Analyst Warns of Impending Collapse of Bitcoin Treasury Imitators

The strategy of increasing company capitalization through the formation of corporate Bitcoin reserves may not be as sustainable as many believe, according to on-chain analyst James Check.

He pointed out that for most newcomers in this sector, «the opportunity might already be gone.»

«It’s not about competition in scale, but rather how robust and enduring your product and strategy for maintaining reserves are,» Check stated.

He added that companies that begin imitating the Treasury strategy of accumulating Bitcoin through equity and debt capital will find it increasingly difficult to attract such funding. Investors are likely to favor earlier adopters.

«No one needs a company number 50 with a treasury. I think we’re already approaching a ‘prove it to me’ phase, where a random company X will find it harder to maintain its high standing and advance without a solid niche,» Check remarked.

According to BitcoinTreasuries, the number of enterprises holding Bitcoin on their balance sheets has reached 255, with 21 new firms joining in the last 30 days.

In terms of corporate Bitcoin reserves, Strategy leads by a significant margin, holding 597,325 BTC, while the second-ranked mining company, MARA Holdings, has 50,000 BTC.

Check shared the opinion of Taproot Wizards co-founder Udi Wertheimer that many firms view the Bitcoin treasury strategy merely as a way to achieve quick profits without understanding its true nature.

«Weaker firms could be acquired at a discount by stronger ones, and trends may lead to additional developments,» the entrepreneur added.

Check noted that retail investors primarily fuel the flow of funds into the bonds or stocks of companies with BTC reserves, and their capital «is not infinite.» Moreover, Strategy has far greater opportunities to attract funding compared to a hypothetical «number 300» in the niche, he emphasized.

He found it challenging to predict when companies in this segment might falter, citing hopeful expectations regarding Bitcoin prices.

Few companies accumulating digital gold are likely to withstand the test of time and avoid entering a «death spiral,» specialists from the venture firm Breed stated.

Businesses that buy cryptocurrency using borrowed capital, focusing solely on building Bitcoin reserves, are particularly at risk.

These firms require a constant influx of funding. The attractiveness of investments for investors is supported by a premium on the company’s value, reflected in the Multiple on Net Asset Value (MNAV) metric. This ratio is calculated by dividing the company’s market capitalization by the dollar value of the cryptocurrency held on its balance sheet.

«The market does not reward a company with MNAV just because it owns Bitcoins. This occurs when investors believe that the management can reliably increase ‘BTC per share’ faster than they could do themselves,» experts from Breed explained.

The primary threat is a prolonged bear market, which could «undermine» MNAV, bringing company valuations closer to their net asset value (NAV). The need to refinance debt amid declining fundraising capabilities could force companies to partially liquidate reserves. Such sales could exert downward pressure on Bitcoin prices and potentially trigger a cascading effect, according to the report’s authors.

«New companies with treasuries face this risk even more acutely. Without the scale, reputation, and passive index inflows that Strategy has, they are likely to attract capital under harsher conditions and with higher leverage ratios,» the experts noted.

However, they assessed that the chances of a widespread market contagion are low, as most Bitcoin purchases are made with equity capital.

Breed specialists also supported Wertheimer’s view that strong players in the segment will absorb competitors that are struggling.

Fakhlul Miakh, Managing Director at GoMining Institutional, expressed concern during an interview with Cointelegraph about the rapid proliferation of companies mimicking Strategy.

«There are now other companies attempting to create Bitcoin banks without proper security measures or risk management. If these smaller firms fail, we could see a ripple effect that harms the cryptocurrency’s reputation,» he stated.

It’s worth noting that analysts from Coinbase Institutional identified the growing popularity of corporate Bitcoin reserves as one of the major systemic risks for the market.