Bitcoin Treasuries: Fueling the Next Bull Run — or the Next Blowup?

Some are calling them infinite money machines that will push Bitcoin to new all time highs. Others say they are the neck sticking time bomb in crypto. We are talking about Bitcoin treasury companies, firms that are accumulating Bitcoin on their balance sheets. Michael Saylor pioneered this strategy. Now others are copying the playbook. Some of these companies are registering eye popping gains outperforming Bitcoin itself. But what if there is an invisible risk hidden in this model?

You know when we're kind of looking back and saying why is there a bear market? Why did the cycle end? It will probably be tied to these treasury companies in some way.

In this video we'll explore the secret behind the meteoric rise of Bitcoin treasury companies, how they are affecting Bitcoin's price and whether it could all come crashing down. Before we start, just a quick disclaimer. This video is not financial advice, it's what? Educational purposes only. I'm Giovanni. Let's dive in. Microstrategy, recently renamed Strategy, started accumulating Bitcoin as a Treasury asset five years ago. It was a risky bet, but one that turned out to be wildly successful. Today's Strategy holds over 590,000 BTC worth more than $60 billion. Its stock has outperformed Bitcoin, making it one of the top performing companies in the world. A turning point came with Donald Trump's reelection last year which brought unprecedented political support for Crypto. Since then, there's been a sharp uptick in companies adding Bitcoin to their balance sheets. Today, around 130 publicly traded companies have added Bitcoin to their Treasuries. And that number keeps growing. Many of these companies are following a version of Michael Saylor's previous playbook. Raise capital, use the proceeds to buy Bitcoin. Bitcoin goes up, the company's stock goes up. Raise more capital to buy more Bitcoin and repeat. But how do these companies raise money? Well, there are two main ways. First, by issuing shares. That means selling a portion of the company to investors in exchange for cash, which they then use to buy Bitcoin. Second, by issuing convertible bonds. These are long term loans that can either be paid back in cash or converted into company stock later, depending on how the stock performs. For example, imagine A company borrows $1 million by issuing a convertible bond. If the company's stock performs well, the lender might choose to convert that bond into shares, essentially getting equity in a now more valuable company. But if the stock underperforms, the company simply pays back the loan in cash, like a traditional bond. Now, normally issuing more shares should hurt shareholders. It's called dilution, meaning each share represents a smaller piece of the company. But with bitcoin treasury companies, it's different. What really matters here is the bitcoin per share ratio, the amount of bitcoin backing each share. If that number rises, shareholders actually gain exposure to more bitcoin despite the dilution.

If you own 10% of Coca Cola and you're Warren Buffett and Coca Cola doubles its shares outstanding, you don't like it, you want less of the business. Yeah, but for microstrategy shareholders or Meta Planet shareholders, you want more Bitcoin. Right. So when, when there's a dilution event and then the proceeds are recycled back into the vtc, you own more BTC per share.

So why are these companies, stocks, so attractive to investors? Well, because they trade like leveraged Bitcoin plays. That means their stock prices tend to move even more than Bitcoin's price. And that's because these companies don't just hold bitcoin. They borrow money or issue shares to buy even more of it. By the way, if you're enjoying the video so far, give it a like and subscribe to our channel for more similar content. Think about it. A company that doesn't need to sell a product, just issue more shares or debt, buy Bitcoin and watch its stock price rise. This type of financial engineering has been called infinite money glitch. Some say this is too good to be true. Someone even compared strategy to the infamous Terra Luna scheme. But that comparison is misleading. Terra Luna was a circular system with no real asset underneath. When confidence collapsed, the whole thing imploded overnight. Bitcoin treasury companies, by contrast, hold actual Bitcoin, a decentralized, scarce asset with real market value.

This type of thing has been going on in currency markets for a long time. You know, a carry trade where people will borrow one currency that they perceive as weak and they'll use it to get another currency that is either higher yielding or likely to appreciate relative to the currency that they're borrowing. So much like you would borrow an emerging market currency and try to buy dollars. There are entities that are arbitraging this by borrowing dollars and using it to buy a much harder asset in Bitcoin.

Still, this model isn't without risk. These companies fund their bitcoin purchases by borrowing money, meaning they are using leverage. And that in itself means risk. This playbook works beautifully when Bitcoin is going up and market sentiment is strong. As we've seen in recent months. But what happens when the next bear market hits? Except strategy. Most of its copycats haven't weathered a full crypto winter. If Bitcoin crashes, they could end up underwater, which means they could be forced to sell their Bitcoin to cover their debts. And that could have unpredictable effects on the market.

Bitcoin has done minus 70 and minus 80% before, and it can do it again. If your business model can't handle a negative 80% Bitcoin drawdown, rework your business model right now.

Analysts at Standard Chartered have warned that most of these newer companies bought Bitcoin at much higher prices than strategy. If bitcoin falls below $9,000, nearly half of them could be underwater. They say even a 22% drop from their average purchase price might trigger forced selling. But other experts say the panic is overblown. They point out that most of these companies issue debt at very low interest rates, and much of it isn't due for another two to three years. That should give them time to ride out short term volatility without having to dump their Bitcoin. But there is another concern. Most bitcoin treasury companies trade at a premium, meaning their stock is valued higher than the Bitcoin they actually hold or their net asset value. For instance, a company could hold $100 million in Bitcoin while having $150 million in market cap. That means that investors are effectively paying 1.$5 for every dollar of BTC. Why is that? Well, because the market is pricing in the company's future Bitcoin purchases, growth potential and the convenience of gaining bitcoin exposure through traditional stock markets.

So the value of microstrategy is not the Bitcoin that is held on its balance sheet. We're paying him a premium because he has liquidity. He has a company with a strong balance sheet. He can develop new financial instruments that no one thought about. So you're paying a premium because you expect him to continue doing so.

Now, many analysts agree that these valuation premiums aren't sustainable in the long term, especially in a bear market when the sentiment is low. As more companies enter the space and competition ramps up, those premiums are likely to shrink even further. And that's where a new risk emerges. To keep their stock prices elevated, some companies might take on more aggressive strategies. For example, they could use their own shares as collateral to borrow money.

They're going to bring on leverage. They're going to potentially do risky deals in order to beat the competition and maintain that Premium shares in these companies that, like certain trading desks, for instance, could see that as a safe form of collateral to lend against.

We've seen how this can go wrong. Back in 2022, the Grayscale Bitcoin Trust, a popular bitcoin proxy, flipped from trading at a premium to a discount. Several crypto firms, including BlockFi and Three Arrows Capital, had used GBTC shares as collateral to borrow money. And when the discount widened, lenders issued margin calls. Those firms could admit them. Their positions were liquidated, and one by one, they collapsed. The shockwaves rippled through the entire crypto market.

It doesn't take a lot of companies to do this. It only takes really one or two that want to find that edge. And if it's the wrong one or two companies, I have concerns that it could just permeate and infect the rest of the crypto ecosystem.

So should we panic? The answer is no, at least for now. At the moment, there is no evidence that Bitcoin treasury companies are engaging in such dangerous practices. It remains a hypothetical risk, but one worth keeping an eye on.

You know, when we're kind of looking back and saying, why is there a bear market? Why did this cycle end? It will probably be tied to these treasury companies in some ways. Which is not to say that the treasury companies shouldn't be doing what they're doing. It's just that there's going to be some later or less savvy entities that do it improperly and the leverage comes.

Back to hit them.

Overall, the rise of Bitcoin treasury companies has so far been undeniably bullish. They have unlocked access to massive pools of capital that can't gain direct exposure to Bitcoin. And their steady accumulation has, has added strong long term buying pressure at a scale retail investors simply can't match. As a result, Standard Chartered predicts bitcoin could reach $250,000 by the end of 2025 and half a million dollars by 2028. That said, a deeper, more philosophical concern remains. Right now, over 3% of the total Bitcoin supply is held by public companies. And that number is growing fast. According to Swan, Bitcoin cio. As much as one third of all Bitcoin could eventually be owned by corporations. To many, that trend contradicts Bitcoin's original ethos as a decentralized and democratizing financial system.

These are the rich people trying to corner the market to get richer. It's almost like an inverse sort of short squeeze on people that haven't bought bitcoin yet that perhaps they're not able to get. They're not able to get it yet because they don't have to. Technology, they don't have access. It's a big part of the world.

So that raises the question, is bitcoin losing its original purpose and slowly turning into the reserve asset of the corporate elite? Few weeks ago we asked that very question to Jack Mallers, CEO of 21among the leading Bitcoin treasury companies. Here's what he had to say.

I don't think bitcoin disrupts corporations. I think society will be filled with businesses that sell you a service that you value and you're willing to pay for. And so it's a truly free market. You don't have to buy my stock or use my products if you don't want to. But if you find them valuable, you're.

More than welcome to lucky it or not.

That's how capitalism works. Bitcoin treasury companies are inevitably reshaping the very identity of Bitcoin from a decentralized currency for the people to an institutional reserve asset. Their steady accumulation is creating a strong non speculative demand base, a clear positive for Bitcoin's price and its legitimacy. But as more companies follow the same playbook, the systemic risks could grow too. That's it for today's video. What do you think? Are Bitcoin treasury companies a net good for the bitcoin space? Let us know in the comments if you found this insightful. Don't forget to like, share and subscribe. I'm Giovanni. See you next time. Sam.