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Author: Bu Shuqing, Wall Street News
As the pioneer of the “Bitcoin Treasury Company” model, Strategy (formerly MicroStrategy, MSTR) is undergoing an unprecedented market test.
In August,Strategy’s share price has fallen by 16.8%, erased most of the premium the company has enjoyed over its Bitcoin holdings for a long time.
Market concerns mainly come from a sudden shift in Strategy’s financing strategy.The company originally planned to raise funds for Bitcoin through preferred shares, but recently raised only $47 million, far below expectations.To make up for the shortcomings, Strategy restarted its common stock issuance plan, breaching previous commitments to limit dilution.
This strategic reversal not only hit investor confidence, but also poses a threat to the entire Bitcoin treasury model.Currently, the treasury of enterprises that emulate Strategy’s model holds a total of more than $108 billion in Bitcoin, accounting for 4.7% of the total supply.If Strategy’s premium advantage collapses, the sustainability of this model will be questioned in a comprehensive way.
The breaking situation of the “treasury model”
Strategy’s business logic was once regarded as an innovative case on Wall Street: purchasing Bitcoin through issuing bonds and stock financing, and then relying on the premium given by the market to continue to expand.
After this model was launched in 2020, it quickly ignited the trend of corporate financial allocation of digital assets.So far, more than 100 companies around the world have followed suit, holding a total of about US$108 billion in Bitcoin, accounting for 4.7% of the total circulation.
And now, this model is facing a headwind.
At the end of July, Strategy promised that, except for special circumstances, it would not issue shares if the Bitcoin holding multiple (mNAV) multiple is less than 2.5.But just two weeks later, the guidelines were relaxed, and on August 25, the company issued nearly 900,000 new shares.
This “breaking promise” move completely triggered a crisis of trust among investors and further lowered the premium.
Strategy’s stock price is no longer related to its software business, but is anchored to mNAV.In the past, this multiple has been repeatedly fluctuated between crisis and bull markets due to market volatility, such as Terra-Luna’s sharp contraction during the storm, while Trump has rebounded to 3.4 times after re-election.Now, mNAV has dropped to 1.57 times, and the decline occurs in Bitcoin’s still strong market, indicating that the market’s confidence in the “treasury model” itself is shaken.
Analysts point out that when a company chooses to continue issuing additional shares at a low level of mNAV, it may trigger a “negative flywheel”: the decline in stock prices weakens the ability to buy coins, further erodes market confidence, and leads to accelerated compression of premiums..
“The drop in premium is a natural reaction to alternative ways to compete and acquire exposure to digital assets. In addition, the retraction of guidance on not issuing stocks below 2.5 times mNAV forces the market to reevaluate the company’s strategy in the short term.”
Bitcoin spot ETFs rise, diversification of multiple assets, and Bitcoin treasury companies are under general pressure
Not only Strategy, Bitcoin treasury companies are generally under pressure.
Nearly one-third of listed companies that include Bitcoin on their balance sheet have their shares traded below the value of these reserves, according to Capriole Investments.Small businesses are particularly vulnerable: liquidity restrictions make stock issuance more painful, while reliance on convertible bonds brings interest burdens and maturity risks.
Capriole founder Charles Edwards said:What happens if Bitcoin falls by 50%?Passion for treasury companies will wander, mNAV will compress, and hundreds of companies will start to question their treasury strategies.”
Another challenge comes from the rise of spot Bitcoin ETFs.Initially, Strategy and spot ETFs benefited from the rebound in Bitcoin prices after the U.S. election, but as funds provide Bitcoin exposure without the risks associated with corporate governance, leverage or dilution, the relative advantages of Bitcoin treasury companies are becoming increasingly weak.
Meanwhile, the focus is shifting to other digital assets such as Ether and Solana, which some believe are more suitable for decentralized finance.More than $19 billion has been invested in the treasury focused on Ether alone.
Although Bitcoin itself has fallen from its highs set earlier this month, it is still supported by institutional allocation.Many newer treasury companies buy over $100,000, and if the market turns, lack the underlying business to maintain them.
“There is nothing behind Bitcoin except emotions,” said Hilary Allen, a law professor at American universities.
