Bitcoin treasury firms shed $62bn in deepening crypto rout

Bitcoin’s slide this week is adding fresh pressure to one of the most ambitious financial experiments to emerge from the recent crypto boom: publicly traded companies created to accumulate digital assets on behalf of investors.

Shares of dozens of these digital-asset treasury companies have continued to sink alongside the broader market downturn, extending losses that in many cases far exceed those of the cryptocurrencies they were built to own. The combined market value of fully diluted Bitcoin treasury company stocks has fallen to about $72 billion from nearly $134 billion at its most recent peak in early October, according to Artemis data, erasing $62 billion and underscoring how a once-hot crypto trade continues to unravel.

Bitcoin has dropped about 14% this week to trade around four-month lows. The latest retreat, fueled in part by Michael Saylor’s Strategy announcing its first sale of Bitcoin since 2022, hasn’t been disorderly — unlike the crash last October that shook the digital-asset complex.

Still, companies that once promised investors leveraged exposure to a perpetual crypto bull market are increasingly focused on survival, conducting reverse stock splits, issuing preferred securities, restructuring financing arrangements and, in some cases, selling portions of the crypto assets they once pledged to accumulate indefinitely.

“With prices now unwinding, digital-asset treasuries are faced with a stark choice: default on their debt or sell assets,” said Hayden Hughes, managing partner at Tokenize Capital. “The forced selling has shattered the perception that they would monotonically act as permanent ‘buy and hold’ investors.”

‘Financial alchemy’

Digital-asset treasury companies, or DATs, were built on a simple premise: public markets would assign a premium to firms willing to stockpile cryptocurrencies, allowing them to issue stock, buy more tokens and repeat the process.

The model worked spectacularly as prices climbed. It has proved far less durable as crypto prices have retreated and investors have become more selective. The latest decline in Bitcoin has only added to the pressure, with the token losing about half its value since its October peak.

On balance, the trade allowed early backers and sponsors to capitalize on investor enthusiasm at the peak of the digital-asset treasury cycle, while retail investors absorbed much of the pain when valuations began to unravel.

“Digital-asset treasuries and other corporate BTC holdings collectively exceed 5% of supply, which accelerated adoption among Wall Street in a sense — but at the cost of heightened volatility for retail participants chasing the ‘easy’ wrapper,” said Akshat Vaidya, who has overseen investments in several DATs as co-founder and managing partner of Arthur Hayes’s family office, Maelstrom.

David Bailey-led Bitcoin treasury firm Nakamoto announced a 1-for-40 reverse stock split as its shares slumped almost 100% in the past year. Japan’s Metaplanet, the world’s third-largest Bitcoin treasury, has disappointed some investors with the lack of progress surrounding its much-anticipated preferred share offering. The stock is down more than 80% from a year ago.

Twenty One Capital has also undergone ownership changes, with SoftBank Group Inc. selling its entire 26% stake to Tether. The company’s shares are down 84% in the past year. ProCap Financial this week announced the sale of 52 Bitcoin to fund a share repurchase.

Carney Mak, a partner at FXHB Asset Management, said the firm included Strategy in its portfolio around two years ago “as a leveraged expression of our Bitcoin view.”

FXHB booked profit on a majority of their Strategy holdings during the rally, though a small portion is now at a loss, which the fund will sell at an “appropriate opportunity to rotate the remaining capital into higher-conviction ideas,” Mak said.

The latest downturn has only intensified those pressures. Investors have pulled billions of dollars from spot Bitcoin exchange-traded funds, geopolitical tensions have pushed money toward traditional safe havens and many of the DATs that emerged during the boom have fallen far more than Bitcoin itself.

“In hindsight, the more interesting lesson is not whether Bitcoin was the right call, but whether the Bitcoin treasury trade had become too crowded,” FXHB’s Mak said. “By the time a growing number of companies were attempting to replicate the MSTR playbook, much of the scarcity value had arguably already been captured.”

The strains are most visible among smaller companies that copied Strategy’s model without its scale, liquidity or access to capital, pushing them to experiment with ways to keep the model alive. What was marketed as a simple accumulation strategy has evolved into a scramble for capital as stock-price premiums disappear.

Like many financial manias before it, the DAT boom looked most durable near the top. Months after the excitement faded, the unwind continues.

“The market is not fine, and it took the tide going out to see who was swimming naked,” Tokenize Capital’s Hughes said. “Turns out, it was DATs and their equity holders.”

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