More and more public companies are buying Bitcoin (BTC) for their balance sheets, but according to a new standard chartered report shared, prices can be exposed to significant losses. Encryption.
A bank survey, written by director Geoffrey Kendrick at Digital Assets Research, highlighted that 61 companies, which collectively control 3.2% of the total supply of Bitcoin supply, hold Bitcoin in the corporate Treasury.
This trend has skyrocketed over the last few months, with imitators following in the footsteps of strategy, increasing Bitcoin Holdings from 50,000 BTC to 100,000 BTC in just two months.
Entry price is high
Standard Chartered warned that many of these companies are entering the market with high ratings. In many cases, the net asset value (NAV) entry exceeds 1, signaling excessive exposure to price fluctuations.
Kendrick highlighted that for at least half of these companies, the average purchase price is above $90,000 per Bitcoin, and even a modest fix could lead to losses and reputational damage for companies seeking to mimic strategies that have not had similar risk tolerance or capital structures in place.
He warned that “Bitcoin is unstable” and that such high average entry points make some companies particularly vulnerable.
According to Kendrick:
“We identify pain levels below 22% with the average purchase price as a potential liquidation level.”
He explained that a 22% drop in the average purchase price could be a threshold that would make liquidation risk real for companies with Bitcoin held in the Treasury.
The reports drawn from historic market events cited Core Scientific’s 2022 experience as an indicator of potential stress levels.
The report includes a chart showing the widespread popularity of purchase prices across public companies, with many focusing on the $90,000 to $110,000 range. If the market is reversed sharply, companies with less pressure from balance sheets and investors could be forced to sell.
Demand increases despite risk
Despite the risks, Bitcoin’s role as a strategic financial asset continues to gain traction among companies. Kendrick attributed this to a multiple of NAV above 1 and to the remaining inefficiencies in the way traditional finance evaluates crypto holdings.
The findings from Standard Chartered suggest that this wave of adoption is driven by both long-term beliefs and missed fears, particularly in light of recent bullish momentum in the crypto market.
Kendrick wrote:
“We believe these multiples are justified for now (due to market inefficiencies created by the conservatism of the Regulation and Investment Committee), but that justification will decline.”
With Bitcoin trading over $100,000, the momentum trading remains the same. However, the Standard Chartered warning adds notes of caution. Without careful risk management, companies accepting BTC could face the same volatility that once pushed miners and speculators to the brink.
