MicroStrategy Has Inspired a Wave of Imitators, but the Leverage Risks Behind High Premiums May Be Terrifying for Investors?
(Background: US-listed company Classover has rushed to become a SOL reserve enterprise! It raised $500 million, soaring nearly 40% in a single day)
(Context: South Korean media K Wave Media announced plans to establish Bitcoin reserves: planning to purchase $500 million in BTC, with KWM’s stock price skyrocketing 135%)
The crypto treasury has become a “trendy strategy” for publicly listed companies. According to incomplete statistics, at least 124 listed companies have incorporated Bitcoin into their financial strategies as a “weapon” on their balance sheets to attract widespread attention from the crypto market. Meanwhile, treasury strategies involving Ethereum, Solana, and XRP have also been adopted by some listed companies.
Despite this, several industry insiders, including Nic Carter, a partner at Castle Island Ventures, have recently expressed potential concerns: these listed investment tools are compared to Grayscale’s GBTC from back in the day—a Bitcoin trust fund that traded at a long-term premium, which eventually turned to a discount, becoming the trigger for multiple institutional collapses.
Geoff Kendrick, head of digital asset research at Standard Chartered, also issued a warning that if Bitcoin prices fall below the average purchase price of these companies using crypto treasury strategies by 22%, it could force companies to sell off. If Bitcoin drops below $90,000, about half of the companies holding Bitcoin may face the risk of losses.
MicroStrategy Has Inspired a Wave of Imitators, but What About the Leverage Risks Behind High Premiums?
As of June 4, MicroStrategy holds approximately 580,955 Bitcoins, valued at about $61.05 billion, while its market capitalization is as high as $107.49 billion, with a premium of nearly 1.76 times.
Aside from MicroStrategy, some newly adopted companies utilizing Bitcoin treasury strategies also boast impressive backgrounds. Twenty One, supported by SoftBank and Tether, went public through Cantor Fitzgerald’s SPAC, raising $685 million entirely for Bitcoin purchases. Nakamoto Corp, founded by Bitcoin Magazine CEO David Bailey, merged with a listed healthcare company, raising $710 million for Bitcoin acquisition. Trump Media & Technology Group has announced plans to raise $2.44 billion to create a Bitcoin treasury.
Recently, PANews compiled a list of companies, including SharpLink, which plans to buy Ethereum, Upexi, which accumulates SOL, and VivoPower, which accumulates XRP, all of which have been attracted by MicroStrategy’s Bitcoin treasury strategy.
However, several crypto insiders pointed out that these companies’ operational trajectories are structurally very similar to the arbitrage model of GBTC from back in the day. Once a bear market arrives, the risks could be released in a concentrated manner, creating a “stampede effect,” where investors panic and collectively sell off, triggering a chain reaction of further price declines.
The Lesson of Grayscale GBTC: Leverage Collapse and Institutional Blowups
Looking back, Grayscale Bitcoin Trust (GBTC) was once a star performer from 2020 to 2021, with premiums soaring as high as 120%. However, entering 2021, GBTC quickly turned into a negative premium and ultimately became a triggering factor for the collapse of institutions such as Three Arrows Capital (3AC), BlockFi, and Voyager.
The mechanism design of GBTC can be described as a one-way transaction of “only in, not out”: investors who subscribe to GBTC in the primary market must lock in for six months before selling in the secondary market and cannot redeem for Bitcoin. Due to high entry barriers for early market Bitcoin investments and heavy tax burdens on capital gains, GBTC became a legitimate avenue for accredited investors (through 401(k) US retirement benefit plans, etc.) to enter the crypto market, which sustained its premium in the secondary market for a long time.
However, it was this premium that gave rise to large-scale “leverage arbitrage games”: investment firms borrowed BTC at ultra-low costs, deposited it into Grayscale to subscribe for GBTC, and after a six-month holding period, sold it in the premium secondary market to obtain stable returns.
According to public records, the combined GBTC holdings of BlockFi and 3AC once accounted for 11% of the circulating shares. BlockFi converted BTC deposited by clients into GBTC and used it as collateral for loans to pay interest. 3AC even used up to $650 million in unsecured loans to increase their GBTC holdings, pledging GBTC to DCG’s lending platform Genesis to gain liquidity and achieve multiple rounds of leverage.
In a bull market, everything operated smoothly. However, after Canada launched its Bitcoin ETF in March 2021, GBTC demand plummeted, and its premium turned negative, causing the flywheel structure to collapse instantly.
BlockFi and 3AC began to incur continuous losses in a negative premium environment—BlockFi had to sell off GBTC on a large scale, yet still accumulated losses of over $285 million in 2020 and 2021, with industry insiders estimating losses on GBTC to be close to $700 million. 3AC was liquidated, and Genesis ultimately announced in June 2022 that it had “disposed of a large counterparty’s” pledged assets. Although unnamed, the market widely believed this counterparty was 3AC.
This “blowup” that started with a premium, thrived on leverage, and was destroyed by a liquidity collapse became the prologue to the systemic crisis in the crypto industry in 2022.
Will the Flywheel of Public Company Crypto Treasuries Bring About the Next Systemic Industry Crisis?
Following MicroStrategy, more and more companies are forming their own “Bitcoin treasury flywheel,” with the main logic being: stock price rises → additional financing → purchase BTC → boost market confidence → stock price continues to rise. This treasury flywheel mechanism may accelerate as institutions gradually accept cryptocurrency ETFs and crypto holdings as loan collateral.
On June 4, news surfaced that JPMorgan plans to allow its trading and wealth management clients to use certain crypto-linked assets as loan collateral. According to insiders, the company will begin providing financing collateralized by cryptocurrency ETFs in the coming weeks, starting with the iShares Bitcoin trust from BlackRock. Insiders indicated that in some cases, JPMorgan would also start to consider clients’ cryptocurrency holdings when assessing their overall net worth and liquid assets. This means that when calculating clients’ available asset collateral limits, cryptocurrencies will be treated similarly to stocks, cars, or art.
However, some bears argue that the flywheel model seems self-consistent in a bull market, but in essence, it directly links traditional financial instruments (such as convertible bonds, corporate bonds, ATM issuance) with cryptocurrency asset prices, and once the market turns bearish, the chain could break.
If cryptocurrency prices plummet, companies’ financial assets will rapidly shrink, affecting their valuations. Investor confidence collapses, stock prices drop, limiting the company’s financing capabilities. If there are debt or margin call pressures, companies will be forced to liquidate BTC to cope. A large sell-off of BTC will concentrate and create a “sell wall,” further driving down prices.
More seriously, when these companies’ stocks are accepted as collateral by lending institutions or centralized exchanges, their volatility will further transmit to traditional finance or DeFi systems, amplifying the risk chain. And this is precisely the script that Grayscale GBTC experienced.
Weeks ago, renowned short-seller Jim Chanos announced that he was shorting MicroStrategy and going long on Bitcoin, based on his negative views on its leverage. Although MicroStrategy’s stock has risen 3,500% over the past five years, Chanos believes its valuation has seriously deviated from fundamentals.
Some crypto treasury consultants pointed out that the current trend of “equity tokenization” may exacerbate risks, especially once these tokenized stocks are also accepted as collateral by centralized or DeFi protocols, it is even more likely to trigger uncontrollable chain reactions. However, some market analysts argue that it is still early days, as most trading firms have not yet accepted Bitcoin ETFs as margin collateral—even among issuers like BlackRock or Fidelity.
On June 4, Geoff Kendrick, head of digital asset research at Standard Chartered, issued a warning that currently, 61 listed companies collectively hold 673,800 Bitcoins, accounting for 3.2% of the total supply. If Bitcoin prices fall below the average purchase price of these companies by 22%, it could trigger forced sell-offs. Referencing the case of Core Scientific selling 7,202 Bitcoins when prices fell 22% below costs in 2022, if Bitcoin drops below $90,000, about half of the companies’ holdings may face the risk of losses.
What is the actual risk of MicroStrategy’s blowup? Recently, the Web3 101 podcast “Bitcoin Whale MicroStrategy and Its Capital Game” has sparked market attention. The discussion mentioned that although MicroStrategy has been referred to as “leveraged Bitcoin” in recent years, its capital structure is not a high-risk leverage model in the traditional sense, but a highly controllable “quasi-ETF + leverage flywheel” system. The company raises funds to purchase Bitcoin through issuing convertible bonds, perpetual preferred stock, and at-the-market (ATM) offerings, constructing a volatility logic that continuously attracts market attention. More importantly, the maturity dates of these debt instruments are mainly concentrated in 2028 and beyond, leaving almost no short-term repayment pressure during cyclical pullbacks.
The core of this model is not merely hoarding coins, but rather forming a self-reinforcing flywheel mechanism in the capital market by dynamically adjusting financing methods, employing a strategy of “leveraging when premiums are low, selling stock when premiums are high.” Michael Saylor positions MicroStrategy as a financial proxy for Bitcoin volatility, allowing institutional investors who cannot directly hold crypto assets to “barrier-free” hold a Bitcoin asset with option-like properties in the form of traditional stocks, which has led to MicroStrategy not only building strong financing and anti-fragility capabilities but also becoming a “long-term stable variable” in the volatility structure of the Bitcoin market.
Currently, the crypto treasury strategies of publicly listed companies continue to become the focus of attention in the crypto market, also sparking debates about their structural risks. Although MicroStrategy has constructed a relatively robust financial model through flexible financing means and periodic adjustments, whether the overall industry can maintain stability amid market volatility remains to be seen. Whether this wave of “crypto treasury frenzy” will replicate the risk path of GBTC is an unknown and unresolved question.
