Retail investors have lost an estimated $17 billion in an attempt to gain Bitcoin exposure through digital asset treasury firms such as Metaplanet and Michael Saylor’s Strategy, according to a new research report. These losses came from an overpricing of share premiums that allowed these companies to sell stock for far above the value of their actual crypto holdings.
Those share prices have now collapsed, leaving a multitude of individual investors holding the bag. “The age of financial magic is ending for Bitcoin treasury companies,” analysts at Singapore-based 10X Research wrote in a report released Friday.
Retail investors “effectively lost around $17 billion, and new shareholders overpaid for Bitcoin exposure by an estimated $20 billion,” according to the report, titled “After the Magic: How Bitcoin Treasury Firms Must Evolve Beyond NAV Illusions.” As evidence, the author noted Strategy’s stark reality: shares of the firm now trade just 1.4 times the value of its Bitcoin holdings, which is down from premiums that were triple or quadruple the value in the past.
The strategy of most Bitcoin treasury firms was a fairly simple one: sell shares at a premium to the company’s net asset value, use the spread to buy Bitcoin, rinse, repeat. From a $1 billion investment in Bitcoin, Metaplanet’s market value soared to $8 billion before falling to $3.1 billion while holding $3.3 billion in Bitcoin, the researchers noted.
“In the process, shareholders lost $4.9 billion in value, while the company managed to accumulate $2.3 billion worth of Bitcoin — a feat worthy of applause,” they wrote.
This compression between market value and share price is cause for concern, according to the report. What these businesses now need, they say, is a new approach to survive.
In their view, Bitcoin treasury firms need to move away from paying for their Bitcoin with “inflated” NAVs to functioning more like arbitrage-driven asset managers. While this may reduce Bitcoin’s upside potential, the ability of a Bitcoin treasury firm to adapt to this new model is what will make or break their bottom line.
“The smarter DAT firms will still be able to generate 15–20% annual returns,” researchers wrote.
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