Bitcoin Downturn Seeps Into Crypto Treasury Space

A recent downturn in the price of cryptocurrencies is reportedly impacting the so-called “crypto-treasury” space.

That’s according to a report Sunday (Nov. 9) from The Wall Street Journal (WSJ), which noted that this trend has some investors doubling down, and others feeling vindicated.

For most of this year, this report said, companies followed the same path: selling shares or borrowing funds and putting that cash into crypto. It’s a method pioneered by Michael Saylor in 2020 when he turned his software company, then called MicroStrategy, into a bitcoin-focused firm now-called Strategy.

But now, with the price of bitcoin and ether falling, shares of Strategy and its imitators are doing the same. Strategy’s price peaked at $128 billion in July, and is down to $70 billion, the WSJ report said. Saylor, the report added, has stayed optimistic, posting on social media that bitcoin is on sale. However, crypto treasury skeptics had been waiting on this pullback, WSJ said.

“The whole concept makes no sense to me. You are just paying $2 for a one-dollar bill,” said Brent Donnelly, president of Spectra Markets. “Eventually those premiums will compress.”

The price of bitcoin has been hitting record highs this year, but has been on a downturn recently amid investor concerns about steep valuations for artificial intelligence (AI) companies.

Writing about the crypto treasury trend earlier this year, PYMNTS contended that bitcoin’s increasing role in corporate treasuries signals a fundamental rethinking of how businesses store value, handle inflation risk and dole out capital. However, companies might take a more measured and diversified approach than the likes of Strategy.

“Rather than going all-in on bitcoin, CFOs may choose a hybrid treasury model, maintaining a mix of cash, fixed-income assets and bitcoin to balance liquidity needs with long-term appreciation potential,” that report added.

In another report earlier this year, PYMNTS looked at the potential risks CFOs face in holding bitcoin on the company balance sheets.

That report pointed to a study by British economists this year which examined 39 bitcoin-holding public companies, finding that between corporate equities and bitcoin returns, some companies surpassed a beta of 1, which means their stock returns were more volatile than bitcoin itself.

“The data underscores that crypto-rich treasuries expose shareholder value to crypto’s wild swings,” PYMNTS added. “The logic follows that firms with relatively larger crypto positions are more exposed to volatility.”