Opinion on crypto strategy
Why listed companies are suddenly buying Bitcoin like crazy
Companies are issuing new shares and bonds via stock exchanges to acquire the leading cryptocurrency. Their goal is clear, but the strategy can also have harmful side effects.
Bitcoin has surpassed its previous highs after a temporary correction, yet the «Altcoin Season» has so far failed to materialize. This term refers to the rotation of speculators, who consider Bitcoin already too expensive, into other crypto assets. While this thinking is flawed, it has always been encouraged by crypto investors who secured a portion of these altcoins created out of thin air for themselves in advance.
Originally, the goal was to increase one’s own Bitcoin holdings through skillful trading of these pump and dumps. The strategy eventually shifted toward dollar maximization at the expense of Bitcoin, causing many crypto speculators to miss Bitcoin’s rise and consequently become bitter.
Pioneer Michael Saylor
While the narrative of altcoins as better alternatives to Bitcoin has drowned in the recent meme-coin flood, Bitcoin speculation has migrated into the traditional financial system. Listed companies are issuing new shares and bonds to buy Bitcoin.
The rising Bitcoin price increases company value and facilitates further capital raising, which is then used to buy more Bitcoin. A change in accounting standards (US-GAAP) for digital assets this year, allowing price increases to be recorded as profit, has made this easier.
It sounds like risky «cornering» – debt-financed price manipulation – yet the leading companies implementing such a Bitcoin treasury strategy have indeed outperformed Bitcoin itself with the rapid rise in their stock prices. The first company to increasingly leverage this strategy has already survived a sharp Bitcoin correction: Michael Saylor’s Strategy (MSTR).
Despite all doom predictions and strong short positions against it, the company survived a Bitcoin price crash of almost 85%, even though it proved to be a powerful Bitcoin lever. While Bitcoin’s price has increased eightfold since 2020 when Saylor entered Bitcoin, the MSTR stock is currently 2688% higher.
A niche software provider with declining returns has almost become a blue chip. Today, Strategy is part of the Nasdaq 100, meaning even the Swiss National Bank (SNB) holds shares and thus indirectly owns Bitcoin – despite rejecting the «Bitcoin Initiative,» a popular initiative that proposed both gold and Bitcoin reserves for the SNB.
«Investors seem willing to pay prices for Bitcoin stocks like Strategy that exceed the value of the Bitcoin on their balance sheets.»
It’s no surprise that Strategy has become a role model with more and more companies following suit. There are now 108 listed companies with Bitcoin on their balance sheets, with new ones seemingly joining daily. The focus on pure Bitcoin treasury is also spreading, as seen with Metaplanet in Japan, The Blockchain Group in France, or most recently XXI Capital in the USA.
So far, the strategy has been a recipe for success. Every company that has managed to position itself publicly this way has enjoyed outstanding investor favor, while finance professionals tend to turn up their noses at this daring leveraging of an already highly volatile asset.
But the strategy is more than pure «cornering» or artificial price manipulation. Saylor’s original justification was that his company had $0.5 billion in short-term government bonds. Many companies have large cash positions that they can no longer invest meaningfully in times of declining productivity amid government money flooding.
Bitcoin, with the most favorable Sharpe ratio of all assets, presents itself as an option. At best, this investment allows companies to accumulate returns that aren’t distributed over longer periods. But soon this investment became boring, as the knowledge that adding Bitcoin to a portfolio increases risk-adjusted performance is now spreading even among the largest financial institutions.
Habit favors stocks
Saylor’s second argument was that many investors cannot acquire Bitcoin directly for regulatory reasons. This argument has lost some strength now that several Bitcoin ETFs are accessible. Yet regulatory reservations and thresholds still exist, as even the SNB example above shows.
Even more significant than regulatory barriers can be psychological ones. Far more investors have accounts with stock brokers or can purchase stocks through their banks than have direct and visible access to Bitcoin. While low-threshold offers exist, habit alone makes it more likely for investors to push larger sums into speculative stocks rather than into Bitcoin.
The Bitcoin price, misleadingly quoted as the value for 100 million sats (the actual unit value), reinforces this illusion that it might be too late for Bitcoin but perhaps early enough for Bitcoin stocks. In any case, investors are willing to pay prices for Bitcoin stocks like Strategy that exceed the value of the Bitcoin on their balance sheets.
This may well be rational, as the stock price can anticipate relatively better and more rapid Bitcoin acquisition from a future perspective. Michael Saylor raises debt when money is cheap and equity when the stock is expensive. When purchasing, he doesn’t behave tactically and tends to achieve worse entry prices; he seems to want to drive the Bitcoin price through arbitrary purchases.
In the long term, the few percentage points lost on purchases probably don’t matter to him – it’s about speed. He has now accumulated more than 0.5 million Bitcoin and maintains a clear lead over companies now following suit. The fact that so many are following confirms his strategy.
Danger of zombies
Saylor was never the only buyer, which would constitute «cornering.» At times he was too dominant, posing a certain risk for Bitcoin. But since Bitcoin is an investment asset accessible to all that outperforms most professional portfolios, the broader demand is large enough to absorb a Saylor.
The more Bitcoin treasuries are added, whether from listed and private companies or even from states and sovereign funds, the more resilient this demand becomes. Soon, more zombie companies holding liquidity without productivity growth might recognize the promotional value and investment success of a Bitcoin strategy.
Gradually, the strategy should wear off. The regulatory and psychological barriers to Bitcoin investment are decreasing. This will further drive the Bitcoin price, which in turn strengthens Bitcoin treasuries. Compared to usual leverage, Strategy then no longer seems so daring.
Slightly more than $7 billion in debt with balance sheet assets of $44 billion still allows considerable room for maneuver – which is why Saylor has already announced plans to raise another $42 billion and continues to buy Bitcoin diligently. A large portion of the debt consists of zero-interest convertible bonds.
Inclusion in the S&P 500 is within reach and will automatically pump more money into this Bitcoin vehicle. By then, however, the price-to-Bitcoin ratio should begin to decline again. Should anything cloud the confidence in ever-higher Bitcoin prices, the end result could be forced liquidation by shareholders if the stock falls below the Bitcoin value – during a falling Bitcoin price. Until then, there seems to be much room for upward movement.
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