The Growing Trend of Bitcoin Reserve Strategy Companies: How Large-Scale Buying Drives Up Prices and Becomes a Potential Market Time Bomb?
In the past six months, the high price of Bitcoin has been driven largely by a new type of enterprise focused on acquiring Bitcoin through leverage known as “Bitcoin Acquisition Vehicles.” However, while boosting market sentiment and driving prices up, concerns are gradually emerging: “If specific companies control a large amount of Bitcoin, will it impact liquidity and volatility, and could it potentially undermine Bitcoin’s potential as a ‘central bank reserve asset’?”
From Financial Strategies to Leveraged Funds: The Bitcoin Investment Wave Sparked by MicroStrategy
Recently, several “Bitcoin Acquisition Vehicles” have focused on purchasing Bitcoin through leveraged operations and financial innovations, making it the core of their asset allocation. Since MicroStrategy (now Strategy) made a significant investment in Bitcoin in 2020, this strategy has attracted many companies to follow suit, including Tesla, Twenty One Capital, GameStop, and even Trump Media.
(Strategy Leads the Trend: A Comprehensive Guide to Bitcoin Reserve Strategy Companies)
Initially, these companies were motivated by a hedge against fiat currency inflation. However, as Bitcoin prices surged, these enterprises began issuing convertible bonds or preferred stocks as financial instruments to leverage their Bitcoin positions, transforming into entities akin to “closed-end funds.” As of now, Strategy holds over 580,000 Bitcoins, valued at nearly $63 billion, accounting for approximately 2.8% of the total supply. When considering the actual circulation, the ratio is even higher.
Top Five Bitcoin Reserve Strategy Companies
Leverage and Premium: The Financial Magic of Combining Bitcoin with Equity and Convertible Bonds
Bitcoin reserve strategy companies raise funds through equity or convertible bonds to purchase Bitcoin. If their stock price exceeds the actual asset value, investors will pay a “premium” to buy the shares, which can then be used to increase their Bitcoin holdings, further boosting the per-share value and creating a positive feedback loop. Sygnum, a licensed cryptocurrency bank in Switzerland, is concerned that this model may not sustain indefinitely: when market demand saturates, sentiment wanes, or Bitcoin prices decline, the shares may trade at a “discount,” harming existing investors and making it difficult for new funds to enter.
Moreover, when Bitcoin prices fall sharply, these companies may be forced to sell Bitcoin to repay debts, exacerbating market downturn pressure and severely damaging market confidence.
(MicroStrategy’s Liquidity Concerns Resurface: How Will Bitcoin Price Drops Impact This Company?)
Sygnum: Strategic Hoarding of Bitcoin May Distance it from Central Bank Reserves
Sygnum warns that the large-scale Bitcoin hoarding behavior by Strategy and its imitators is undermining the feasibility of Bitcoin becoming a central bank reserve asset: Bitcoin’s decentralization and high liquidity are the foundations of its status as “digital gold,” but when a single entity controls too many tokens, it will weaken its neutrality and acceptability as a safe asset. The liquidity and volatility of Bitcoin are critical considerations for many institutions and central banks; however, these “leveraged buyers” are distorting these structures, potentially driving more conservative funds away.
Market Contribution and Systemic Risk: The Double-Edged Sword of the Bitcoin Reserve Craze
It is undeniable that Bitcoin acquisition companies play a significant role in driving market prices and expanding investment exposure, filling the gap left by ETFs or other regulated investment products. However, as more companies enter this arena, investors must be aware of valuation ceilings and systemic risks. Sygnum also cautions: packaging these companies as “corporate financial strategies” is misleading, as their nature is closer to “high-risk investment funds.” After all, while strategic buying can be exhilarating, when prices fall, fundraising becomes difficult, or regulatory environments change, these companies could become potential “pressure points for selling.”
(CZ Discusses Bitcoin Reserve Companies: Not Taking Risks is the Biggest Risk!)
Risk Warning
Cryptocurrency investments carry a high level of risk, and their prices can be highly volatile, resulting in the loss of your entire principal. Please assess risks carefully.
