Charles Edwards, founder of analytics firm Capriole Investments, warns that Bitcoin Finance Company (BTC) faces structural risks that could cause the model to collapse. Analysts point out that while these signatures drive the price of assets, growth is not unlimited, but reaches a saturation point that destroys the “bubble.”
The phenomenon began with Strategy, an American company led by Bitcoiner Michael Saylor, and transformed its balance to acquire thousands of Bitcoin through debt emissions. So far, the company has accumulated 632,457 Bitcoins. Being a stock exchange entity with the largest holdings of this digital asset.
With large investments, the value of strategic actions identified on the US Stock Exchange MST tickets has accelerated over the past five years, achieving a 2,250% yield over that period, as seen in the next TradingView graph.
From its success, other companies have replicated the formula. Cryptonotics reports this trend of opening its own Treasury Ministry of Digital Assets, dedicated to businesses and entities and various items from different countries. Of course, some people did it alone with Bitcoin, others did it alone with ether or other tokens, but there’s the same logic. Thanks to issuing titles, buying cryptocurrency, and strengthening your finances. New emissions allow you to gain more digital actives, which means the cycle repeats with each increase in action.
Obvious risks
For Edwards, the most obvious risk for all these companies that have a digital treasury is overpayment. As you can see, Bitcoin holds important volatility, There are up to 80% of historic falls over a 3-4 year cycle. In that scenario, even if 5% or 10% of the finance company is overdue, the effect can be extended across the market.
He argues if these companies are forced to be liquidated in 40% or 50% order during the middle of Bitcoin. Sales pressure on BTC prices is amplified Unleashed the domino effect. This process known as “clearing waterfalls” has already been observed in the futures market.
Another invisible risk is a reduction in market value over reserves or MNAVs. According to Edwards, the company’s actions are negotiated beyond the value of its holdings in Bitcoin, but the issuance of new titles will increase BTC per action. However, if the action is below that level, Issuance destroys value and prevents capital collection.
Given this situation, some companies may be forced to sell some of their holdings to buy back their actions at discounts in order to seek restoration of their MNAV. However, this strategy will erode the Treasury, affect investor confidence, and exacerbate bearish pressure on the cryptocurrency market.
Edwards points out that recently the percentage of Bitcoin finance companies below MNAV has reached a new historic maximum of 27%, as seen in the following graph. “A trend that’s a concern to keep an eye on,” he says.
Influencer Manuel Terrorones Godoy, known as Kmanus, agrees to point out that there is a bubble in his training. This is being promoted by companies that are renaming their company and are dedicated to accumulating Bitcoin and cryptocurrency as their main business models. He recalled that low-capital companies have resumed themselves as the presence of the Digital Treasury Department. Buy Cryptoactive and issue actions to maintain the expansion cycle. The case cited is Tron Inc., which announced the accumulation of TRX and renamed it to cause a rise in tokens.
According to Terrones Godoy, the risks of this model depend not only on the decline in cryptocurrency prices, but also on the inability to continue to rise. If the market stops rewarding the announcement of BTC purchases, the strategy will stagnate. In reality, companies were unable to issue any more titles or pay any debts.
Edwards, who has been discussing the issue for months and questioning the trend of borrowing to buy Bitcoin, said earlier in August that if major companies such as Strategy are forced to book, a breakdown of those companies could come. Caused by punctuality – stocks, shareholder pressure, or refinance – a significant settlement can cause chain sales to explode. This scenario transforms “noble circles” into “vicious circles” as Craig Coven, former head of the Bank of America capital markets.
Economist Henrik Zerg analysing the phenomenon said Bitcoin remains a speculative asset. Although it is adopted by government and institutional funds such as El Salvador, he commented that the asset does not generate cash flow or intrinsic value. As in previous cycles, an 80% drop could lead to bankruptcy for debt-based companieshe said.
It may be sustainable
Now, despite these potential risks, Edwards meets his goal of integrating itself as a “peer-to-peer digital effect.” Financial businesses can be sustainable in the long term.
“With a market capitalization of $2 billion, BTC approaches an estimated 22 billion gold, with trustee money exceeding 113 billion, and growing at 9% per year due to central bank emissions,” he says. And he makes it clear in that comparison that Bitcoin offers a lower inflation rate than gold.
The fate of these companies depends on the adoption of Bitcoin. If the digital assets narrative is integrated, the financing company figures can become an integral part of global corporate finances. Edwards believes that over the next decade, BTC will define whether it will become the new reserve currency in the digital world.
In that path, BTC volatility is inevitable, and as a result, the ecosystem must face both the possibility of a whole body collapse.cAs an opportunity for sustainable expansion.