Bitcoin’s treasury companies are «a bubble»: Capriole Investments

Charles Edwards, founder of the analysis firm Capriole Investments, warns that Bitcoin Treasury companies (BTC) face structural risks that could trigger a collapse of the model. The analyst points out that, although these signatures have driven the price of the asset, growth will not be unlimited and will reach a saturation point, which will burst the «bubble.»

The phenomenon began with Strategy, an American company led by the Bitcoiner Michael Saylor, which transformed its balance to acquire thousands of Bitcoin through debt emissions. Until now, this company accumulates 632,457 bitcoin, being the stock exchange entity with the greatest holdings of this digital asset.

Due to its massive investment, the value of Strategy actions, identified with the MSTR ticket in the US Stock Exchange, has grown accelerated in the last five years, achieved a yield of 2,250% in that period, as seen in the following tradingview graph.

From that success, other companies replicated the formula. Cryptonotics has reported this trend, with companies and entities from different countries and dedicated to various items, opening its own treasury of digital assets. Of course, some did it alone with Bitcoin, others with Ether or other tokens, but with the same logic: emit titles or indebted to buy cryptocurrencies and reinforce the treasury. The cycle is repeated every time the action rises, since the new emissions allow to acquire more digital active.

Obvious risks

For Edwards, the most obvious risk of all these companies that have their digital treasury is overpaid. As you see, Bitcoin retains significant volatility, with historical falls of up to 80% in cycles of three to four years. In that scenario, even if only 5% or 10% of the treasury companies are overempted, the effect can be extended to the entire market, in their opinion.

He argues that, if these companies are forced to liquidate in the midst of a Bitcoin fall in the order of 40% or 50%, The selling pressure on the price of BTC would be amplified and unleashed a domino effect. This process, known as «liquidation waterfall», has already been observed in futures markets.

Another less visible risk is the compression of the market value over reserves, or MNAV. According to Edwards, while the actions of a company are negotiated above the value of its holdings in Bitcoin, the issuance of new titles increases the BTC per action. But if the action falls below that level, The issuance destroys value and discourages capital collection.

Given this situation, some firms may be forced to sell part of their holdings to repurchase actions with discount, in search of restoring the MNAV. However, the strategy would erode the treasury and would affect the confidence of investors, which would aggravate the bearish pressure on the cryptocurrency market.

Edwards points out that recently, the percentage of Bitcoin treasury companies with a MNAV less than 1 reached a new 27%historical maximum, as seen in the following graph. «A worrying tendency to monitor,» he says.

The influencer Manuel Terrones Godoy, known as Kmanus, agrees to point out that there is a bubble in training, promoted by companies that have even modified their corporate name to dedicate themselves to accumulating Bitcoin and cryptocurrencies as its main business model. He recalled that firms with low capitalization have relaunched themselves as digital treasury entities, issuing actions to buy cryptoactive and maintain the expansion cycle. A cited case was Tron Inc., which changed its name to announce TRX accumulation and cause the rise of your token.

The risks of this model, according to Terrones Godoy, not only depend on the drop in the price of cryptocurrencies, but on the inability of the actions to continue rising. If the market stops rewarding BTC’s purchase announcement, the strategy stagnates. In practice, companies could not issue more titles or pay their debts.

Edwards, who has been discussing this issue for months and questioning the tendency to borrow to buy Bitcoin, said at the beginning of August that the breakdown of these companies could come if any of the leading companies, such as Strategy, is forced to sell reservations. Although the cause is punctual – the share, shareholder pressure or refinancing – an important settlement could detonate chain sales. This scenario would transform the «virtuous circle» into «vicious circle», as Craig Coben, former head of capital markets of Bank of America.

Henrik Zeberg, an economist who analyzes this phenomenon, said Bitcoin remains a speculative asset. Although it has been adopted by governments such as El Salvador and by institutional funds, he comments that this asset does not generate cash flow or intrinsic value, which exposes it to strong falls in the balances of companies with large reserves. An 80%drop, as in previous cycles, could take insolvency to indebted corporationshe said.

There is a possibility that it is sustainable

Now, despite these latent risks, Edwards emphasizes that if Bitcoin meets his objective of consolidating himself as «peer-to-peer digital effective», The treasury business can be sustainable in the long term.

«With a market capitalization of 2 billion dollars, BTC approaches gold, estimated at 22 billion, while fiduciary money exceeds 113 billion and grows at an annual rate of 9% by emission of central banks,» he says. And he clarifies that, in that comparison, Bitcoin presents a lower inflation rate than gold, which reinforces its potential as a value reserve.

The fate of these companies will depend on the adoption of Bitcoin. If the digital asset narrative is consolidated, the figure of the treasury company could be an integral part of global corporate finances. Edwards considers that the next decade will define whether BTC becomes the new reserve currency in a digital world.

On that path, the volatility of BTC will be inevitable, and, consequently, the ecosystem must face both the possibility of a systemic collapse Cas the opportunity for a sustained expansion.