In a world where Bitcoin (BTC) has shifted from technical curiosity to a much-needed asset, groups of companies have decided not only to adopt Bitcoin, but to turn it into a pillar of their financial strategy.
MicroStrategy, now known as Strategy, Leading this movement and being mimicked by many other movements Metaprenet, 21 pieces, Nakamoto, etc.
Last month, a new Bitcoiner treasure was launched. These include GameStop, Zap Solutions, Roxom (which is an Argentinean company), H100 Group, Walnut, Greenmerc and Atai.
These and other companies have accumulated thousands of BTC in balance and are strongly choosing. However, the corporate frenzy is lit by alarms, meaning that it issues debts to fund bulk purchases of Bitcoin and means sales measures.
Is this a financial revolution or a bubble that is about to explode? In the words of someone who identifies as “LowsStrif” on Social Network X, it is “toxic leverage” that, in his opinion, could be “the worst thing that happened to Bitcoin and what it represents.”
Corporate Bitcoin Fever
Companies that employ Bitcoin as their financial assets are not limited to purchasing and maintaining it. Many strategies are more complex and potentially dangerous.
These companies use a financial feedback cycle. Bitcoin is acquired with your own funds and is incorporated into the balance And they use these assets as a basis for raising more capital through stocks, bonds, loans, or priority litigation emissions.
This fresh money will soon be fed into a financial “wheel” that seems to never stop, destined to buy more Bitcoin.
For example, director Michael Saylor’s strategy; I turned this practice into art. Originally dedicated to business intelligence software, the company currently owns 580,250 BTC, making it a public contributor with the best Bitcoin Holdings.
To fund these purchases, the strategy relied on mechanisms such as: In the market (ATM), How to issue new shares directly on the market and allow them to be sold. However, this approach has cost. It is a constant dilution of the value of existing investors’ stocks.
“Toxic Leverage” and its Mechanism
Lowstrife, a key analyst in this practice; Describe the model as “toxic leverage” Because it depends on key metrics: multiplier of net clearing value (MNAV). MNAV measures the market value of a company and the value of its underlying assets, in this case, Bitcoin.
If mnav is greater than 1, then 0, This means that the company’s stock quotes more than Bitcoin Holdings’ valueby issuing new shares, you can raise more capital. The strategy completes this mechanism, publishing shares using ATMs and funding new purchases of Bitcoin.
However, this model has significant weaknesses. If the MNAV is below 1.0 as happened in 2022 and can be seen in the following graph, Strategies will face difficulties in raising capital.
In that scenario, Issuing new actions further dilutes the value of existing shareholders and the company’s ability to maintain its strategy. She appears to be compromising. “This is the mechanism by which this explodes,” Lowstrife warns, pointing out that the system, according to it, is entirely dependent on solid financial foundations.
In addition to ATMs, strategies use equipment such as conversion obligations and preferred actions to amplify yields. For example, convertible debts It allows the company to issue bonds that could become an action in the futureif the stock price reaches the default level. Currently, the strategy has $82 million in convertible bonds that have maturities between 2028 and 2032.
If the stock is not at the price required for conversion, the company must refinance its debt or pay Bitcoin. Something that can trigger large sales of assets. It affects the price of Bitcoin.
On the other hand, priority measures like the STRATEAL STRF series are the form of permanent liabilities paying a fixed dividend of 10%. These actions have no expiration dates. This means that the company must pay dividends indefinitely.
To fund these payments, the strategy once again relies on ATMs to dilute more shareholders. LowsStrife criticizes this approach, Bitcoin purchases today are being made “at the expense of tomorrow’s shareholders.”. Under the ambitious plan, the strategy aims to issue $210 million on the 8% series of preferred stock. This requires an annual dilution to cover dividends, according to analyst estimates.
Risks of dilution and emotional dependence
Strategic models and other similar companies rely on not only the price of Bitcoin, but also on the enthusiasm of investors.
MNAV, which reflects the perceived value of the company’s Bitcoin holdings, is an indicator based on market sense. “There is no mechanism or reason why an asset must be cited,” Lowstrife says. If MNAV falls below 1.0, the company’s ability to collect capital will collapse, causing a downward spiral.
LowsStrif compares this risk to that of Grayscale Bitcoin Trust (GBTC), an investment vehicle that has experienced more attractive fluctuations than the market sense. The following graph shows how GBTC compares its value to Bitcoin. He quoted it at a premium of up to 143% in 2017, but in May 2022 it received a -34.5% discount.reflects how investor enthusiasm disappears.
However, not all are critical of the model of issuing debts to accumulate BTC. Adambak, a prominent figure in Bitcoin history, offers a different perspective. He argues that strategy is flexible as an operating company, unlike closure funds like GBTC. In other words, if the MNAV falls below 1.0, the company can sell BTC and buy back its own actions and stabilize its value.
However, Lowstrife I argue that this strategy does not eliminate risk. It erodes investors’ trust.
«Saylor has participated in all her podcasts, TV interviews and tweets, and has said one million impressions. If Bitcoin needs cash flow or if you have to sell Bitcoin because MNAV is weak, what do you think will happen with confidence in your company?
Lowstrife, Market Analyst.
Critical voice: Slap on Bitcoin principles?
These companies’ strategies have generated not only economic concerns but also ideological criticism. Lowstrife believes the model is “slap in the face of what should be Bitcoin.” This is an asset created to challenge the traditional financial system.
In his opinion, Strategies and other companies remember financial engineering in 2008which led to the creation of Bitcoin as a decentralized alternative. «It’s not a financial revolution. They are media scammers who are looking for leverage,” he says.
Another critic of Bitcoin and content generator Lunaticoin shares this vision. Describe Bitcoin’s Treasury fashion as “Sitcoin and ICO of this cycle”.
In the cryptocurrency context, shit is a digital currency of questionable quality or value, but ICOs (early offers of coins) were a popular form of fundraising campaigns from 2017 to 2018, many of which proved to be speculative or fraudulent.
While the madman has not established a direct link to LowsStrif analysis, both share concerns that these companies artificially inflate their value when linking with Bitcoin, rather than contributing to true adoption.
New metrics for a new paradigm
In the midst of criticism, Strategy defends his approach with bold discussion. Not suitable for valuing Bitcoin-focused companies.
Strategy CEO Phong Le argues that Bitcoin is not only a financial asset, but also a “changer power” that redefines the finances of a company. To reflect this, the company proposes new major performance indicators (KPIs). An increase in BTC assesses the growth of the amount of Bitcoin owned. And BTC’s dollar profits reflect an increase in the dollar value of their holdings.
“Traditional metrics don’t understand the actual value generated by companies with BTC,” Le said. “We need to educate the world about what the related KPIs are.”
However, paths adopted by the strategy are not exempt from the controversy. The collective claims for strategy claims that the company, including Michael Saylor, and its executives misrepresented the risks of its financial strategy, minimizing Bitcoin volatility and artificially inflated the company’s value. Demand claims that these practices left investors devalued stocks.
It’s an optimistic model, but there are risks
As strategies and other companies continue to accumulate Bitcoin, the risk accumulates to the same extent. MNAV’s dependence, constant dilution of actions and the load and priority actions of conversion obligations, according to critics, creates systems that are unsustainable in the long term.
If the market sense changes or the price of Bitcoin does not meet expectations, These companies face a liquidity crisis and may force them to hold Bitcoin It causes a decline in market value.
For now, Bitcoin’s enthusiasm for the Treasury continues to attract investors who see indirect exposure to digital currencies in these companies. However, analysts like Lowstrife and Lunaticoin resonate strongly. This model is not an evolution of the Bitcoin spirit, but could be his Achilles heels.
