Sygnum warns: Leveraged coin hoarding is pushing Bitcoin out of the Central Bank reserve list.

Source: The Block, Compiled by Mars Finance, Daisy

Original title: Is Bitcoin still suitable as a central bank reserve? Digital bank Sygnum: Strategy has bought too much!

Overview:

• Sygnum stated that strategic Bitcoin acquisition companies are leveraging to accumulate excess BTC holdings, thereby undermining Bitcoin's suitability as a central bank reserve asset.
• Regulated digital asset banks indicate that these strategies distort liquidity and sentiment, posing long-term risks to the stability of Bitcoin and its broader adoption by institutional allocators.

A report released by Sygnum, a compliant digital asset bank for Bitcoin, pointed out that Bitcoin acquisition tools like Strategy (formerly MicroStrategy) have significantly increased institutional demand for Bitcoin. However, their increasingly aggressive and highly leveraged accumulation methods may undermine Bitcoin's credibility as a central bank reserve asset.

This Monday, Strategy announced that it has purchased 1,045 bitcoins again for approximately $110.2 million, with an average price of $105,426 per bitcoin. This brings its total holdings of bitcoins to 582,000, with a total value exceeding $63 billion, equivalent to about 2.8% of the total supply of 21 million bitcoins, with an unrealized gain of about $22 billion.

Currently, 144 companies have adopted some form of bitcoin reserve strategy, of which 114 are publicly traded companies. Tether-backed companies such as Twenty One, Nakamoto, Trump Media, GameStop, and K33 have recently joined the ranks of Bitcoin holdings, following the model pioneered by Strategy's co-founder Michael Saylor and joining companies such as Metaplanet, Semler Scientific, and KULR. Analysts at Bernstein predict that Strategy and its corporate copycats could add another $330 billion to their Bitcoin reserves over the next five years, driven by the more pro-crypto Trump administration in the United States.

Sygnum warns that as the Strategy plan further expands its Bitcoin holdings through multiple multi-billion dollar financial projects in the future, this trend of centralization will introduce systemic vulnerabilities, which may deter central banks from adopting Bitcoin as a reserve asset due to concerns over liquidity, volatility, and concentrated control.

"Large-scale concentrated holdings of any asset are a risk, and now Strategy's holdings are approaching a worrying tipping point — the company currently holds close to 3% of Bitcoin's all-time issuance, but it accounts for a much higher percentage of the actual circulating supply," analysts at Sygnum said. Their plan to acquire 5% of the total issuance has raised serious concerns, especially as these institutions continue to amass supply, which is eroding Bitcoin's attributes as a safe-haven asset. When a private company controls such a large percentage of the existing supply, Bitcoin will no longer be suitable for central banks to hold as a reserve asset. ”

The corporate Bitcoin acquisition model is undergoing transformation.

Sygnum said that since 2020, companies have initially adopted Bitcoin as a financial strategy to hedge against inflation, and now it has evolved into a speculative investment vehicle model. Companies including Strategy, as well as newcomers Twenty One Capital and Nakamoto Holdings, have begun to leverage their purchases of bitcoin beyond the size of their home industry using a variety of debt instruments — such as convertible bonds, preferred stocks, and even perpetual financial instruments. These companies now operate more like closed-end funds than corporations in the traditional sense, raising questions as to whether such practices can still be classified as "corporate financial management."

Sygnum further pointed out: "The sharp reduction in circulating supply may also reverse the current structural trend of declining Bitcoin volatility and rising liquidity"—and these two indicators have always been regarded by institutional investors and central banks as prerequisites for incorporating Bitcoin into reserve assets. Analysts believe that these trends are currently being distorted by highly leveraged acquisition tools, squeezing natural market demand.

With the exception of isolated cases such as El Salvador, there are currently few central banks that actually plan to include bitcoin in reserve assets, and even fewer actually take action. However, in March this year, U.S. President Donald Trump signed an executive order establishing a "U.S. Strategic Bitcoin Reserve", which will initially be based on the government's current holdings of about 200,000 bitcoins (worth about $22 billion, derived from criminal or civil forfeiture), and instructed Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick to develop a strategy for further acquisition of bitcoin under the premise of a neutral budget. Authorities in countries such as the Czech Republic, Bhutan and Pakistan have also shown strong interest.

Leveraged strategies or squeezing robust corporate positions amplify market downside risks.

Sygnum noted that these leveraged bitcoin acquisition strategies, while initially benefiting from strong bull sentiment and helping to reduce market supply in the short term, are not sustainable in the long term. According to analysts, the premium of many companies' share prices over their bitcoin holdings is at risk of eroding or even turning into a discount, especially against the backdrop of the emergence of more similar instruments and the gradual saturation of investor demand. In the event of a bear market or funding difficulties, these companies may be forced to sell Bitcoin, exacerbating the price drop and further dampening market sentiment.

Sygnum also believes that this trend may squeeze more rational and robust corporate Bitcoin allocation methods. Unlike speculative hoarding, smaller Bitcoin positions can serve as a stable hedging tool during fluctuations in the global financial system. However, these highly leveraged instruments may create the impression that Bitcoin is inherently tied to speculative behavior, thereby weakening institutional investors' willingness to adopt it rationally.

"These tools have, to some extent, generated investment demand from those who are unable or not yet have direct access to the crypto market, and in this respect they act similarly to Bitcoin ETFs," the analyst concluded. At the same time, they also benefit the shareholders of these companies by investing their money in a safe-haven asset rather than a declining main business. However, as demand levels off and supply increases with dilution risks, the valuation of these companies' shares relative to their bitcoin assets may be revalued. In addition, these strategies also pose certain risks to the crypto market as a whole. ”

Strategy: Can you hold on even if Bitcoin crashes by 90%?

On the other hand, Michael Saylor, co-founder of Strategy, showed a strong sense of confidence. In a recent interview with the Financial Times, he said that Strategy's capital structure is designed to withstand a 90% collapse in the price of bitcoin for four to five years. This is due to the company's use of a combination of financing instruments such as equity, convertible bonds and preferred shares – although he acknowledges that shareholders would "suffer significant losses" in such a situation.

Bernstein analysts pointed out that Strategy's overall debt level is relatively low, with no repayment pressure until 2028, so its leverage remains within a manageable range.

However, this confidence may not apply to the numerous companies currently emulating the Strategy model, especially those with weaker balance sheets, insufficient investor stickiness, weak main revenue, and difficulty withstanding market shocks. As more companies enter this field, if the market experiences a sharp correction, the stability of Bitcoin prices and the sustainability of this corporate hoarding model may face more severe tests.