Bitcoin’s year-end decline has rattled firms with heavy exposure to the cryptocurrency, pushing their shares lower and reviving concerns about a bubble. The report explains how these bitcoin-buying companies respond when prices fall and the liquidity and debt risks they face. The analysis focuses on the dynamics of leverage, convertible bonds, and corporate strategies in a falling crypto market.
Many buyers accumulated bitcoin to diversify cash reserves or attract investors. Some were linked to the crypto ecosystem, such as exchanges or mining firms that use powerful computers to earn bitcoins as rewards. Others from unrelated industries also started buying in, boosting demand and driving its price even higher. When prices retreat, those setups can create sharp balance-sheet stress and liquidity challenges.
With funds borrowed to buy bitcoin, and many relying on convertible bonds, a price drop can threaten liquidity and force deleveraging. A fall in bitcoin’s price can undermine business models that depended on rising crypto values.
Strategy, the largest corporate holder of bitcoin, owned more than 671,000 coins, about three percent of all the bitcoin that will ever exist. Over six months, its share price more than halved, and its market value briefly fell below the total value of its bitcoin holdings. Pressure stemmed largely from its heavy use of convertible bonds, exposing it to the risk of repaying large debts in cash.
To reassure investors, Strategy issued new shares to create a US$1.44 billion reserve to fund dividend and interest payments. Sequans took a different route, selling 970 bitcoins to pay down part of its convertible debt.
If struggling companies sell large amounts of bitcoin, prices could fall further, worsening losses. The contagion risk in crypto markets is considerable. She added, however, that the impact would likely be confined to the crypto sector, with no major risk to traditional markets. Bitcoin is inherently volatile in both directions, and we view that volatility as the cost of long-term upside.
Metaplanet, originally a hotel company, now holds around US$2.7 billion worth of bitcoin. Not all may survive, but the model could continue as new crypto-treasury ventures emerge, such as The Bitcoin Society.
Going forward, experts say some firms will need to generate income from their bitcoin holdings—through financial products or other means—rather than relying solely on price appreciation. Falling prices are seen as an opportunity to accumulate more bitcoin.
Leave a Reply