The Bitcoin treasury companies that firmly hold their coins may ultimately prevail.

Author: Cheshire Capital

Translated by: Deep Tide TechFlow

I would like to speculate on the possible development paths of Bitcoin treasury companies (BTC Treasury Companies, abbreviated as TC) over the next 6 to 12 months:

1. Initial Stage: 10 different treasury companies hold Bitcoin and trade at varying levels of mNAV (market value net asset multiple) (ranging from 1.0x to 5.0x), with Bitcoin priced at $120,000. These companies vary in quality (quality defined by treasury size and the leadership's belief and marketing ability).

2. Low-Quality Companies Begin to Sell: Some low-quality Bitcoin treasury companies start to fall below 1.0x mNAV. For those companies whose leaders are not firm believers in Bitcoin (like Michael Saylor), the logical choice is to sell Bitcoin to repurchase stock, which has a short-term value-adding effect (the reduction in the number of shares outstanding is greater than the decline in net assets). These companies can sell some Bitcoin at $120,000.

3. Bitcoin Price Drops to $115,000 (now fluctuating around $90,000): Due to the sell-off in step 2, the Bitcoin price begins to drop to $115,000. Some other Bitcoin treasury companies, including those that previously repurchased stock, start trading at lower mNAVs due to the negative correlation between Bitcoin price and mNAV. Another 4 to 5 companies choose to sell Bitcoin to repurchase stock, and these companies can sell Bitcoin at $115,000.

4. Market Confidence Shaken: The market realizes that 8 to 9 of these 10 Bitcoin treasury companies are actually short-term capital, more focused on immediate shareholder interests rather than long-term accumulation of Bitcoin. The market begins to anticipate that these companies may need to sell 30%-50% of their Bitcoin reserves (after all, even MicroStrategy fell to about 0.5x mNAV at its lowest in 2022). Bitcoin price quickly adjusts to $100,000, and most Bitcoin treasury companies' mNAV falls below 1.0x.

5. Pressure on Medium-Quality Companies Intensifies: Those medium-quality crypto treasury companies that were previously hesitant to sell Bitcoin come under pressure from the market and shareholders, beginning to take action to maintain their mNAV. The sell-off accelerates, with about $500 million to $1 billion in Bitcoin sell orders entering the market each week. Even high-quality companies (like MicroStrategy, 3350, XXI) struggle to support prices through buy orders, and Bitcoin price drops to $90,000.

6. Complete Collapse: The entire Bitcoin treasury company system, including high-quality companies, now trades below 1.0x mNAV. MicroStrategy's preferred stock price falls to 70 cents on the dollar, and market rumors suggest Saylor may suspend dividends. Some companies previously considered strong Bitcoin holders (like 3350, XXI) begin to sell Bitcoin to cover operating costs, and Bitcoin price plummets to $80,000.

7. Low-Quality Companies Exit the Market, Sell-Off Intensifies: At this point, most low-quality Bitcoin treasury companies have nearly completely liquidated their Bitcoin reserves, and early "catching the falling knife" behavior emerges in the market. However, the danger of this reflexive cycle is that as the scale and speed of the sell-off increase, medium to high-quality companies also begin to capitulate. The largest Bitcoin holdings start entering the market, with weekly sell-off volumes reaching $1.5 billion to $3 billion. It is important to note that non-MicroStrategy BTC treasury companies hold a total of about 350,000 Bitcoins, worth approximately $40 billion at current prices. If MicroStrategy is forced to participate, this sell-off could continue for quite a while and become even more severe. Bitcoin price ultimately drops to $70,000.

If the above scenario occurs, the following outcomes may arise:

• Low-Quality Bitcoin Treasury Companies May Actually Profit the Most: Because they will be the first to be "forced" to sell Bitcoin. In reality, selling Bitcoin means these companies have stopped the iterative game of being a treasury company and shifted focus to maximizing the next round of value in a one-time game. However, even a single sell-off will destroy their reputation as "diamond hands" treasury companies, significantly reducing future capital inflows.

• Firm Holders of Bitcoin Treasury Companies May Ultimately Prevail: If you believe Bitcoin is still an asset with a compound annual growth rate (CAGR) of 30-40% (I believe!), those companies that hold firm during market turmoil will eventually weather the storm. Currently, I believe only Michael Saylor will do everything possible to hold onto his Bitcoin, but there may also be other candidates (like 3350, NAKA). Nevertheless, no treasury company is worth a long-term outlook until the large-scale sell-off ends.

• Middle-Tier Players May Suffer the Greatest Losses: These companies are typically neither "sharks" in the market nor do they have strong enough beliefs, but they are also not true Bitcoin believers (like MARA, RIOT, SMLR). In the above scenario, they may sell Bitcoin in stages (6) to (7) at an average price of about $75,000.

• Other Asset Treasury Companies' Situation: The above logic also applies to treasury companies of other assets, with one exception: there are cases of duopoly or oligopoly in the asset market. For example, Ethereum (ETH) currently fits this condition, with BMNR and SBET holding 75% of the ETH owned by treasury companies (if DYNX and BTBT are included, this ratio reaches 90%). This concentration of holdings allows for a certain degree of coordination or "collusion" to avoid price crashes triggered by sell-offs. Although such agreements may ultimately be difficult to maintain, the higher the concentration of assets, the greater the likelihood of maintaining coordination.

• Similar Cases in Traditional Finance: The clearest traditional financial analogy is the behavior of banking syndicates in handling Bill Hwang's Archegos collapse. Those aggressive companies that acted quickly (like Goldman Sachs, Deutsche Bank) performed far better than those that tried to coordinate an orderly liquidation (like Credit Suisse, Nomura).

It is important to note that my target price for Bitcoin is not $70,000; the prices mentioned in the text are for illustrative purposes only.

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