Abstract:
· After the success of MicroStrategy's bitcoin hoarding strategy, many companies (some small-cap and crypto-unrelated companies) have begun to announce similar initiatives.
· This strategy has led to a sharp short-term rise in the stock prices of some of these companies, but according to market observers, the long-term sustainability is still uncertain.
· While optimists see this as a step towards more mainstream Bitcoin adoption, skeptics believe it is just a short-term hype for some small companies.
Main Text:
Fitness equipment manufacturers, biopharmaceutical companies, battery material producers... What do these diverse companies have in common?
Of course, it's Bit.
With BTC soaring to unprecedented levels this month, at least 12 previously crypto-unrelated listed companies have announced that they plan to purchase Bit (BTC) as an intermediary for storing idle cash - which has indeed been quite profitable lately. This is the path illuminated by Michael Saylor's "laser eyes" since 2020, when he began transforming his obscure software maker MicroStrategy into a Bit vault.
This has brought MicroStrategy tremendous success in the US stock market - its value has increased about 30-fold since Saylor began buying Bit for the company, accumulating a massive reserve worth about $38 billion as of the time of writing.
Just this month, the company's stock price has nearly doubled since Donald Trump's election victory and promise to embrace cryptocurrencies. (Other crypto stocks have also seen a rise. Exchange operator Coinbase has risen nearly 70% since the day before the election.)
Other companies are trying to replicate this success.
On Friday, a biotech company Anixa Biosciences (ANIX) said its board had approved the purchase of a certain amount of Bit to diversify the company's cash reserves. The stock briefly rose 19% but closed up only 5%. Meanwhile, fitness equipment company Interactive Strength (TRNR) said on Thursday that the company plans to purchase up to $5 million worth of Bit after its board approved the use of cryptocurrencies as a treasury reserve asset. The news caused the company's stock to surge more than 80% at one point, but it "only" ended the day up 11%.
Earlier last week, biopharmaceutical company Hoth Therapeutics (HOTH) announced a $1 million Bit purchase plan, triggering a stock price surge of up to 25% - although nearly the entire gain was wiped out by the close. Similarly, companies including LQR House (LQR), Cosmos Health (COSM), Nano Labs (NA), Gaxos (GXAI), Solidion Technology (STI) and Genius Group (GNS) saw their stock prices briefly spike after announcing Bit treasury plans in November.
"The recent Bit frenzy, coupled with MicroStrategy's over 500% stock price surge in 2024, has sparked a wave of companies (especially small-caps) announcing Bit purchase strategies," said Youwei Yang, chief economist at BIT Mining (BTCM).
Whether these companies emulating MicroStrategy will achieve the same success remains to be seen.
Youwei Yang said, "This behavior may end in the same way as [the previous bull market]: unsustainable hype, followed by a sharp correction, as the market realizes that many of these announcements lack substance."
Additionally, it is unknown whether the latest entrants will stick it out and have the technical capabilities. So far, only AI company Genius Group is known to have actually purchased Bit.
But who can blame them?
Early investors in MicroStrategy have already made a killing, and even recent investors can easily profit. Saylor has primarily raised funds through stock and bond issuances to finance Bit purchases. These imitators may have gained access to capital markets that they otherwise could not have.
The market follows the old adage of "never fight the market," meaning one should go with the flow regardless of the fundamentals. Businesses want to meet market demand, and no one wants to be the one telling the boss and shareholders that poor performance is due to not following MicroStrategy's lead.
"Just a few years ago, buying Bit was almost too risky. However, the risk now seems increasingly the opposite - not buying is the real risk," said Brian D. Evans, CEO and founder of BDE Ventures, adding, "Not touching Bit is really painful."
For the hopeful, this sudden corporate scramble may signal the long-awaited mainstream adoption of Bit, especially against the backdrop of President-elect Trump's stated desire for the US government to also hoard Bit.
"For BTC supporters, expected inflation and other macroeconomic factors, as well as a more regulatory-friendly environment, are expected to drive more companies to add this asset to their balance sheets," said FRNT Financial, a crypto platform based in Toronto, in a report.
Additionally, Bit purchase strategies can open up capital markets for companies, just as MicroStrategy and miner MARA Digital (MARA) have done. These two companies have recently been able to raise funds through convertible bonds that do not pay interest to investors, meaning these investors are willing to forgo current income in exchange for the ability to eventually convert the debt into equity, gaining Bit exposure.
Evans of BDE said that announcing plans to purchase Bit "is a useful way for companies to raise capital, no different from what MicroStrategy has done in the past few years."
However, to some, this sounds like a replay of the short-lived fad in the late 2010s when many companies unrelated to cryptocurrencies added "Blockchain" to their names.
The most famous example is the obscure beverage maker Long Island Iced Tea, which renamed itself Long Blockchain, at least initially to explosive effect: its stock price nearly doubled in a single day after the crypto-currency rebrand. The gains were not sustained, and the stock was later delisted from Nasdaq. (Three people were charged by the SEC with insider trading.)
There were other "magic" words. In the 2021 crypto bull market, many large companies have been waving the banners of "Web3", "metaverse" and "Non-Fungible Token", trying to drive up their stock prices. Even Facebook changed its name to Meta, betting heavily on the metaverse. However, these efforts ultimately led to massive losses.
Meanwhile, some low-performing, crypto-unrelated companies have also started venturing into Bit mining, which was seen at the time as a lucrative business. However, the subsequent brutal bear market has caused these once-promising crypto concepts to fall from grace and become "pariahs".
Youwei Yang said that while MicroStrategy has been able to raise billions of dollars from the capital markets to fund Bit purchases, if others adopt this strategy, it could have an adverse impact on small companies. "For small-caps, it may be seen as a short-term gimmick, deterring serious investors. If Bit prices stabilize or decline, the speculative appeal of these stocks may wane, making these companies vulnerable to investor skepticism and regulatory scrutiny."
Wave Digital Assets co-founder and CEO David Siemer also expressed the same view, saying: "While this approach may generate short-term gains in a bull market, it also carries significant risks. Unlike direct asset holding, leverage can amplify potential losses during market adjustments, highlighting its inherent dangers," he pointed out that some companies are using the hype around Bitcoin to increase debt on their balance sheets.
Regardless of who is right, after Trump's victory in the US election, Bitcoin has repeatedly hit new highs, and the magic still exists: announce a Bitcoin plan similar to Saylor's, and then see if your stock can take off.
"We seem to be at a point where many companies feel they have to do this," said Brian D. Evans, founder of BDE.
In any case, welcome to the new cryptocurrency bull market.
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