With Bitcoin mired in a months-long recession, Strategy’s sharp decline is the clearest sign yet of how Bitcoin’s treasury model will fare under sustained pressure. Notably, this comes at a time when Strategy’s stock price increasingly reflects not just the price of Bitcoin, but also the company’s ability to maintain a valuation premium and attract new capital. Strategy just had its worst week since November 2022, falling 24% amid a crypto selloff triggered in part by the company’s small but iconic sell-off of Bitcoin. This undermines the company’s “never sell” narrative, which has helped the stock trade at a premium to cryptocurrencies. Meanwhile, Bitcoin is down 50% from its October high and could fall to $40,000 before recovering, according to Wolf Research. Investors often cite the strategy’s ability to survive the 2022 bear market without liquidating Bitcoin as a key part of the bull market. But starting in 2024, a new group of Bitcoin treasury companies will emerge, with dozens of companies copying the strategy’s model. As a result, Strategy is not only the largest Bitcoin treasury holder, but also a template for an industry of copycats whose business models rely on stocks trading above the value of the Bitcoins they hold. Investors are watching the current decline as a referendum on Bitcoin Treasuries Trading over strategy. “When a strategy is exposed to criticism, Bitcoin itself is exposed to criticism,” said benchmark analyst Mark Palmer. “However, even under these circumstances, Strategy has the ability to make strategic decisions that continue to create value for shareholders. Other companies that simply follow Strategy’s lead are not necessarily able to pull those levers and rely on the broader market for their price path, and that’s the big difference.” MSTR YTD Mountain Strategy Year-to-date Stock Performance Strategies has repeatedly raised capital through stock sales, convertible debt, and other financing structures to expand its Bitcoin holdings. Reserves of USD 900 million provide additional flexibility. The company has also indicated that it may eventually generate revenue from Bitcoin through a derivatives strategy, but so far it has not pursued that approach. According to BitcoinTreasuries.net, there are 198 publicly traded companies that hold Bitcoin. Some simply have Bitcoin on their balance sheets and are still focused on their core business. Tesla and Block are in this camp. There are also financial companies whose sole purpose is to accumulate Bitcoin, and strategies vary within that group. With this latest swoon, which Bitcoin-focused digital asset treasury (DAT) companies will survive a prolonged downturn? “If DAT is trading at a deep discount to its market-to-market net asset value, there isn’t much room for action,” Palmer said. While Strategy continues to trade at a premium to the value of its Bitcoin holdings, many DATs are already trading below the value of their underlying assets and are struggling to differentiate themselves. Strategy joins smaller leading Bitcoin treasuries such as Twenty One and Strive, which continue to trade at a continued premium to their Bitcoin holdings. A second group of new entrants, such as ProCap Financial and Nakamoto Holdings, are trading at discounts or have not yet established durable premiums. Focus on funding The economic downturn could also expose differences in how companies actively financed their Bitcoin purchases. “We’re going to really start to see differentiation,” said Sam Callahan, director of Bitcoin strategy and research at OranjeBTC, a Latin American Bitcoin treasury firm. “…It’s going to take away from those who were managing the treasury with discipline and prudence in terms of the leverage that was used,” he said. “Some companies will sell because they’re under stress, and others will sell for strategic reasons.” Callahan added that some companies may have sufficient financial flexibility to continue purchasing, especially at low prices. For example, during Strategy’s first-quarter earnings call last month, management announced that it would sell Bitcoin when it is advantageous for the company, highlighting the company’s evolution from a hoarder to an active steward of its Bitcoin holdings. “People really underestimate the optionality that (strategies) have to work as dividends,” Callahan said. “In fact, in many ways we are more resilient than we were in 2022.” During that last bear market, Bitcoin ETFs had not yet launched, and Strategy, then called MicroStrategy, was widely used as a proxy for Bitcoin exposure. That makes the company’s recently discarded “never sell” mantra even more important to investors. Since then, Strategy has changed its business model to focus more on issuing “digital credits.” This essentially borrows Bitcoin holdings and packages them into debt-like products, giving investors indirect Bitcoin exposure with interest and repayment terms in exchange for direct ownership. “The strategy was designed to work through volatility and profit from market turbulence,” Thaler told CNBC. “Our capital structure, liquidity, and long-term orientation allow us to remain focused on disciplined Bitcoin accumulation and Bitcoin per share growth over the long term. We believe Bitcoin treasury companies represent an important new category in the capital markets. As the market evolves, the strongest companies will be those designed to manage volatility, responsibly access capital, and create long-term value for shareholders.”
