According to a report by the venture capital (VC) firm Breed, only a few Bitcoin (BTC) treasury companies can withstand the test of time, avoiding the vicious "death spiral" that affects those companies whose trading prices are close to their net asset value (NAV)—that is, total assets minus liabilities.
The report's authors stated that the health of Bitcoin treasury companies depends on their ability to maintain a multiple of net asset value (MNAV).
Breed's report outlines seven stages of decline for BTC treasury companies, starting with a drop in Bitcoin prices, which triggers a decline in MNAV, bringing the company's stock price closer to its actual NAV.
This, in turn, makes it more difficult for BTC-holding companies to obtain debt and equity financing, which is crucial for converting inflationary dollars into appreciating assets with limited supply in this asymmetric trade.
As credit acquisition channels dry up and debt maturities approach, margin calls are triggered, forcing companies to sell BTC into the market, further depressing BTC prices, leading to the acquisition and consolidation of holding companies by stronger firms, and potentially triggering a prolonged market-wide downturn. The report's authors wrote:
This death spiral could trigger the next cryptocurrency bear market. However, the authors noted that since most BTC treasury companies are currently financing their purchases through equity rather than debt, this implosion may be contained within a certain range.
The authors stated that equity-based financing limits the impact on the broader market. Nevertheless, if debt financing surpasses equity as the more popular option, the current predictions may change.
Michael Saylor's company, Strategy, has been purchasing Bitcoin since 2020 and has promoted the concept of BTC corporate treasury, which has gained significant momentum over the past two years.
According to BitcoinTreasuries, over 250 organizations currently hold Bitcoin, including corporations, government entities, exchange-traded funds (ETFs), pension funds, and digital asset service providers.
Related: Michael Saylor hints at purchasing Bitcoin (BTC) for the 11th consecutive week.
Original article: “Venture Capital Report: Few Bitcoin (BTC) Treasury Companies Will Survive the 'Death Spiral'”
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