With cryptocurrency having grown in popularity over the years, some of us might have invested in the digital asset. And, of course, the most known cryptocurrency in the world is Bitcoin.
If you’ve been tracking the crypto space lately, you might have noticed a trend emerging where companies put Bitcoin on their balance sheets. These companies hold a significant portion of their corporate reserves in Bitcoin, either as a core part of their business or as a long-term store of value.
Depending on who you ask, this trend is either the future of corporate treasury management or a ticking time bomb. So, here’s a quick look at what these companies are, how they operate, and whether they’re in bubble territory.
Understanding Bitcoin Treasury Companies
Bitcoin treasury companies are public or private companies that have allocated part of their treasury assets into bitcoin. Some of the more prominent names include Strategy (formerly MicroStrategy), Tesla, and Galaxy Digital.
But more recently, smaller publicly listed firms have jumped on the bandwagon, often with little to no underlying business model beyond holding and speculating on Bitcoin’s price.
These companies buy and accumulate an asset that doesn’t produce cash flow and hope that it appreciates.
Why Are Companies Buying Bitcoin
Firstly, many use balance sheet diversification as one of the main justifications for accumulating the cryptocurrency.
With global interest rates declining, companies are looking for ways to defend their capital against inflation and currency debasement.
Bitcoin, with its fixed 21 million coin supply, is sometimes touted as “digital gold”. In other words, it’s impervious to manipulation as a decentralised and finite asset.
Since Strategy’s CEO Michael Saylor famously converted billions of dollars into Bitcoin starting in 2020, a wave of smaller firms has followed suit.
Many of these companies have seen their stock prices soar. That’s not been down to innovation or earnings growth but simply because they now hold Bitcoin, which has appreciated massively in the past two years or so.
One example is US-based Semler Scientific, which doubled in value after announcing it would adopt Bitcoin as its treasury reserve asset. That’s despite its actual business of developing medical devices having nothing to do with cryptocurrency.
Indeed, while it only has just over 4,600 Bitcoin currently, Semler Scientific has announced plans to have 105,000 Bitcoin by the end of 2027.
The company intends to get there by funding Bitcoin purchases through various means, including equity and debt financings as well as from its operating cash flow.
How These Stocks Are Becoming Bitcoin Proxies
As with many underlying commodities that’s popular with investors, spot Bitcoin ETFs are now widely traded in the US and other global markets. The upshot is that retail investors can already gain exposure to Bitcoin directly.
But for more speculative or momentum-driven traders, small-cap companies with Bitcoin-heavy balance sheets offer leveraged exposure. If Bitcoin moves up 10%, some of these companies’ share prices could move up 30% to 40%.
Strategy is the textbook case. It currently holds close to 600,000 Bitcoin, with a market value of just over US$70 billion. Yet Strategy’s current market capitalisation is just shy of US$120 billion.
A Bubble Waiting To Burst?
Strategy paved the way for bitcoin treasury concept, buying and hoarding the cryptocurrency. Since then, it has become one of the best performing stocks in the world and many companies are trying to adopt this strategy. As with any asset bubble, knowing when it will pop is challenging to predict and the share prices of these firms could continue to rise for a while–in line with or ahead of Bitcoin.
However, it won’t be based on any fundamentals. That’s because by staking company money on the appreciation of a volatile asset, management at these firms are effectively placing a one-way bet on continued appreciation of Bitcoin.
That can be a dangerous equation because, for investors holding these firms’ shares, if there is a Bitcoin correction, the share prices of the Bitcoin treasury companies could decline much further than Bitcoin itself.
Read Also: Gold, Bitcoin, Volatility: Which Asset Classes Have Benefitted From Trump’s Tariffs?
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