Original Title: "This metric shows the risks of chasing Michael Saylor’s Bitcoin price strategy"

Author: Pedro Solimano, DL News

Translation by: Felix, PANews

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

But here’s the problem: investors are willing to give these companies a high valuation premium simply because they are buying Bitcoin.

What happens if their stock prices do not rise as a result?

Take Japan's Metaplanet as an example, which replicated Michael Saylor's Bitcoin frenzy at MicroStrategy.

10xResearch states that its stock price is calculated based on a Bitcoin trading price of $596,154.

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

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

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

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

One of Many Companies

In fact, Metaplanet is one of many companies following in Saylor's footsteps, and Saylor's company 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 gained fame as a "meme stock," purchased 4,710 Bitcoins worth about $513 million (at current prices).

The stock prices of both companies have declined.

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

Why has there been such a sudden surge of followers of Saylor? In short, it has proven effective for companies.

Since implementing its Bitcoin purchase plan in August 2020, Strategy's stock price has increased tenfold. The company holds over 576,000 Bitcoins, valued at about $63 billion.

Proceed with Caution

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

First, 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.

Noted macro analyst Noelle Acheson states that those emulating Saylor are convinced that this strategy is risk-free, which is concerning. "Especially for 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 has gained popularity, analysts and seasoned investors may focus on a specific metric to cut through the noise—namely, Net Asset Value (NAV).

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

When there is a mismatch in NAV, it means that the company's stock price is not aligned with the actual value of its assets.

Take Metaplanet as an example.

The company holds about $830 million worth of 7,800 Bitcoins. However, the company's market capitalization is $5.6 billion, which means one Bitcoin is valued at $596,154.

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

10xResearch analysts state, "A dangerous NAV distortion is quietly forming."

"We should restrain our enthusiasm for this hype." — Noelle Acheson

This means that Metaplanet's stock price (which has risen 233% this month) could reverse at any moment.

But let’s not forget about Strategy. Its frequent premiums may benefit shareholders, but they are also concerning.

According to Strategy Tracker data, in 2020, investors valued Strategy's stock at more than six times its Bitcoin value, and last year it exceeded three times its value.

Hedge fund experts like legendary short-seller Jim Chanos have been shorting Strategy by taking advantage of the NAV mismatch phenomenon while buying more Bitcoin.

Insider Selling

Meanwhile, the cryptocurrency reserve strategy is gaining significant momentum.

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

Why? Some may worry that insiders will sell their shares.

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

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

Semler Scientific, which produces medical devices, saw its stock price soar 30% after purchasing 581 Bitcoins.

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

Tech company ASST announced a merger with Strive Asset Management to transform into a Bitcoin reserve company, and its stock price subsequently rose 194%.

A startup called Twenty One, led by Bitcoin evangelist Jack Mallers and supported by Tether, SoftBank, and Cantor Fitzgerald, was created solely to accumulate as much Bitcoin as possible.

The holding company Cantor Equity Partners has seen its stock price rise over 300% since its establishment at the end of April.

The company listed 76 risks associated with its business model, many of which are not commonly seen.

Nakamoto Inc, led by David Bailey, merged with a healthcare company to raise $700 million to acquire Bitcoin.

Now, macro analyst Noelle Acheson states that it makes sense for companies to incorporate Bitcoin into their asset reserves.

However, the fact that many companies are using Bitcoin as their sole reason for existence does raise certain warnings about excessive speculation.

The biggest risk all these companies face is macroeconomic risk. And during the Trump era, this is a significant factor.

Even Michael Saylor cannot escape the influence of geopolitics.

Tariffs, rising inflation, and the Federal Reserve's uncertain interest rate policies have left the market on edge. Treasury yields remain high, which is particularly concerning as it suggests that investors may be losing confidence in the dollar as a safe-haven asset.

This is detrimental to risk-sensitive assets like stocks and cryptocurrencies.

All of this means that Saylor's multi-billion dollar Bitcoin purchases, which once boosted this top cryptocurrency, no longer have the same effect.

If companies like Strategy or Metaplanet continue to see their stock prices rise, other followers may continue to emerge. This could further weaken the impact of such Bitcoin purchases.

Acheson wrote, "We should restrain our enthusiasm for this hype."

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

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