Lately, there’s been a trend that looks innovative on the surface: companies, especially publicly traded ones, shifting portions of their balance sheets into Bitcoin. It seems bold, maybe even clever. But there’s something about it that feels a little fragile, like it’s built on optimism more than solid ground.
Key Takeaways
- Companies like Strategy acquire Bitcoin using debt and stock issuance, a strategy that only works reliably when prices rise.
- Sharp drops in Bitcoin’s value can put companies at risk of defaulting on debt or selling assets at a loss.
- Accounting rules make firms report losses on Bitcoin but delay gains until assets are sold, leading to distorted financials.
- Volatility and cyber risks create distractions from a company’s core operations and revenue generation.
- Investors interested in Bitcoin exposure may be better served by purchasing the asset directly or through a regulated ETF.
Take Strategy, for instance, the company formerly known as MicroStrategy. They’ve become the poster child for this approach. What started as a business intelligence firm has gradually transformed into a kind of Bitcoin holding vehicle. Since 2020, they’ve acquired a massive reserve of Bitcoin, positioning their stock as a de facto proxy for the cryptocurrency.
How do they do it? The model is relatively straightforward. Raise money by issuing new stock or taking on debt, use that capital to buy Bitcoin, then repeat the process as the value of Bitcoin rises. As long as the price climbs, everyone’s happy. The company’s holdings grow in value, its stock often outpaces even Bitcoin itself, and on paper, it all looks like a win.
But what if prices fall? That’s where things get shaky.
Bitcoin is notoriously volatile. We’ve seen it drop more than 80 percent from previous highs. If that happens while a company is carrying a pile of debt used to buy Bitcoin, it’s suddenly facing some serious pressure. In extreme cases, the firm might be forced to sell Bitcoin at a loss just to meet obligations. That can spiral quickly, eroding shareholder value and weakening the company’s overall financial position.
More importantly, it shifts focus away from the core business. A company’s stability should come from its operations, what it actually produces or sells, not from the speculative performance of a digital asset. When a treasury function becomes the centerpiece of a firm’s value, that’s a red flag.
Then there’s the issue of accounting.
Until recently, U.S. accounting rules classified Bitcoin as an intangible asset. That meant if the price dropped below what the company paid, it had to report a loss, even if the price bounced back later. On the flip side, gains weren’t recognized until the company actually sold the asset. It created this awkward asymmetry, where earnings could appear weaker than they really were.
New guidance from the Financial Accounting Standards Board has brought some clarity, allowing companies to report gains and losses each quarter based on fair value. But the underlying issue remains. Bitcoin’s price swings still inject a lot of unpredictability into earnings reports and balance sheets.
Operationally, it’s not just a numbers game. Managing Bitcoin at the scale these companies do involves real, technical work. Safeguarding private keys, securing wallets, and defending against cyberattacks, all of that demands significant attention. That’s time and energy being pulled away from the company’s original mission. And it introduces existential risk if security ever fails.
For investors, the idea of owning stock in a company that holds a lot of Bitcoin might sound appealing. It feels like a two-for-one: exposure to crypto plus a slice of corporate performance. But in practice, it often turns out to be more complicated and riskier. Now you’re not only riding the ups and downs of the cryptocurrency market, but you’re also exposed to the company’s specific business risks, its capital structure, its management decisions, and how it handles things like debt and cybersecurity.
In the end, if you believe in Bitcoin’s long-term value, there are simpler ways to gain exposure. Buying Bitcoin directly or through a regulated ETF strips out much of the noise. You still take on price volatility, of course, but at least you’re not inheriting a company’s balance sheet risks in the process.
Related FAQs
Q: What is a Bitcoin treasury company?
A: A Bitcoin treasury company is a publicly traded company that holds a significant amount of Bitcoin on its balance sheet as a primary corporate reserve asset, often using debt or stock offerings to fund the purchases.
Q: Why is holding Bitcoin on a company’s balance sheet a risk?
A: It is risky because Bitcoin’s high price volatility can lead to major swings in the company’s financial health, and the use of leverage to buy Bitcoin can result in debt default if the price drops.
Q: Is MicroStrategy still a business intelligence company?
A: Yes, while the company has focused heavily on its Bitcoin strategy and rebranded as Strategy, it still operates as a business intelligence software company.
Q: Are there other companies that hold Bitcoin?
A: Yes, besides Strategy, other notable companies with Bitcoin on their balance sheets include MARA Holdings, Tesla, and Block. The amount they hold and their strategies vary.
Q: How do companies account for Bitcoin on their financial statements?
A: Under new rules by the Financial Accounting Standards Board (FASB), companies measure Bitcoin holdings at their fair value, recording gains and losses on their income statements each reporting period.
