As summer transitions to fall in the northern hemisphere, the stonkcoiner vision of bitcoinizing finance is swiftly morphing into a nightmare. The bitcoin paper era of issuing shares to oblivious financial markets at overvaluations to acquire bitcoin at a bargain is concluding, not with a triumphant bang but rather with a rather lackluster whimper. For several months, The financial gravity is now returning, though, and we’re all waking up from our summertime financial hallucination, in which items were swapped for more than their true value. It’s both remarkable and unfortunate to witness traditional corporate finance once again maintain its ground. Earlier this year, David Bailey, shared insights with Bitcoin for Corporations, another division of BTC Inc, stating, “if you can sell a dollar for more than a dollar, you do that trade all day long.”
It appears that the free-lunch strategy came with hidden costs… The journey has been painful, as it involved wiping out investor money while learning that lesson. When you purchase a security instead of actual bitcoin, you are generally doing so at a premium. Perversely, this situation is both verifiably insane – why purchase a dollar for more than a dollar…? — and the very force that drives these bitcoin treasury companies. Critics observing this situation had a reasonable expectation that the mNAVs would decrease to around 1, either through a decline in shares or them remaining stable, while the fiat price of bitcoin increased. Fate pulled a fast one on us by sending the bitcoin price tumbling instead. As a result, many of these ethereal, financial-alchemy creations plummeted by significantly larger multiples. Bailey’s own NAKA, has been the most entertaining. Last month, when NAKA revealed a significant $5-billion share issuance program, the stock plummeted approximately 30% immediately following the announcement and continued its downward trajectory, ultimately dropping 70% from its initial surge linked to the reverse merger with KindlyMD. Currently, $NAKA has experienced an astonishing 85% decline from its peak in May, recently hitting a new low of $3.28.
Market prices reveal the reality, and the reality at this twilight of treasury firms’ fanciful illusions is that inflating corporate balance sheets with retail-acquired equity and debt to obtain bitcoin was not the path to the promised land. “The market price tells you whether you’re right or wrong,” stated Moshe Shen during Day 1 of the recently concluded Bitcoin Asia in Hong Kong. This certainly sheds light on the questionable future of Nakamoto and other bitcoin treasury firms. The ongoing pump-and-dump phenomenon associated with increasing shares for a bitcoin treasury strategy no longer results in a significant surge in share price; instead, it declines, aligning with the principles of rationality and conventional corporate finance. Regardless of the thousands of coins consumed by Saylor’s Strategy delivering a total return of zero percent to common shareholders since November of last year. Meanwhile, Metaplanet, which recently celebrated surpassing 20,000 coins in a highly publicized event, has witnessed its stock plummet back to levels not seen since before the paper bitcoin summer began.
In a recent piece detailing the treasury phenomenon, Nikou Asgari noted with a hint of skepticism that, “The crypto-buying strategy largely relies on issuing shares or raising debt to buy bitcoin and other tokens, hoping that this fuels share price growth.” She emphasizes, “Raising capital becomes harder to do as company valuations fall, however.” As the share price declines and the mNAV tightens toward 1, the allure of free money dissipates. The viability of the hundreds of treasury companies in existence will be put to the test once the era of magic money-printing comes to an end. Tyler Evans acknowledged to Asgari in the same FT article that the market “got irrationally overheated,” noting that the paper bitcoin summer “was the peak for both hype and for the number of companies launching.” As we approach the conclusion of the paper bitcoin summer, reality is making a strong comeback, sharply rebounding from the widespread misconception that market prices in the globe’s most liquid markets could diverge so significantly from mNAV. Here’s a daring forecast: In just a year, bitcoin treasury companies are expected to become obsolete.
Many of the lesser-tiered projects are unlikely to endure, and will ultimately release the coins they greedily and carelessly accumulated. The firms with a strong competitive edge and capable leadership, such as Strategy or Metaplanet, are likely to endure, yet will witness their mNAV diminish to just above zero, which is where they logically fit. The paper bitcoin summer has concluded, and I, for one, am thrilled to witness these nightmares retreat back to the ethereal dreamlands from which they originated.