Listed companies follow the trend of micro-strategy to raise doubts, financing to buy bitcoin may become a high-risk measure

By Pedro Solimano, DL News

By Felix, PANews

It all started with MicroStrategy. Nowadays, it seems like every week a new public company announces the hoarding of Bitcoin or other cryptocurrencies.

But here's the catch: investors are willing to give these companies a steep valuation premium just because they buy them.

What happens if their stock doesn't go up as a result?

Take, for example, Japan's Metaplanet, which replicated Michael Saylor's Bitcoin mania at MicroStrategy.

10xResearch said its share price was calculated based on Bitcoin's trading price of $596,154.

That's five times the current price of Bitcoin at around $106,000.

Before the company went all-in on Bitcoin, Metaplanet was an economy hotel operator that later transformed into a blockchain infrastructure provider.

These businesses have been put on hold as the company has been rebranded to transform into a bitcoin reserve company.

In a May 27 report, 10xResearch wrote: "Is it time to go short? The signals we are seeing now are very similar to past inflection points. In

fact, Metaplanet is one of many companies that have followed in the footsteps of the Saylro company, which is now known as Strategy.

On May 27, the Trump Media & Technology Group (TMT) said it planned to raise $2.5 billion to buy Bitcoin.

This week, GameStop, a video game retailer that has gained notoriety for being a "meme stock," bought 4,710 bitcoins, worth about $513 million (at current prices).

Shares of both companies fell.

These new bitcoin reserve companies have adopted a relatively simple strategy: raise capital by issuing convertible bonds, and then use that money to buy large amounts of bitcoin.

Why are there so many people emulating Saylor? In short, it works well for the company.

Since the start of the Bitcoin purchase program in August 2020, Strategy's share price has risen 10x. The company holds more than 576,000 bitcoins, worth about $63 billion.

Proceed with caution

, but sceptics say there are good reasons to be cautious.

First of all, the idea that hoarding Bitcoin or any other cryptocurrency on a company's balance sheet is a surefire is simply nonsense.

Noelle Acheson, a well-known macro analyst, said it was worrying that those who followed Saylor's lead were convinced that this strategy was risk-free. "Especially those who are there when the price of Bitcoin is high."

When Strategy first bought Bitcoin, it was trading at around $11,000, just about a tenth of the current $107,000.

As this strategy gains popularity, analysts and sophisticated investors are likely to focus their attention on one specific metric to cut through the noise – namely net asset value (NAV).

NAV refers to the book value of assets held by a company.

When there is a mismatch in NAV, it means that the company's share price does not align with the actual value of its holdings.

Take Metaplanet, for example.

The company holds 7,800 bitcoins worth about $830 million. However, the company has a market capitalisation of $5.6 billion, which means that one Bitcoin is worth $596154.

In other words, investors pay five times the price of Bitcoin itself to invest indirectly.

According to 10xResearch analysts, "a dangerous NAV distortion is underway".

"We should restrain our enthusiasm for this kind of gimmick." – Noelle Acheson

, which means that Metaplanet's share price (which has risen 233% this month) could reverse its trend at any time.

But don't forget Strategy. Its frequent premiums may be good for shareholders, but they are also worrying.

According to Strategy Tracker data, in 2020, investors valued Strategy stock at more than six times the value of their bitcoin, and more than three times its value last year.

Hedge fund experts like legendary short seller Jim Chanos have been taking advantage of the NAV mismatch to short Strategy and buy more Bitcoin.

insider sell-off

, the crypto reserve strategy is gaining momentum.

Just this week, Trump Media & Technology Group (TMT), the parent company of Trump's social media company, plans to raise $2.5 billion to invest in Bitcoin. But after disclosing the plan, its share price plummeted by 11%.

Why? Some may be worried that insiders will sell their shares.

The company said a possible future share sale would include shares of insiders, such as a trust controlled by his son, Donald Trump Jr., which holds a 57% stake in the company.

At the same time, many companies that have emulated Saylor (some of which are not even crypto companies) have valuations that depend entirely on the amount of Bitcoin they hold.

Semler Scientific manufactures medical devices. After buying 581 BTC, its share price soared by 30%.

Strive Asset Management, founded by former presidential candidate Vivek Ramaswamy, says it has raised $750 million to buy bitcoin, with another $750 million in the pipeline.

Shares of technology company ASST rose 194% after announcing a merger with Strive Asset Management to transform into a bitcoin reserve company.

Twenty One, a startup led by Bitcoin evangelist Jack Mallers and backed by Tether, SoftBank, and Cantor Fitzgerald, emerged with the sole purpose of absorbing as much Bitcoin as possible.

The holding company, called Cantor Equity Partners, has seen its share price rise more than 300% since its inception at the end of April.

The company lists 76 risks associated with its business model, many of which are uncommon.

Nakamoto Inc, led by David Bailey, merged with a healthcare company to raise $700 million to acquire Bitcoin.

Now, macro analyst Noelle Acheson says it makes sense for businesses to include Bitcoin in their asset reserves.

But a large number of businesses have cited Bitcoin as their sole reason for existence, which has indeed sparked some warnings of overhype.

The biggest risk to all these businesses is macroeconomic risk. And in the Trump era, that's a huge factor.

Even Michael Saylor is not immune to geopolitical influences.

Tariffs, rising inflation, and the Federal Reserve's uncertain interest rate policy have made markets nervous. Treasury yields remain stubbornly high, which is particularly worrying as it means that investor confidence in the dollar as a safe-haven asset may be waning.

This is bad for risk-averse assets such as stocks and cryptocurrencies.

All of this means that Saylor's multibillion-dollar bitcoin purchases, which used to boost the top cryptocurrency, are no longer able to do so.

If the share prices of companies like Strategy or Metaplanet continue to rise, other followers may keep popping up. This could further diminish the impact of such Bitcoin purchases.

Acheson wrote: "We should restrain our enthusiasm for such gimmicks.

"Innovative financial engineering always begins out as a fascinating new tool that brings benefits, but inevitably becomes vulnerable as interest and risk become saturated."

Related reading: Opinion: Listed companies raising funds to buy bitcoin are "poisonous" leverage