The "digital currency treasury model" is collapsing

The trend of companies holding digital currencies as treasury assets is rapidly cooling down.

According to media statistics, the pace of U.S. companies purchasing Bitcoin has continued to slow in recent months, dropping to its lowest level since April in September. Market analysts attribute this trend to an oversupply of stocks from related companies and investor concerns about the sustainability of this business model.

Some digital currency treasury concept stocks have plummeted over 50% since announcing their plans, with a quarter of the related listed companies' stock prices falling below the value of their digital asset holdings, while some companies are facing regulatory scrutiny. In contrast, the Russell 2000 index, which represents small-cap stocks, rose 12% in the third quarter.

This development poses a direct impact on the digital asset market and related investors, indicating that the Bitcoin bull market driven by corporate treasury demand may be losing momentum.

The Treasury Strategy Craze Rapidly Cools

Data on corporate Bitcoin purchases shows a clear decline in market enthusiasm. According to bitcointreasuries.net, companies purchased 37,881 Bitcoins in September, a significant drop from 49,303 in August and 103,250 in July.

This strategy initially gained momentum after Trump publicly supported the digital asset industry. Within months, dozens of companies announced a shift from traditional business focuses, such as biotechnology and agricultural equipment, to investments in Bitcoin and other digital currencies.

However, the situation has now reversed. K33 Research data shows that a quarter of listed companies adopting Bitcoin treasury strategies have stock prices that have fallen below the total value of their digital token holdings. When a company's stock price is below the value of its token holdings, it affects its ability to issue new shares to raise funds for purchasing more digital currencies.

As a pioneer of this strategy, Strategy (formerly MicroStrategy) is also facing valuation pressure. The company's stock price fell 20% in the third quarter, and it is currently trading at only 1.5 times its Bitcoin holding value, far below the peak period of over 3 times.

Bankers and market analysts attribute this predicament to the oversupply of stocks issued privately to investors by digital currency treasury companies. These companies have adopted the same strategy to finance digital asset purchases, but the market cannot absorb such a large supply simultaneously.

Jerry Serowik, head of capital markets at Cohen & Co., stated:

The market cannot absorb an unlimited number of such companies. New stock issuances are expected to slow down, and then the capital markets will focus on listed companies, helping them raise incremental capital to scale up.

Mergers and Acquisitions Become a Solution

Faced with market saturation, the industry is beginning to seek consolidation solutions.

Last week, Strive, an asset management company co-founded by Vivek Ramaswamy, who participated in the presidential campaign, announced the acquisition of Semler Scientific, a former medical device company that will join the Bitcoin treasury craze in May 2024 Strive's stock price has a premium relative to its Bitcoin holdings, while Semler does not. After the merger, the two companies will jointly hold over 10,900 Bitcoins. Market data shows that investors are more willing to pay a premium for shares of larger cryptocurrency companies.

Wall Street bankers expect that there may be more transactions between capital-rich companies and smaller struggling firms, which will help to squeeze out the excess stock supply in the market. Serowik pointed out:

If you look at which companies have the highest trading multiples, they are usually those with the largest Bitcoin reserves and the right management teams. The M&A market will become another avenue for these companies to acquire more Bitcoins