The 2008 financial crisis, triggered by the collapse of Collateralized Debt Obligations (CDOs), serves as a stark reminder of the dangers of excessive leverage and interconnected financial risks. Today, a new form of leverage is emerging as companies increasingly turn to Bitcoin as a treasury asset. This strategy, while innovative, carries echoes of the past and potential risks that could lead to a similar domino effect.
CDOs bundled together various types of debt, including subprime mortgages, and sold them to investors. When the housing market crashed, the value of these CDOs plummeted, leading to massive losses and a cascade of financial distress. Similarly, companies today are leveraging themselves to buy Bitcoin, a highly volatile asset. If Bitcoin’s price drops significantly, these companies could face margin calls, forcing them to liquidate their holdings at a loss.
So can I become a billionaire by starting a company that perpetually issues new convertible debt and buys memecoins with the proceeds?
That is literally no different from what $MSTR is doing.
— Piker Capital (@PikerCapital) November 20, 2024
Several companies have adopted Bitcoin as part of their treasury strategy. For instance, MicroStrategy has accumulated over 331,200 BTC, valued at approximately $30 billion. Other companies like Tesla, Coinbase, and Marathon Holdings have also added Bitcoin to their balance sheets. Collectively, these companies are estimated to hold even more than the previously stated 3.87% of Bitcoin’s total supply, indicating that other companies might be leveraging themselves in similar ways.
Bitcoin has been described as a leveraged CDO by some analysts, such as @GraphCall, who consider it a liquidity tell. The influence of Bitcoin and companies like MicroStrategy ($MSTR) on the broader financial market is significant. The argument is that Bitcoin investments might be siphoning liquidity away from a commodities rally, which helps keep yields suppressed. This dynamic is crucial because a significant flow of funds into commodities could potentially pop the bond market hard, adversely affecting the US long-duration bonds and making the levitation of US stocks impossible, leading to a catastrophic negative wealth effect on US citizens.
In this context, Bitcoin, as a source of funds, may essentially be functioning as a proxy for shorting bonds.
Bitcoin is a leveraged CDO – as @GraphCall calls it. 🥺
It is better known as a liquidity tell.
Is $MSTR & $BTCUSD now sucking liquidity away from a commodities rally, which helps keep yields suppressed? 🤔👇
"That's why pumping BTC is so important because a flow in… https://t.co/2ofjcxnhuC
— Samantha LaDuc (@SamanthaLaDuc) November 21, 2024
THE best part of this $MSTR <> $BTCUSD alchemy, financialization, gamification scheme is …
That Saylor is done with the guppies. They are so happy he ate them.
He even befriended the sharks of Tepper et al who never miss an opportunity to feast.
Now he's taking down whales… https://t.co/ui0eONvbVq
— Samantha LaDuc (@SamanthaLaDuc) November 21, 2024
Michael Saylor tries to explain the $MSTR premium
And I have never heard so much horseshit coming from one person's mouth before.
Literally none of it made sense.$MSTR is in trouble here.
This bubble will burst. https://t.co/AJhWvAXh2Q
— The Long Investor (@TheLongInvest) November 20, 2024
You are missing nothing https://t.co/rAIHcCmKSk
— Marc Cohodes (@AlderLaneEggs) November 20, 2024
The interconnectedness of these companies’ financial strategies means that a significant drop in Bitcoin’s price could trigger a chain reaction. Companies would need to meet margin calls, potentially leading to forced liquidations and further price drops. This scenario mirrors the 2008 crisis, where falling asset prices led to a cascade of financial distress.
CNBC on MicroStrategy: "SELL IT ALL"
"The more expensive the $MSTR gets relative to #Bitcoin, the more money they can raise to buy more Bitcoin, like a flywheel effect. That's INSANE."
They almost get it… 🤣 pic.twitter.com/VHg5uYTBLo
— Radar🚨 (@RadarHits) November 21, 2024
$MSTR has $30 billion worth of $BTC, with a Market Cap now of $100 Billion
They have negative earnings and $4 Billion in debt.
Am I missing something?
— The Long Investor (@TheLongInvest) November 20, 2024
Here are some examples of companies that have adopted Bitcoin as part of their treasury strategy in 2024:
- MicroStrategy: Continues to be a major player, holding over 331,200 BTC.
- Tesla: Added Bitcoin to its balance sheet, with a significant amount still held.
- Coinbase: The cryptocurrency exchange has also allocated Bitcoin to its treasury.
- Marathon Holdings: Another company that has invested in Bitcoin as a reserve asset.
- Hoth Therapeutics: Recently allocated $1 million to Bitcoin as part of its treasury strategy.
- Acurx Pharmaceuticals: Approved the purchase of up to $1 million in Bitcoin for its treasury.
- Enlivex Therapeutics: Also allocated $1 million to Bitcoin as a reserve asset.
- Solidion Technology: Committed 60% of its excess cash to Bitcoin purchases.
- Nano Labs: Announced plans to become Asia’s first MicroStrategy by adopting Bitcoin as a treasury reserve.
- Cosmos Health: Views Bitcoin and Ethereum as potential hedges against inflation and currency devaluation.
According to @saylor, Bitcoin's potential is $13 million by 2045. This would put $BTC's market cap at around $250 trillion versus $2 trillion today.
To put this in perspective, the world's GDP is currently $105 trillion, and the world's stock markets are $125 trillion. So, in 20… https://t.co/x56v99C5Hy
— Jim Bianco (@biancoresearch) November 21, 2024
Sources:
https://www.investopedia.com/articles/insights/112222/crypto-winter-finance-s-new-frontier