Public companies following MicroStrategy face skepticism, and financing to buy Bitcoin may become a high-risk move.

Author: Pedro Solimano, DL News

Compiled by: Felix, PANews

It all started with MicroStrategy. Nowadays, it seems that a new publicly traded company announces the accumulation of Bitcoin or other cryptocurrencies every week.

But there is a problem here: investors are willing to give these companies a high valuation premium simply because they buy Bitcoin.

What will happen if their stocks do not rise as a result?

Taking Japan's Metaplanet company as an example, it replicated Michael Saylor's Bitcoin frenzy at MicroStrategy.

10xResearch indicates that its stock price is calculated based on the trading price of Bitcoin at $596,154.

This is five times the current price of Bitcoin, which is about $106,000.

Before the company fully committed to Bitcoin, Metaplanet was a budget hotel operator that later transformed into a blockchain infrastructure provider.

With the company's rebranding and transformation into a Bitcoin reserve company, these operations have been put on hold.

10xResearch wrote in a report on May 27: "Is it time to short? The signals we are seeing now are very similar to past turning points."

One of many companies

In fact, Metaplanet is one of many companies following in the footsteps of Saylro, which has now been renamed Strategy.

On May 27, Trump Media & Technology Group (TMT) announced plans to raise $2.5 billion to purchase Bitcoin.

This week, the video game retailer GameStop, which became famous for being a "meme stock," purchased 4,710 bitcoins, worth approximately $513 million (based on current prices).

The stock prices of both companies have fallen.

These new Bitcoin reserve companies have adopted a relatively simple strategy: raising funds by issuing convertible bonds and then using that money to purchase large amounts of Bitcoin.

Why have so many people suddenly emerged to imitate Saylor? In short, it has had a significant effect on companies.

Since the implementation of the Bitcoin purchasing program in August 2020, Strategy's stock price has increased tenfold. The company holds over 576,000 Bitcoins, worth approximately $63 billion.

Proceed with caution

But skeptics argue that there are good reasons to remain cautious.

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

Renowned macro analyst Noelle Acheson stated that those who emulate Saylor are convinced that this strategy is risk-free, which is concerning. "Especially those who entered the market when Bitcoin prices were high."

When Strategy first purchased Bitcoin, the trading price was around $11,000, only about one-tenth of the current $107,000.

As this strategy becomes increasingly popular, analysts and seasoned investors may focus their attention on a specific metric to eliminate noise—namely, Net Asset Value (NAV).

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

When NAV mismatches, it means that the company's stock price is inconsistent with the actual value of its held assets.

Taking Metaplanet as an example.

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

In other words, the price that investors pay for indirect investment in Bitcoin is five times the price of Bitcoin itself.

10xResearch analysts indicate that "a dangerous NAV distortion is quietly forming."

"We should restrain our enthusiasm for such gimmicks." — Noelle Acheson

This means that the stock price of Metaplanet (which has risen 233% this month) could reverse its trend at any time.

But don't forget about the Strategy. Its frequent premiums may benefit shareholders, but they are also worrisome.

According to Strategy Tracker data, in 2020, investors valued Strategy stocks at more than six times their Bitcoin value, which exceeded three times their value last year.

Hedge fund experts like legendary short seller Jim Chanos have been shorting Strategy by exploiting the phenomenon of NAV mispricing and buying more Bitcoin.

Insider selling

At the same time, cryptocurrency reserve strategies are gaining significant momentum.

This week, the parent company of Trump's social media company, Trump Media & Technology Group (TMT), plans to raise $2.5 billion for investment in Bitcoin. However, after disclosing the plan, its stock price plummeted by 11%.

Why? Some people may be concerned that insiders will sell off their shares.

The company stated that any future stock sales may include shares from some insiders, such as the trust controlled by its son, Donald Trump Jr., which holds 57% of the company's shares.

At the same time, many companies that emulate Saylor (some of which are not even cryptocurrency companies) have their valuations entirely dependent on the amount of Bitcoin they hold.

Semler Scientific manufactures medical devices. After purchasing 581 bitcoins, its stock price soared by 30%.

Strive Asset Management, founded by former presidential candidate Vivek Ramaswamy, has stated that it has raised $750 million to purchase Bitcoin, with another $750 million in preparation.

The technology company ASST announced its merger with Strive Asset Management, transforming into a Bitcoin reserve company, and its stock price subsequently rose by 194%.

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

Since its establishment at the end of April, the holding company named Cantor Equity Partners has seen its stock price rise by over 300%.

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

Nakamoto Inc, led by David Bailey, merges 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.

However, a large number of enterprises use Bitcoin as the sole reason for their existence, which indeed raises certain warnings about excessive speculation.

The biggest risk faced by all these businesses is macroeconomic risk. And during the Trump era, this was a huge factor.

Even Michael Saylor cannot escape the influence of geopolitics.

Tariffs, rising inflation, and the uncertain interest rate policies of the Federal Reserve are causing market unease. Treasury yields remain high, which is particularly concerning as it suggests that investor confidence in the dollar as a safe-haven asset may be waning.

This is unfavorable for risk-oriented assets such as stocks and cryptocurrencies.

All of this means that Saylor's billions of dollars in Bitcoin purchases, which used to boost this top cryptocurrency, no longer have that effect.

If the stock prices of companies like Strategy or Metaplanet continue to rise, other followers may continue to emerge. This could further weaken the influence of such behavior in purchasing Bitcoin.

Acheson wrote: "We should restrain our enthusiasm for this kind of gimmick."

"Innovative financial engineering initially always appears as a fascinating new tool that can generate profits, but as interest and risk saturate, it inevitably becomes fragile."