I think it's quite comical that these days a couple of traditional companies are being called “Bitcoin treasury companies” with little to no references being given to what these companies are originally set up to do.
I mean, we did expect institutional adoption at some point, but having their business identities completely replaced by their Bitcoin ventures is not something most could have imagined.
As more and more companies embrace the bitcoin treasury strategy, it's crucial to ask what becomes of them in the long-term. How does it all play out? especially considering that further expansion would essentially lead to these strategies becoming perceived as less exciting by market participants.
I revisited a report on Cointelegraph from about a week ago that I had bookmarked for later on Bitcoin treasury companies and as I read through, it dawned on me that the adoption of Bitcoin treasury strategy by traditional companies was making the public perceive them differently.
Just as with the first mover, Strategy (formerly Microstrategy), most people just know it for being a Bitcoin buying company with reportedly over $70 billion in valued holdings and only few others understand that it's supposed to be some software company, at least amongst those actively watching and talking about it. The reality here is that Strategy’s Bitcoin purchases have become its identity, hence the concept of the company’s flagship product is changing.
So if this is happening with Strategy, will it be the same case of new entrants? And how does that, in itself, influence their long term performance?
I do not necessarily think that the same effects Bitcoin purchases have had with Strategy will play out with other companies, although some aspects may remain consistent, especially if said entrants entirely adopt the Strategy playbook, which involves the practice of raising capital to buy Bitcoin.
But what's really to be expected or guaranteed?
A crypto analyst says the Bitcoin treasury strategy may not have the longevity many expect, warning that the easy upside may already be behind new companies entering the space.
“My instinct is the Bitcoin treasury strategy has a far shorter lifespan than most expect,” Glassnode lead analyst James Check said in an X post on Friday.
“For many new entrants, it could already be over,” Check said, adding that it’s not “about a measuring contest” but rather how sustainable a company’s product and strategy are when it comes to long-term Bitcoin accumulation.
“I think we’re already close to the ‘show me’ phase, where it will be increasingly difficult for random company X to sustain a premium and get off the ground without a serious niche.” — Cointelegraph report
When most people hear “Bitcoin treasury companies” all they think about is numbers going up and they simply conclude that said companies will perform well.
The reality is that it isn't that simple. Companies buying up bitcoin have existing products and services, if they are shifting their focus to investing in bitcoin, they have to be completely ready to make significant reforms in how capital is perceived and managed in the company because Bitcoin does not offer the stability that is prioritized by most traditional businesses.
When we consider that some of these companies are buying bitcoin with a percentage of their cash reserves (revenue in most cases, I presume) while others are raising capital to do so, we can conclude that this is likely to play out very differently with each company across the board.
Those buying with reserves are less likely to face significant problems running their businesses whilst those raising capital for purchases may run into problems if the strategies do not ensure consistent positive performance, a reality that is largely expected.
At the end of the day, the real winner here appears to be Strategy as it is in the most advantaged position and it does really explain the aggressive purchases. It's about staying so far ahead that being above profit is easy as new entrants pile up.