitcoin, with Strategy maintaining the largest share by far.
However, experts warn of considerable risks associated with this trend. If Bitcoin prices fall or liquidity tightens, these companies could face forced selling at a discount or collapse. Financing methods such as convertible bonds and bank loans, while effective in bullish markets, may increase vulnerability during downturns, especially if covenants in bank debt trigger forced liquidations. Despite these risks, immediate forced selling is not considered imminent, as refinancing options could help leveraged firms avoid liquidation.
Many Bitcoin treasury companies focus on growing Bitcoin per share rather than traditional business metrics, creating unique dynamics among shareholders. While metrics like market cap to Bitcoin holdings (mNAV) are popular tools for valuation, they have notable limitations due to structural and capital differences across firms.
Companies trading above their Bitcoin holdings’ value find it easier to raise capital, fueling growth, whereas those trading at a discount may struggle with fundraising and operations, particularly during bear markets. For smaller firms, strength in their underlying operating businesses is critical to surviving downturns. Some firms acquire Bitcoin primarily to preserve purchasing power rather than replicate Strategy’s aggressive growth model.
Strategy’s success is closely tied to capital market arbitrage arising from stock price volatility, which enables it to increase Bitcoin per share through instruments like convertible bonds. As a consequence, investors may begin to differentiate Bitcoin treasury firms into “growth” plays that rapidly increase Bitcoin holdings and “value” plays with steadier profiles. Smaller companies may become acquisition targets as the market matures.
This wave of Bitcoin treasury firms represents a broader shift away from traditional financial systems toward what many perceive as a future financial paradigm. Sectors as diverse as distillers, cannabis producers, and energy storage companies are embracing Bitcoin, balancing first-mover advantages against the inherent volatility and credit risks involved. The evolving landscape suggests active market participation and potential consolidation ahead, with companies and investors alike navigating the complex interplay of opportunity and risk in the emerging Bitcoin treasury ecosystem.