Strategy crypto model imitators under pressure amid doubts over their business model
TL;DR Breakdown
- Strategy crypto model imitators are under pressure as stocks tumble.
- The majority of these stocks dropped drastically after witnessing huge gains earlier in the year.
- Analyst confirms that the Bitcoin treasury space is getting quite saturated.
Enthusiasm for Michael Saylor’s Strategy and some of its imitators has been on a decline, with stocks of these firms tumbling over the past month. Strategy’s stock dropped 4% in that time frame, underperforming against Bitcoin, which is currently up by 3% in the past month.
Strategy made a bet on Bitcoin, which it started in 2020, using a combination of debt and equity to fund huge purchases of the digital asset. The company has since changed its business model, moving from a business intelligence software firm to a Bitcoin juggernaut. Despite only showing a lag recently, the stock has surged over 2,800% since it made its first Bitcoin purchase back in 2020. The model, which has been seen as quite successful, soon saw other companies moving to replicate it.
Strategy crypto model imitators under pressure
Firms outside the crypto industry have since pivoted to bet on Bitcoin in the hopes of replicating the success enjoyed by Strategy. For example, Japanese firm Metaplanet saw its shares plummet more than 36% over the past month. Metaplanet, which used to operate a hotel management business, has since turned into a Bitcoin holding company.
Aside from Metaplanet, healthcare data provider Kindly MD also shed 87%, while health tech firm Semler Scientific is down about 12%, in the same time frame. Trump Media & Technology Group, another company in the fold, has seen its shares drop by 8%. Notably, United States President Donald Trump is a majority stakeholder in the company that recently launched its Bitcoin treasury.
Most of these firms experienced wild stock surges this year, and the recent reversal compounds the doubt on whether the boom in Bitcoin treasury stocks will last. “[A]t a certain point, there are too many strategies pursuing the same promised land and a finite amount of investor demand for similar exposures,” Monness, Crespi, Hardt & Co. analyst Gus Galá said.
Imitators witness a drop in share prices
A surge in crypto prices, a change in the United States accounting roles, and the Trump administration being more favorable towards crypto in terms of its regulatory stance, have helped the crypto industry. By extension, it has also helped to boost the craze for public companies trying to imitate the Strategy’s playbook. Crypto investors and TV personality Kevin O’Leary discussed the attraction to crypto treasury stocks among investors. “The majority of the market can’t hold bitcoin, but they can hold equities,” O’Leary said.
O’Leary added that even with the launch of Bitcoin exchange-traded funds (ETFs), some institutional investors prefer to hold stocks because of their investment mandate. For instance, one of the largest sovereign wealth funds in the world, Norway’s Norges Bank, does not hold Bitcoin or related ETFs. Instead, it holds more than 2.9 million shares of Strategy, according to its disclosure during the second quarter. The same applies to several US state retirement and pension funds, including the California Public Employees’ Retirement System (CalPERS).
More than 180 public companies have now added Bitcoin to their balance sheet to date, with most of them launching it in the past year, according to BitcoinTreasuries.net. Collectively, they hold about 5% of the total Bitcoin supply. Of those firms, about 94 can be considered imitators of Strategy based on their size, business model, and how they fund bitcoin purchases, according to Vetle Lunde, head of research for K33.
“The performance of some of these stocks earlier this summer was just mind-blowing,” Lunde said, noting the recent downturn registered by some of them. “It’s been just a very wild ride, and now I think the bitcoin treasury space is getting quite saturated,” Lunde added. K33 research also mentioned that out of the 94 Strategy imitators, about 25% have seen their market cap drop below the value of their Bitcoin holdings.
