This metric shows the risks of chasing Michael Saylor’s Bitcoin price strategy

It all began with MicroStrategy. Now every week it feels like yet another listed company is stockpiling Bitcoin, or other cryptocurrencies.

But there’s a problem — investors are willing to value those companies at a hefty premium just because they bought Bitcoin.

And what happens if their shares don’t rise as a result?

Take Metaplanet, a Japanese firm that replicated Michael Saylor’s Bitcoin binge at MicroStrategy.

Its stock is priced as if Bitcoin was trading at $596,154, said 10xResearch.

That’s five times Bitcoin’s price of about $106,000.

And before the company went all-in on Bitcoin, it operated as a budget hotel operator, later pivoting to become a blockchain infrastructure provider.

Those businesses have fallen by the wayside as the company rebranded itself to become a Bitcoin treasury company.

“Time to short?” wrote 10xResearch in a May 27 report. “The signals we see now closely resemble past inflection points.”

One of many

Indeed, Metaplanet is one of many following in the footsteps of Saylro’s firm, which is now called Strategy.

On Tuesday, Trump Media & Technology Group, or TMT, said it was planning to raise $2.5 billion to buy Bitcoin.

This week, GameStop, the video game retailer that became famous as a memestock, bought up 4,710 Bitcoin worth $513 million at today’s prices.

The shares of both companies fell.

These new Bitcoin treasury companies are employing a relatively simple strategy: Raise capital by issuing convertible debt, then use that money to gobble up Bitcoin.

Why the sudden onslaught of Saylor copycats? In a word, it worked wonders for Strategy.

Since it began its Bitcoin buying plan in August 2020, its stock price has multiplied 10-fold. The firm holds more than 576,000 Bitcoin worth about $63 billion.

Be careful

But sceptics say there is ample reason for caution.

For starters, the idea that stockpiling Bitcoin or any other cryptocurrency on a company balance sheet is a sure thing is nonsense.

Noelle Acheson, the influential macro analyst, said Saylor copycats’ certainty that this stratagem is no risk is “alarming.”

“Especially for those getting into the structure at a much higher BTC price.”

When Strategy first bought Bitcoin, the asset traded at about $11,000, or nine times less than its current price of $107,000.

As the treasury approach picks up momentum, analysts and sophisticated investors are likely to zero in on one particular metric to cut through the noise — net asset value, or NAV.

NAV is what a company’s holdings are worth on paper.

When there’s a NAV mismatch, it means a company’s stock price gets out of line with the actual value of what it owns.

Take Metaplanet.

$830 billion

The firm holds 7,800 Bitcoin worth about $830 million. The company’s market capitalisation, however, has is $5.6 billion, which implies Bitcoin is worth $596,154.

In other words, investors are paying fivefold the price of Bitcoin for indirect exposure to the crypto itself.

10xResearch analysts said there’s “a dangerous NAV distortion forming beneath the surface.”

‘We should temper our enthusiasm for the gimmick.'

Noelle Acheson

This means Metaplanet’s stock price — which is up 233% this month — could reverse course at any moment.

Let’s not forget about Strategy. Its frequent premium may be a boon for stockholders, but it’s also a concern.

In 2020, investors valued Strategy stock at more than six times its value in Bitcoin, and last year it topped three times its value, according to Strategy Tracker.

Hedge fund pros such as Jim Chanos, the legendary short seller, have been seizing on the NAV mismatch to short Strategy, and to pick up more Bitcoin.

Insider selling

Meanwhile, the crypto treasury approach is picking up a lot of momentum.

Just this week, Trump Media & Technology Group, or TMT, the umbrella company for Donald Trump’s social media firms, plans to raise $2.5 billion to pile into Bitcoin.

But its stock plummeted 11% after revealing its plans.

Why? Some might fear that insiders will sell their shares.

The company said that potential future stock sales would include some by insiders such as a trust controlled by his son Donald Trump Jr, who controls 57% of the company’s shares.

At the same time, many Saylor copycats — some of which aren’t even crypto firms — are being valued solely by holding Bitcoin.

Semler Scientific makes medical devices. Its stock surged 30% after it bought 581 Bitcoin.

Strive Asset Management, founded by former presidential hopeful Vivek Ramaswamy, said it raised $750 million for Bitcoin buys — with another $750 million in the pipeline.

Flood of business

Shares of the tech company ASST rose 194% after it announced a merge with Strive Asset Management to become a Bitcoin treasury company.

Twenty One, a new venture led by Bitcoin evangelist Jack Mallers, and backed by Tether, SoftBank, and Cantor Fitzgerald, appeared with the sole purpose of hoovering up as much Bitcoin as it can.

Shares of the holding company called Cantor Equity Partners, are up over 300% since it launched in late April.

The company lists 76 risks associated to its business model— many of which are unusual.

Nakamoto Inc., led by Bitcoin Magazine chairman David Bailey, merged with a healthcare firm to raise $700 million to buy Bitcoin.

Now, macro analyst Noelle Acheson said that Bitcoin in corporate treasuries makes sense.

“But the flood of businesses making Bitcoin their entire reason for being does set off some hype alarms.”

The big risk for all these ventures is macroeconomic risk. And in the age of Trump, that’s a massive factor.

Not even Michael Saylor can’t outrun geopolitics.

Tariffs, rising inflation, and the Federal Reserve’s uncertain interest rate policies have markets on edge. Treasury yields remain high, which is especially worrisome because it means investors may be losing confidence in the US dollar as a safe haven.

This is all bad for risk-on assets like stocks and crypto.

All of this means that Saylor’s billion-dollar Bitcoin buys, which used to juice the top cryptocurrency, no longer do so.

If share prices continue to rise for companies like Strategy or Metaplanet, other copycats are likely to continue cropping up. This may further dilute the impact of such buying in Bitcoin.

“We should temper our enthusiasm for the gimmick,” wrote Acheson.

“Innovative financial engineering always starts out as a fascinating new tool to generate returns, but inevitably becomes fragile as interest and risk get saturated.”

Pedro Solimano is a markets correspondent based in Buenos Aires. Got a tip? Email him at psolimano@dlnews.com.