Bitcoin Treasury Companies Are Risky (Wall Street Journal, Vicky Ge Huang) \ stacker news ~econ

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Bitcoin Treasury Companies Are Risky (Wall Street Journal, Vicky Ge Huang)www.wsj.com/finance/currencies/cryptocurrency-bitcoin-company-balance-sheets-16a1e2b8

651 sats \ 10 comments \ @denlillaapan 11 Jun econ

Getting tedious as fuck but Treasury company stuff is gonna be in the news for a long time, OK. Dominate the tradfi coverage of Bitcoin industry all year at least — so you're stuck with me talking about them talking about bitcoin on balance sheets (#984224, #991218, #1002405)

I still haven't found an intellectually satisfying explanation for why these tradfi markets value $1 worth of bitcoin, wrapped in a tradfi instrument, at $1.9-$10. Seems insane, seems unstable.

storage? Futures capture? Trapped capital? Bet on future bitcoin banking? Bet on future successful engineering? Positive rollover?

The approach has been pioneered by executives such as bitcoin evangelist Michael Saylor, who has turned his software company Strategy into a warehouse for the digital currency. Other companies are following suit.

...then we get this horror:

More troubling, though, is that a steep decline might also compel companies to sell their tokens—accelerating the selloff—especially if they borrowed heavily to acquire their crypto in the first place. For students of financial history, it is a familiar refrain.

if bitcoin were to fall below $90,000 (just 15% below its current price of $106,000), the crypto holdings of some 30 public companies would be underwater

Matt Levine, my finjournalism idol, correctly observes in Money Stuff the other day that it's not a thing: Strategy's debts don't have to be repaid for years, and the risks for overall financial stability are ridiculously overblown:

I do not personally understand why crypto treasury companies trade at huge premiums to the value of their underlying crypto, but I cannot deny that it’s nice work if you can get it. Sell stock, use the money to buy crypto, never pay it back, and if crypto prices plunge you just go to your shareholders and say “hey guys you really knew what you were getting into” and they’re like “lol yeah we did.” It’s fine! Absolutely perfect funding model.

Plus, a company's investment being mark-to-market underwater doesn't have to be a problem — esp if they can carry the debt for a long time.

non-paywalled: https://archive.md/I5A0T

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61 sats \ 1 reply \ @south_korea_ln 11 Jun

I still haven't found an intellectually satisfying explanation for why these tradfi markets value $1 worth of bitcoin, wrapped in a tradfi instrument, at $1.9-$10. Seems insane, seems unstable.

Is there truly an intellectually satisfying explanation? Do we need one?

"New" bitcoiners seem to be completely fine with holding paper bitcoin. If we then assume it is completely detached from the underlying bitcoin, it can trade at any value the market wants. Fundamentals don't matter, only liquidity does. If that's where the liquidity goes, that's where the action happens. Saylor understood that the market is full of gamestop and robinhood degens. And if those degens are too stupid to realize that the debt does not have to be repaid, all the better for him. The illusion of being tied to Bitcoin but at the same time do better than bitcoin helps his narrative to sucker in the degens.

Side comment. I told my wife Tesla went down by 10%+, she said, let's buy. Didn't even wanna know why it crashed. Because that's what everyone does. The why is a distraction. Liquidity market. Buy the dip. No matter what. If everyone believes it, it's bound to go back up. At least, that's the belief.

0 sats \ 0 replies \ @denlillaapan OP 11 Jun

19 sats \ 1 reply \ @Undisciplined 11 Jun

Your last point is the key to why this works. I suspect we’ll see a bunch of companies overlook it and end up getting rekt.

21 sats \ 0 replies \ @denlillaapan OP 11 Jun

Enjoy the slaughter fest, bois!

29 sats \ 1 reply \ @gbks 11 Jun

Claude's verdict: "This is a speculative capital structure built on a volatile foundation. It's optimized for Bitcoin bull markets but dangerously exposed to even modest downturns. A small loss in BTC price or confidence can cause disproportionate system stress. The structure will work until it doesn’t—then likely collapse fast."

Not pondering too deeply, I think there's a good chance this will end in some sort of mess. There's a lot of arrogance around the bitcoin prize, and people don't seem to be able to resist playing financial games until they get hurt. Glad it's being discussed.

0 sats \ 0 replies \ @denlillaapan OP 11 Jun

I think there's a good chance this will end in some sort of mess. There's a lot of arrogance around the bitcoin prize, and people don't seem to be able to resist playing financial games until they get hurt.

Yes, 100%

17 sats \ 3 replies \ @xz 11 Jun

WSJ needs to clarify on whether it's aware of the different use cases when using words like Crypto and Bitcoin.

24 sats \ 0 replies \ @teemupleb 11 Jun

On June 2, a sports-betting marketing company called SharpLink Gaming SBET -2.45%decrease; red down pointing triangle said it had closed a $425 million private placement led by blockchain company Consensys Software, to become the largest public corporate holder of ether. The announcement, however, sent shares of Nasdaq-listed SharpLink, which is based in Minneapolis, down 28%. The next day, a Canadian renewable-energy company called SolarBank fared better. Its stock closed up more than 1% after announcing its bitcoin treasury strategy.

Also, reading into this excerpt from the article, for them it doesn’t seem to make much of a difference whether it’s a Bitcoin treasury strategy or ETH treasury strategy.

7 sats \ 1 reply \ @south_korea_ln 11 Jun

Tbf, in the context of all this treasury stuff, MSTR stock, derivatives, etc, the Bitcoin and crypto distinction has become increasingly void~~

0 sats \ 0 replies \ @xz 11 Jun

That's true. When I read articles from reporters that mainly cover crypto and investing, I just thought they might try to explain things from first principle, occasionally.