Bitcoin buyers face hefty losses
Companies holding Bitcoin and other cryptocurrencies are facing sharp share price declines as the euphoria around crypto investments that investors seem to be waning.
These so-called digital asset treasury companies raise money by issuing shares or taking on debt to buy crypto for their balance sheets. That yielded handsome profits in the past, but that trend seems to have peaked.
Shares of Strategy, the best-known bitcoin-buying company, have fallen from $457 in July to $328 this week – the lowest level since April, pushing profits for this year down 13%.
Metaplanet, a Japanese bitcoin-treasury company, reached its lowest level since May this week. Its share price has fallen more than 60% from its peak in June, but still remains 105% higher than at the start of the year.
Smaller companies that suddenly changed course and started buying crypto – which temporarily exploded their share prices – have also been hit hard. Smarter Web Company, which announced a bitcoin strategy in April, saw a share price drop of over 70% since June. Alt5 Sigma, which invested in Trump’s World Liberty Financial crypto-venture, lost 63% compared to June.
According to analyst Adam McCarthy of Kaiko, the reversal is ‘entirely predictable’ as these companies operate with strong leverage: if bitcoin falls 3%, they can book four to five times that loss. Panic selling among retail investors often amplifies the decline even further.
In addition, many of these companies rely heavily on access to the capital market, which dries up when sentiment turns. Many of these companies have traditionally had thin fundamentals – without a crypto boost, they have little value.
The crypto-treasury model now also extends to ether and other digital currencies. Companies such as BitMine and GameSquare, which started buying ether, are also suffering sharp price losses.
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