New Systemic Risks from Bitcoin Treasury Companies?

[BALIK]

In recent years, many public company have started holding Bitcoin in their treasuries. But in addition to just buying BTC with extra cash, many company are issuing new share, selling convertible bonds and even borrowing to accumulate more Bitcoin.

So, number and size of corporate Bitcoin treasuries is growing rapidly. If these companies are financially stressed in long term bear market, will they be forced to sell Bitcoin?

And if multiple company start selling same time, could additional volatility be created in market?

TL;DR:
Company raises capital—►Buys Bitcoin—►Bitcoin price falls—►Stock price declines ┐
                                                                                                                         ▼
                            Possible BTC sales◄—Debt/refinancing pressure◄—Financing becomes harder


I'm not saying that market will crash if one or two companies sell BTC.
I know some companies sale can easily be absorbed by entire market nowadays.

But you know, all treasury company have not follow same business model. Some just hold Bitcoin as reserve asset, while others repeatedly raise capital through share or debt to buy BTC. If their share fall below their Net Asset Value, it become very difficult to raise new capital. Then the company will either have to stop buying BTC or issue new share at the expense of existing shareholder.

So, which treasury company could survive a 2-3 year severe bear market without selling a single BTC, hmm?

[Aanuoluwatofunmi]

But in addition to just buying BTC with extra cash, many company are issuing new share, selling convertible bonds and even borrowing to accumulate more Bitcoin.

In as much as I will always be in support of Bitcoin investment for both individual and cooperate bodies, I will not encourage for borrowing to invest in Bitcoin, which is the exception from this development they are bringing in place, we can sell our shares and bonds assets for bitcoin investment, this is not a bad idea because we are going to be profitable more with bitcoin than all this traditional institutional investments.

[tbct_mt2]

And if multiple company start selling same time, could additional volatility be created in market?

TL;DR:
Company raises capital—►Buys Bitcoin—►Bitcoin price falls—►Stock price declines ┐
                                                                                                                         ▼
                            Possible BTC sales◄—Debt/refinancing pressure◄—Financing becomes harder

So, which treasury company could survive a 2-3 year severe bear market without selling a single BTC, hmm?

They, Bitcoin Spot ETF or Bitcoin treasury companies, buy and sell bitcoins not only for themselves but mostly for their customers. Customers of those companies don't want to buy, store and sell bitcoin by themselves, so they rely on Bitcoin Spot ETF companies for these activities. They buy Bitcoin Spot ETF shares which have equivalent value of bitcoin but surely those people will have demand of selling their coins in both bull market and bear market.

It is not a new prediction, it's two years ago.
Cathie Wood predicts only 3 spot bitcoin ETFs will survive.

If you don't watch, you can find articles about that prediction.

[Iranus]

If a company relie solely on leverage or debt then prolonged bear market could certainly cause stress for them, yes. Repeated share issuances are also a concern for them.

But I do not think it will cause entire Bitcoin market to collapse. You know, Bitcoin's liquidity and institutional participation are much higher than they've ever been. So even if there is big sell off market will be able to handle it. And not everyone will sell at once, right?

So imo, actual risk here is not Bitcoin's, but rather Treasury companies with weak business model. Those with strong balance sheet, low debt and longterm plans are less likely to be forced to sell.

[Dr.Bitcoin_Strange]

So, number and size of corporate Bitcoin treasuries is growing rapidly. If these companies are financially stressed in long term bear market, will they be forced to sell Bitcoin?

And if multiple company start selling same time, could additional volatility be created in market?

Some of them will be forced to sell while some are going to hold through the bear stress period. These companies are operated in its individuals strategy depending on the category they fall into. There are about three different categories that treasury companies holding Bitcoin can fall into, it includes: (1) companies rich in cash, (2) companies that borrowed to buy their Bitcoin, (3) companies that bought Bitcoin through investors fund, e.g Micro Strategy, now known as Strategy.

From those categories, the companies that is mostly vulnerable to sell during a prolonged bear market is number 2, because they are in debts, so they need to sell to raise money that can be used to service their loans, pay their employees, and avoid liquidation that could lead to bankruptcy.

So, what you must know is that it's not all or it's not even many companies that will be forced to sell, it actually depends if they have a cash reserve too and the amount of debt they are owning, for the few companies that would sell their Bitcoin, it's also an opportunity for most companies to buy, those companies that are rich in cash reserve would cease the opportunity to even buy more Bitcoin instead of selling.

So, which treasury company could survive a 2-3 year severe bear market without selling a single BTC, hmm?

Tesla, Coinbase Global and Block Inc., etc, I think they can survive it if they don't want to sale, the reason is because they have sizable cash reserve and profitable businesses.

However, LMAX is not even a Bitcoin treasure company, the company is successful in their service, so the decision of wanting to sale the company is best known to the team.

[Lucius]

~snip~
It is not a new prediction, it's two years ago.
Cathie Wood predicts only 3 spot bitcoin ETFs will survive.

The same woman who throws around numbers about how many million $ 1 BTC will be worth in 2030? I don't consider her and others like her too credible to talk about these things at all, because it's really just speculation and nothing more. If on the one hand he claims that 1 BTC will be worth $1.5 or $1.2 million by 2030, then it is not logical that only three ETFs will survive, but that there will be even more.

[EluguHcman]

In recent years, many public company have started holding Bitcoin in their treasuries. But in addition to just buying BTC with extra cash, many company are issuing new share, selling convertible bonds and even borrowing to accumulate more Bitcoin.

So, number and size of corporate Bitcoin treasuries is growing rapidly. If these companies are financially stressed in long term bear market, will they be forced to sell Bitcoin?

Financially stressed? This is the main reason why we must also prepare ahead for necessary expenditures in the future while investing on Bitcoin because long term holding will always be considered as the key to be profitable.

It is subjected that the cooperative investment companies are buying Bitcoins basically with their convertible bonds which means Bitcoin is found more valuable to diversify the bonds but if they tends to predetermine the market performance with the collation of the bond, then it could turn a disaster because, Bitcoin does not correlate with any bond.
Definitely misconceptions like this will always force them to sell if they are press.

Borrowing to invest on Bitcoin with expectations to sell quickly and take profit is lost trap because Bitcoin price is unpredictable while long term holding always remains its key to success.

[tbct_mt2]

The same woman who throws around numbers about how many million $ 1 BTC will be worth in 2030? I don't consider her and others like her too credible to talk about these things at all, because it's really just speculation and nothing more. If on the one hand he claims that 1 BTC will be worth $1.5 or $1.2 million by 2030, then it is not logical that only three ETFs will survive, but that there will be even more.

I knew what she said in the past but I don't let it make my prejudice about everything Cathie Wood said.

About her opinion that some or many Bitcoin Spot ETFs will die, not be able to survive after some years, it's true as business is competitive and if there are weak Bitcoin Spot ETFs, they simply have to close their services when operations are not profitable. People will choose biggest Bitcoin Spot ETFs with very likely best offers, service fees and also feeling of most safety and security to use.

[Satofan44]

So, which treasury company could survive a 2-3 year severe bear market without selling a single BTC, hmm?

You're raising an unnecessary question because it starts from false assumption. Why would any company need to survive a whole bear market without selling a single BTC? There is absolutely no reason for this to happen that way. A treasury company that has the correct strategy meaning that it is adaptable to changing market conditions and needs can sell parts of its holdings to meet obligations, for liquidity, for managing leverage and other reasons. This is not any different from companies that sell other assets from their balance sheets when it makes financial sense. The question is false, because the question you need to be asking is: Is the company forced to sell during a bear market? It may sound similar on the surface, but it is entirely different and has different implications.

That said, I do acknowledge the risk where any kind of leverage is involved and I am generally against the use of leverage by retail as well. There have been companies that financed their purchases with a lot of debt or that depend on continuously issuing shares like Strategy does to a big part, and this kind of model leaves them exposed for prolonged bear markets. What we really need is companies that hold Bitcoin primarily as a treasury reserved which is funded by excess cash, not companies whose entire business model depends on raising capital to get more BTC. The former can ride out very long downturns without any pressure, the latter is very vulnerable.

~snip~
It is not a new prediction, it's two years ago.
Cathie Wood predicts only 3 spot bitcoin ETFs will survive.

The same woman who throws around numbers about how many million $ 1 BTC will be worth in 2030? I don't consider her and others like her too credible to talk about these things at all, because it's really just speculation and nothing more. If on the one hand he claims that 1 BTC will be worth $1.5 or $1.2 million by 2030, then it is not logical that only three ETFs will survive, but that there will be even more.

She's been wrong much more often than she has been right, so I have no idea why this user would quote her. She should be ignored.

[marrcelo]

I believe the company's financial manager and their team wouldn't be irresponsible to buy Bitcoin without researching its price history in the 4 year cycle, that price volatility still happens among other risks. If the company buys Bitcoin it's a part of the net profit for the long term. If the company's financial manager buys Bitcoin only thinking about long term profit and now the company is selling to pay debt. This isn't Bitcoin's fault, it's the company's bad management.

[BALIK]

So, what you must know is that it's not all or it's not even many companies that will be forced to sell, it actually depends if they have a cash reserve too and the amount of debt they are owning, for the few companies that would sell their Bitcoin, it's also an opportunity for most companies to buy, those companies that are rich in cash reserve would cease the opportunity to even buy more Bitcoin instead of selling. 

I agree with your point. The concern is how many company could lose access to capital market at same time. If mNAV stays below 1 for long time then it will become difficult for not only debt-funded company but also equity funded companies to continue BTC accumulation by issuing new share. Then either dilution will increase or accumulation will stop and in extreme case some company may even be forced to sell BTC.

Tesla, Coinbase Global and Block Inc., etc, I think they can survive it if they don't want to sale, the reason is because they have sizable cash reserve and profitable businesses.

hmm, their core business is profitable and Bitcoin is not their only business model. I am more worried about those new treasury company whose entire story is based on repeatedly raising capital and buying more BTC. You know, such flywheel works great in bull market but in bear market it can turn other way.

In future, most important metric may be which company can survive 2/3 year bear market without selling their BTC. That may ultimately be the real stress test of any Bitcoin treasury strategy.

[Hazink]

I believe the company's financial manager and their team wouldn't be irresponsible to buy Bitcoin without researching its price history in the 4 year cycle, that price volatility still happens among other risks. If the company buys Bitcoin it's a part of the net profit for the long term. If the company's financial manager buys Bitcoin only thinking about long term profit and now the company is selling to pay debt. This isn't Bitcoin's fault, it's the company's bad management.

Researching price history is not the only thing here they are be aware of how the market moves, which is not predicteable but that you won't be able to solve the problem, especially when a company has used sweet talk to take loans and sell shares to acquire those bitcoins. If the value is not keeping up and those debts need to be serviced they won't have any other option than to make some sales which the blame for whatever loses will be on them, not bitcoin. But if a company acquires bitcoin in the right manner, both bear and bull market, they might not be pushed to sell just as some of them can hold other assets for years without tampering with it.

[Ayers]

I believe the company's financial manager and their team wouldn't be irresponsible to buy Bitcoin without researching its price history in the 4 year cycle, that price volatility still happens among other risks. If the company buys Bitcoin it's a part of the net profit for the long term. If the company's financial manager buys Bitcoin only thinking about long term profit and now the company is selling to pay debt. This isn't Bitcoin's fault, it's the company's bad management.

Researching price history is not the only thing here they are be aware of how the market moves, which is not predicteable but that you won't be able to solve the problem, especially when a company has used sweet talk to take loans and sell shares to acquire those bitcoins. If the value is not keeping up and those debts need to be serviced they won't have any other option than to make some sales which the blame for whatever loses will be on them, not bitcoin. But if a company acquires bitcoin in the right manner, both bear and bull market, they might not be pushed to sell just as some of them can hold other assets for years without tampering with it.

That's right, no company can stop Bitcoin's volatility. But whether it will be a forced seller or not, it will completely depend on their capital structure. The point here is how the company actually buys Bitcoin. Accumulating slowly with excess cash will create a kind of risk. And aggressively buying BTC by issuing debt, convertible notes or new share will create a completely different type of risk.

We are already seeing some Bitcoin treasury company doing debt refinancing, increasing maturities and even selling some BTC to tighten their balance sheet to cope with volatility/bear market situation.

Look at this,
In the midst of recent Bitcoin market volatility, Nakamoto paid off about $45 million in debt by selling about 600 BTC.
At the same time refinancing the loan to extend its maturity to 2027, reducing leverage, lowering financing costs and strengthening balance sheet.
Many may think that they easily could copy/paste same model after seeing the success of MicroStrategy. But now they are struggling on field

And before anyone jump to conclusion,,  I'm not talking about Satoshi Nakamoto. I'm talking about the public company Nakamoto Holdings Inc.