Bitcoin treasury companies. Which turn corporate deposits into . Have caught the attention of investors. Regulators. And crypto fans all over the world. But a recent research from a venture capital (VC) firm says that only a tiny number of these companies will be able to survive what experts are calling a “death spiral.” The warning isn’t just a guess; it’s a well-thought-out look at the hazards that come with mixing unstable digital assets with a company’s financial plan.
Corporate Shift: Bitcoin as Treasury
Under Michael Saylor’s leadership. MicroStrategy, which is now called Strategy. Started the trend of turning fiat treasuries into Bitcoin. In 2020, Saylor changed MicroStrategy from a company that made tools for business analytics to one that focused on Bitcoin. He borrowed money and sold stocks to buy BTC. Saying that this was a way to protect against inflation and the devaluation of fiat currency. His ideas about Bitcoin’s limited supply and uneven upside spread like wildfire.
After this. Businesses in many fields started to follow the same rules. Metaplanet switched to managing Bitcoin-focused treasuries in Japan. In the US, ProCap Financial was formed from a $1 billion SPAC merger led by Anthony Pompliano and supported by big trading businesses including Jane Street. Susquehanna, and Pantera Capital. Semler Scientific, GameStop, and KULR Technology are all publicly traded corporations that have bought Bitcoin as part of their new asset allocation strategy. The trend shows that more people are interested in digital assets as alternative stores of wealth and as ways to increase the value of stories. These changes to the treasury are part of a bigger trend in business away from traditional cash management and towards the use of crypto assets.
Risks of Bitcoin-Focused Treasury Strategies
Even while these techniques worked at first. The VC study shows that they have a lot of serious downsides. When Bitcoin prices drop a lot. The market capitalisation of these companies that focus on treasury can drop a lot more than the prices of other companies. A quick decrease in the market can lower the premium on many of these companies because they trade at a higher price than their net asset value (NAV). If share prices get close to or below NAV. These companies can’t sell equity to obtain new funding. Which is one of the main ways they buy additional Bitcoin.
If the corporation has leverage. Like convertible bonds or loans backed by BTC. Things get worse. In a market that is going down. They can get margin calls and have to sell Bitcoin at a loss. These sales can make the price of Bitcoin go down even more. Which creates a feedback cycle known as the “death spiral.” This situation is not just a guess. In the past, companies like MicroStrategy have seen their stock values drop by as much as 30% amid 20% Bitcoin corrections. Smaller companies lost even more.
Challenges of Auditing Bitcoin Treasuries
Auditing is another big problem for Bitcoin treasury companies. Blockchain assets don’t work well with traditional accounting systems. The Financial Times says that auditors have a hard time checking crypto holdings for sure. To verify crypto reserves. You need to prove that you control the wallet. How you store it. And how you move it. This is different from currency reserves in bank accounts. Audits are typically unclear or rely on restricted attestations because there aren’t conventional ways to prove wallet control.
This problem with transparency gets worse when businesses don’t make their wallet addresses or cold storage plans public. Investors have to believe what management says. and regulators don’t have many ways to make sure it’s true. These problems make it more likely that rehypothecation risks, double-counted reserves, or even blatant fraud will happen, especially in smaller companies that don’t have good governance.
Risks of Share Issuance in Bitcoin Treasuries
VanEck. A top asset manager. Said in its report that Bitcoin treasury businesses are at risk of losing money even when the market is going up. Companies might issue new shares to buy more BTC when the price of Bitcoin goes up. But if those shares are sold at a discount or too many of them are sold. The value of Bitcoin holdings per share can stay the same or go down.
Also. During weak markets. These companies often trade below NAV. Which makes it hard to issue additional shares. Issuing stock in these situations not only hurts current owners. Out it also gives new investors value at the expense of early investors. This discrepancy might hurt shareholders’ trust and confidence in the long run.
Survival of Bitcoin Treasury Firms
The VC research says that just a few Bitcoin treasury firms will be able to stay in business for a long time. Those that survive will be those who are financially responsible, open about their finances, and don’t give in to the temptation to take on too much debt. Companies that have a variety of sources of income, strict audit requirements, and clear communication with investors are best able to handle changes in the market.
Companies like Strategy (previously MicroStrategy) and ProCap Financial may be better prepared since they have more experience. More money. And better plans. However. In the next market downturn. Newer or less well-capitalized companies that aren’t very flexible could go out of business. Be forced to sell. Or be forced to go out of business.
Potential Impact of Bitcoin Treasury Failures
If a lot of Bitcoin treasury companies go out of business because they can’t pay their bills. It might have an effect on the whole crypto market. Forced sales of Bitcoin. Worries of contagion. And tighter credit could all lead to a bigger fall. The SEC, FASB, and IASB are all being pushed to come up with new rules for reporting. Auditing. And disclosing information about crypto assets to investors.
In the long run. Regulation may actually improve the industry by making things clearer. Making sure that audits are done in a consistent way. And stopping bad actors from cheating the system. Institutional investors are interested in Bitcoin, but they are being careful because there aren’t clear accounting regulations and they think Bitcoin-focused business models are unstable.
Final thoughts
Bitcoin treasury businesses have started a brave new chapter in corporate finance by combining traditional treasury administration with digital assets that are not controlled by a central authority. But you shouldn’t dismiss the VC report’s warning about the “death spiral.” Only companies with good governance, effective capital plans, and compliance with the law will survive as the novelty wears off and the economy settles down. The rest may find themselves in a trap of their own making: too much exposure, not enough audits, and unable to escape the weight of volatility.
