Companies are racing to acquire Bitcoin, transferring their cash assets into cryptocurrency. Yet this is often at the value of their shares, and a lack of diversification could signal trouble is ahead.

Digital assets such as cryptocurrency, and how they are perceived, have undergone a rapid change in as little as 12 months. This has fuelled a buying spree, much of which has come from corporations. Putting their money into Bitcoin, these treasuries are now taking up large parts of company assets. But have they overlooked Bitcoin’s inherent volatility, especially when many of them have raised money at the expense of weakening their stock?

What is a Bitcoin Treasury?

A Bitcoin treasury involves a company swapping its cash assets for Bitcoin. The idea is that cash depreciates in value over time. Bitcoin, however, is increasingly scarce, meaning it should technically increase in value. This is often despite the odd crash. As the value of the coin goes up, so do the assets held by the company.

Bitcoin is however notoriously volatile. The last year has been a prime example. Last September it was trading at $53,857. A change to a more crypto-friendly government in the United States meant that confidence increased, so much so that by December 2024 it reached over $106,000. By April of the next year, it had declined to $75,004 before rallying and reaching a high of $111,681 in May. The current Bitcoin price live shows it at $107,141, a level it has remained fairly consistent around over the last few days despite major changes in macroeconomic conditions.

So popular is the list of companies now adopting this tactic, they are hard to list on a daily basis. The first to do so was MicroStrategy, formerly a company focused on software development. In 2021 they began to voraciously acquire Bitcoin and as prices have risen, so has an interest in the company along with its shares. Consumer loans firm Amazing AI has done so this week, along with GSTechnologies. The list is mounting, but so are the warnings.

Selling Debt to Buy Bitcoin

One way this buying has been done is through the selling of stock. This can raise capital, which can then be used to acquire Bitcoin. The issue with this is that it weakens the value of the shares. With more on the market, holders are getting less of the dividend.  Nic Carter, a partner at Castle Island Ventures has described it as a “Forest Fire” and likened it to a lot of kindling being built up.

Senator Jeff Merkley of Oregon has also raised concerns. Previously, he has been vocally critical of the use of cryptocurrency and the current penchant for its inclusion in traditional financial institutions, citing its risks and potential for corruption. He has been backed by Senator Elizabeth Warren, who is also on the Senate Banking Committee. She has advised that any further crypto crashes may reach beyond digital assets.

This is because, after the 2022 crash, the damage was mainly confined to the cryptosphere. Financial institutions outside of that were unaffected. She added, “If businesses start piling crypto onto their balance sheets, the next bust won’t be so contained, and it could trigger layoffs and business failures in multiple sectors.”

The Smarter Web Company Sell-Off

Early indications of this happening came on Thursday 26th of June. It began with The Smarter Web Company, a UK IT services management company. They sold off stock to raise capital for a Bitcoin treasury. This saw them raise £41.2 million, far more than the £30 million intended. It was done with the issuance of 14.2 million new shares at 290p each.

Their shares were soon valued at 255p, almost 50% down from a recent high of 500p. This started a domino effect, with sell-offs from many companies that had used Bitcoin treasuries. The aforementioned GSTechnologies were down, as were several others. While it has not had a huge impact on wider markets, it could be a forewarning.

The speed with which treasuries are being adopted can be seen in one of its latest, and frankly most absurd, exponents. The Lingerie Fighting Championships, a Las Vegas-based MMA league,  have recently announced their intent to buy $2 million worth of Bitcoin over the next six months. This will begin with a $230,000 purchase over the next 30 days.

The press release regarding this has been notably sparse. In a separate interview, CEO Shaun Donnelly said that the coin “Has lots of potential to grow to levels never seen before and we wanted to get in while we still can.” He also described it as real estate, and how people wish they had bought into the market in the early days.

There is an alternative, however, and that is that Bitcoin does keep going up in value. If that is the case, then these companies are currently great, undervalued investments. It is up to the buyer to decide on their level of risk, and how much they trust the volatility of the main cryptocurrency.

Kevin King

Kevin King

Kevin King, a graduate of Harvard University with a degree in Philosophy, has been a vital member of our team since 2015. With his diverse knowledge and insatiable curiosity, Kevin tackles a wide range of general questions in his articles, providing thoughtful and well-researched answers. His 15 years of experience as a writer and researcher have equipped him with the skills to break down complex topics and make them accessible to readers.

https://www.mothersalwaysright.com

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