Using Crypto as a Lifeline: The Public Companies Buying up Bitcoin

Introduction

In February of this year, the business intelligence firm MicroStrategy rebranded itself. Now called simply "Strategy," the company boasts its title as is "the world’s first and largest" Bitcoin treasury company. Strategy's identity as a Bitcoin treasury company means that Bitcoin serves as the company's primary treasury reserve asset. Strategy argues its accumulation of Bitcoin provides investors "varying degrees of economic exposure to Bitcoin," and the company has effectively spearheaded the trend of jacking up stock prices by holding Bitcoin. Skeptics of Strategy's investment strategy believe that question its sustainability in the long run.

Understanding Strategy

Michael Saylor, the executive chairman of Strategy, has passionately endorsed Bitcoin, believing the cryptocurrency to be a superior reserve asset compared to traditional asset classes such as stocks, bonds, or gold. Saylor has also claimed that Strategy's Bitcoin adoption has allowed the firm to deliver 10 to 30 times the performance of rival enterprise software companies.

In one way, Saylor is correct. The market has responded positively thus far, even as recently as last month. After announcing a Bitcoin purchase funded by selling nearly a million shares of its common stock, Strategy’s stock price surged in April, rising 3.8%. The company has even joined the Nasdaq-100, marking a significant milestone given that Strategy's market capitalization has been influenced primarily by its Bitcoin holdings rather than its core business performance in recent years. 

The Drawbacks of Strategy's Bitcoin Holdings

At the same time, the scatteredness of Strategy's stock-selling and Bitcoin-buying sprees reveal the volatility beneath the company's investment strategy. Phong Le, the company's CFO, has also warned of potential margin calls if Bitcoin's value dipped below certain thresholds. The precariousness of Stategy's Bitcoin investments came into focus in June 2022, when Bitcoin briefly hit $20,800. The company sold Bitcoin for the first time ever later that year. It is not difficult to see that massive positions in Bitcoin, while affording companies financial freedom, can easily turn into a financial trap. Still, Strategy continues its aggressive Bitcoin acquisitions. The company's Bitcoin reserves currently stand at 531,644 BTC, valued at over $45 billion.

Noting Strategy’s stock gains, many other companies have eagerly jumped on the Bitcoin bandwagon. Tesla, Block, Galaxy Digital, Marathon Digital, Riot Platforms, and CleanSpark have all amassed significant Bitcoin holdings. The wave of corporate investment has propelled Bitcoin's value significantly higher, and public companies now control approximately 3.3% of Bitcoin’s total supply. Given the potential for sudden sell-offs by these companies if Bitcoin prices falter significantly, whether motivated by margin calls or shareholder panic, Bitcoin could easily plunge into a precipitous decline.

Conclusion

Looking ahead, this trend of corporate investment has implications extending beyond Bitcoin. If public companies shift speculative interest at this scale toward Ethereum, solar energy stocks, or other altcoins, similar volatility spikes and crashes could follow. For this reason, investors should remain cautious. While corporate Bitcoin strategies have yielded short-term stock price gains, the long-term sustainability of tying corporate value so directly to such a volatile asset remains deeply uncertain.