Concerns over the encryption asset strategies of listed companies, fearing a repeat of historical tragedies?

Encryption assets have become a popular strategic choice for listed companies. According to statistics, at least 124 listed companies have incorporated Bitcoin into their financial strategies, making it an important component of their balance sheets, which has drawn widespread attention from the encryption market. At the same time, some listed companies have also begun to adopt treasury strategies using other encryption currencies such as Ethereum, Solana, and XRP.

However, some industry insiders recently expressed potential concerns: these listed investment tools may repeat the mistakes of the Grayscale Bitcoin Trust (GBTC) from years ago. GBTC was trading at a premium for a long time, but later the premium turned into a discount, becoming the trigger for the collapse of multiple institutions.

The head of digital asset research at a certain bank warned that if the price of Bitcoin falls below 22% of the average purchase price of companies adopting encryption treasury strategies, it could trigger forced selling by enterprises. If Bitcoin falls below $90,000, about half of the corporate holdings may face a risk of loss.

MicroStrategy Leads the Trend, High Premium Behind Leverage Risks Raises Concerns

As of June 4, a certain company holds approximately 580,955 bitcoins, with a market value of about $61.05 billion, but its company market value reaches as high as $107.49 billion, a premium of nearly 1.76 times.

In addition, some of the latest companies adopting the Bitcoin treasury strategy also have impressive backgrounds. One company raised $685 million through an IPO, all of which was used to purchase Bitcoin. Another company merged with a publicly listed medical company and raised $710 million to buy Bitcoin. Additionally, a company announced it had raised $2.44 billion to build a Bitcoin treasury.

Recent inventory shows that MicroStrategy's Bitcoin treasury strategy has attracted a large number of followers, including a group of listed companies planning to buy Ethereum, accumulate Solana, and XRP.

However, several industry insiders pointed out that the operational trajectories of these companies are structurally very similar to the GBTC arbitrage model of that year. Once a bear market arrives, the risks may be concentrated and released, forming a "stampede effect," where a downturn in market or asset prices triggers collective panic selling by investors, leading to a chain reaction of further price collapse.

Lessons from GBTC: Leveraged Collapse, Institutional Failures

Looking back at history, a certain Bitcoin trust was once very popular from 2020 to 2021, with a premium reaching as high as 120%. However, after entering 2021, the trust quickly turned to a negative premium and eventually became a triggering factor for the collapse of several institutions.

The mechanism design of this trust can be described as a "one-way transaction that only allows entry but not exit": after investors subscribe in the primary market, they must lock in for 6 months before they can sell in the secondary market, and cannot redeem for Bitcoin. Due to the high investment threshold and heavy tax burden for Bitcoin in the early market, this trust once became a legitimate channel for qualified investors to enter the encryption market, promoting the long-term maintenance of its secondary market premium.

It is this premium that has given rise to large-scale "leveraged arbitrage games": investment institutions borrow BTC at ultra-low cost, deposit it into subscription trust shares, and after holding it for 6 months, sell it in the premium secondary market to obtain stable returns.

According to public documents, the trust holdings of two large institutions once accounted for 11% of the circulating shares. One institution converted BTC deposited by clients into trust shares and used them as collateral for loans to pay interest. The other institution even used up to $650 million in unsecured loans to increase its position and pledged the trust shares to a lending platform to obtain liquidity and achieve multiple rounds of leverage.

In a bull market, everything operates smoothly. However, after Canada launched its Bitcoin ETF in March 2021, the demand for this trust plummeted, transitioning from a premium to a negative premium, causing the flywheel structure to collapse instantly.

Two large institutions have begun to incur continuous losses in a negative premium environment—one was forced to sell off trust shares on a large scale, but still accumulated losses exceeding $285 million in 2020 and 2021, with industry insiders estimating its losses on the trust to be close to $700 million. The other was liquidated, and its collateral assets were ultimately disposed of in June 2022.

This "explosion" that began with premiums, thrived on leverage, and was destroyed by the collapse of liquidity, became the prologue to the systemic crisis in the encryption industry in 2022.

Public Company Encryption Treasury Flywheel: The Next Systemic Industry Crisis?

After MicroStrategy, more and more companies are forming their own "Bitcoin treasury flywheel", the main logic being: stock price rises → additional financing → purchase of BTC → boost market confidence → stock price continues to rise. This treasury flywheel mechanism may accelerate in the future as institutions gradually accept encryption currency ETFs and encryption currency holdings as collateral for loans.

On June 4th, a major bank plans to allow its trading and wealth management clients to use certain assets linked to encryption as collateral for loans. According to informed sources, the company will start providing financing collateralized by encryption currency ETFs in the coming weeks, beginning with a certain Bitcoin trust fund. The sources stated that, in some cases, the bank will also begin to consider its clients' encryption holdings when assessing their overall net worth and liquid assets.

However, some bearish observers believe that the treasury flywheel model seems self-consistent in a bull market, but its essence is to directly link traditional financial methods with the prices of encryption assets. Once the market turns bearish, the chain may break.

If the price of the currency plummets, the company's financial assets will quickly shrink, affecting its valuation. Investor confidence collapses, stock prices fall, limiting the company's financing capabilities. If there is debt or margin call pressure, the company will be forced to liquidate BTC to cope. A large amount of BTC selling pressure will be concentrated and released, forming a "sell wall," further lowering the price.

Even more seriously, when the stocks of these companies are accepted as collateral by lending institutions or exchanges, their volatility will further transmit to traditional financial or DeFi systems, amplifying the risk chain. This is precisely the scenario that GBTC has experienced.

A few weeks ago, a famous short seller announced that he was shorting a certain company and going long on Bitcoin, based on his negative view of its leverage. Although the company's stock has risen 3,500% in the past five years, the short seller believes its valuation has seriously deviated from fundamentals.

Some encryption treasury consultants have pointed out that the trend of "equity tokenization" may exacerbate risks today, especially if these tokenized stocks are accepted as collateral by centralized or DeFi protocols, which could trigger an uncontrollable chain reaction. However, some market analysts believe that we are still in the early stages, as most trading institutions have not yet accepted Bitcoin ETFs as margin collateral.

On June 4th, a digital asset research director at a certain bank warned that 61 listed companies currently hold a total of 673,800 Bitcoins, accounting for 3.2% of the total supply. If the price of Bitcoin falls below 22% of these companies' average purchase price, it could trigger forced selling by the companies. Referring to the case in 2022 where a certain company sold 7,202 Bitcoins when the price was 22% below the cost price, if Bitcoin drops below $90,000, about half of the companies' holdings may face the risk of loss.

How big is the risk of a certain company's explosion? Recently, a discussion on a podcast has attracted market attention. The discussion mentioned that although the company has been referred to as "leveraged Bitcoin" in recent years, its capital structure is not a traditional high-risk leveraged model, but rather a highly controllable "ETF-like + leveraged flywheel" system. The company raises funds to purchase Bitcoin through issuing convertible bonds, perpetual preferred shares, and market price issuance, creating a volatility logic that continues to attract market attention. More importantly, the maturity dates of these debt instruments are mostly concentrated in 2028 and beyond, making it almost free from short-term repayment pressure during cyclical corrections.

The core of this model is not simply hoarding coins, but rather creating a self-reinforcing flywheel mechanism in the capital market by dynamically adjusting financing methods with the strategy of "leveraging when prices are low and selling stocks when prices are high." The company positions itself as a financial proxy for Bitcoin volatility, allowing institutional investors who cannot directly hold encryption assets to hold a Bitcoin target with options attributes in a "barrier-free" manner in the form of traditional stocks, which exhibits higher Beta volatility than the benchmark asset BTC. As a result, the company not only builds strong financing and anti-fragility capabilities but also becomes a "long-term stable variable" in the volatility structure of the Bitcoin market.

Currently, the strategy of listed companies' encryption treasury is becoming the focus of attention in the encryption market, which has also sparked controversy over its structural risks. Although a certain company has built a relatively robust financial model through flexible financing methods and periodic adjustments, whether the overall industry can remain stable amid market fluctuations remains to be seen. Whether this round of "encryption treasury boom" will repeat the historical tragedy is still an unresolved question.