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Why can the Strategy of buying Bitcoin pose long term risks regardless of the high demand?
Investment vehicles have been successful in driving demand for Bitcoin in recent years, but their aggressive accumulation strategy may be undermining the asset's long-term appeal to institutions. This conclusion was made from the latest analysis from Swiss digital asset bank Sygnum, published on Tuesday.
Although these vehicles support market demand, Sygnum warns that the Strategy's goal of owning 5% of the Bitcoin supply could undermine Bitcoin's position as a safe haven and make it unsuitable as a reserve asset for central banks.
On Monday, Strategy bought another 1,045 Bitcoins, worth about $110 million, bringing the current total to 582,000 BTC – or nearly 3% of the total maximum Bitcoin supply that ever existed. According to preliminary estimates from the Saylor Tracker, those purchases have yielded a record return of more than 56%. While this has contributed to boosting Bitcoin's price and reputation, Sygnum warns that the current focus is approaching dangerous levels.
"Holding large and concentrated positions poses risks for any type of asset. Strategy's holdings are approaching the point of becoming problematic," Sygnum stated in the report.
Strategy's promotion of large-scale leverage as the 'new norm' is gradually overshadowing the more cautious arguments about small-scale treasury allocation and risk-adjusted adjustments — an approach that Sygnum considers more relevant to the majority of businesses.
Liquidity Risk and Market Structure
Strategy's model acts as a highly sensitive representation tool, using convertible bonds to buy more Bitcoin while taking advantage of the stock price rally in bull markets. Every time Bitcoin rises sharply, Strategy's MSTR stock will trade at a price higher than its real value, allowing the company to raise capital and buy more Bitcoin, creating a leverage spiral and bullish sentiment.
However, the risks in these scenarios are undeniable. As the researchers at Sygnum explained, if Bitcoin enters a prolonged period of decline and the MSTR stock price falls below the conversion price of outstanding bonds, the model begins to crack and the company may be forced to liquidate part of its Bitcoin holdings to meet its debt obligations.
"The form of perpetual dividends helps to mitigate risks" from Bitcoin purchases using borrowed capital, where gains and losses fluctuate in tandem, they noted.
However, if the strategy is to "choose to sell Bitcoin instead of bearing the pressure of falling stock prices", then this action could become "a very negative signal for the market."
Minh Anh