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As summer transitions into fall in the northern hemisphere, the stonkcoiner vision of bitcoinizing finance is swiftly evolving into a nightmare. The bitcoin paper summer, characterized by issuing shares to oblivious financial markets at (extreme) overestimations to thus acquire bitcoin at a bargain, is concluding, not with a bang of triumph but with a rather underwhelming whimper.
The bitcoin treasury aspiration was appealing; I even candidly acknowledge that it held some logic.
For a brief duration, Wall Street cheerfully indulged the exuberance and fueled the flames. But ultimately, financial gravity is reasserting itself: We’re all awakening from our summer romance with financial illusion, where items were exchanged for more than their actual worth. It’s both remarkable and tragic to witness standard corporate finance regain its footing.
Earlier this year, our own David Bailey, CEO of BTC Inc, the proprietor of Bitcoin Magazine, informed Bitcoin for Corporations, another division of BTC Inc, that “if you can sell a dollar for more than a dollar, you make that trade all day long.”
It turns out, that free-lunch tactic(!) wasn’t actually free… erasing investor capital in the process has been a challenging journey to learn that lesson.
When you — the retail bagholder — are purchasing a security instead of genuine bitcoin, you’re generally doing so at a markup (e.g., an mNAV surpassing 1). Ironically, this is both demonstrably irrational — why purchase a dollar for more than a dollar…? — and the very force that drives these bitcoin treasury firms.
Those of us observing this with warranted skepticism presumed that the mNAVs would converge to approximately 1 via shares depreciating or remaining stable while bitcoin’s fiat value escalated. Fate played a trick on us by plummeting the bitcoin price instead. Consequently, a significant number of these lofty, financial-alchemy monstrosities declined by much larger multiples.
Bailey’s own NAKA, for which Bitcoin Magazine offers certain marketing services, has been the most entertaining (and for many individuals around these parts, financially unfortunate). When NAKA announced a major, $5-billion initiative of share issuance last month, the stock dropped downward about 30% on the announcement — and continued to decline subsequently, suffering a neat 70% drop from its initial surge around the declaration of reverse-merging with KindlyMD; $NAKA has plummeted a staggering 85% from its peak in May, recently hitting a new low of $3.28.
Market prices reflect reality, and the truth here at the twilight of treasury companies’ fanciful delusion is that stuffing corporate balance sheets with retail-acquired equity and debt to procure bitcoin was no route to the promised land.
“The market price indicates whether you’re correct or incorrect,” noted Moshe Shen, managing director at APAC Wintermute Trading, on Day 1 of the recently concluded Bitcoin Asia in Hong Kong. I suppose that reveals enough about the questionable future of Nakamoto and other bitcoin treasury organizations.
The bitcoin treasury enchantment has concluded
The repetitive pump-and-dump cycle of issuing more shares for a bitcoin treasury approach no longer comes with a substantial surge to the share price; it declines, as reason and conventional corporate finance would predict. It doesn’t matter how many thousands of coins Saylor’s Strategy is acquiring, the price of MSTR continues to decrease, having provided a grand total of zero percent return to common shareholders since last November; Metaplanet, having recently surpassed 20,000 coins in hyped-upii celebrations has witnessed its stock regress all the way back to levels prior to the onset of the paper bitcoin summer.
In a recent article detailing the treasury phenomenon, Nikou Asgari from the Financial Times remarked dismissively that, “The crypto-purchasing strategy largely depends on issuing shares or raising debt to acquire bitcoin and other tokens, hoping this spurs share price appreciation.” Minimizing the point, she adds, “Securing capital becomes more challenging as company valuations decline, however.”
When the stock price drops, and the mNAV compresses toward 1, the free-money allure disappears. We’ll discover if the numerous treasury companies in existence have (any?) viability once the era of magical money-printing comes to an end.
Even Tyler Evans of UTXO Management, another BTC Inc and Nakamoto-affiliated company, admitted as much to Asgari in that same FT piece: The market “became irrationally over-inflated,” and that the paper bitcoin summer “marked the apex for both excitement and for the number of firms initiating.”
At the conclusion of the paper bitcoin summer, we observe reality reestablishing itself, significantly recovering from the collective fantasy that market prices in the world’s most liquid markets could deviate so far from mNAV trajectory.
Here’s a bold forecast: In a year’s time, bitcoin treasury companies will be obsolete. Most of the lower-tiered ones won’t endure and will instead relinquish the coins they so greedily and recklessly consumed. The ones with substantial advantages and adept management teams, like Strategy or Metaplanet, will survive, but will see their mNAV shrink to a sliver above zero, where they rightly belong.
The paper bitcoin summer has concluded, and I personally couldn’t be more thrilled to witness these nightmares return to the ethereal dreamlands from which they originated.
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