Bitcoin Treasury Companies Face $12.8 Billion Debt Maturity Wall by 2028

A significant challenge looms for major Bitcoin Treasury Companies (BTC-TCs) as a $12.8 billion debt maturity wall approaches by 2028. This financial hurdle could jeopardize the sustainability of firms like Marathon Digital and Nakamoto, according to a recent report. The report highlights that while these companies collectively hold over 725,000 BTC, their dependence on capital markets and negative cash flows for acquisitions makes them vulnerable to fluctuations in Bitcoin prices and shifts in investor sentiment.

The rise of BTC-TCs, which use debt and equity to accumulate Bitcoin as a primary treasury asset, began in 2020 with Strategy leading the way. Strategy, under the leadership of Michael Saylor, now holds approximately 597,000 BTC, constituting 82% of the total holdings of the cohort, valued at around $67 billion at current rates. The industry has raised over $3.35 billion in preferred equity and approximately $9.48 billion in debt, alongside substantial common stock sales to fund their Bitcoin purchases. However, this capital structure presents a significant refinancing risk, with $12.8 billion in debt maturities heavily concentrated in 2027 and 2028.

Convertible notes, such as Strategy’s $7.3 billion in 0% issuance, have become popular as they offer potential equity conversion relief. However, these notes are contingent on sustained high stock prices. If prices fall below conversion thresholds, BTC-TCs may be forced to sell portions of their holdings or resort to distress refinancing, potentially triggering downward spirals. Newer entrants like Twenty One Capital and Metaplanet are adopting varied strategies, including leveraging Japan’s zero rates and engaging in SPAC mergers, to mitigate such risks. Nevertheless, the sector's core reliance on favorable market access remains pervasive.

The sustainability of Bitcoin-focused businesses hinges on two major risks: the cost of paying off their debts and their ability to operate without running out of money. Despite these challenges, investors are willing to pay 73% more than the actual value of the BTC these companies hold, using Strategy as a case study. Strategy has boosted its Bitcoin-per-share by about 63.6% each year through smart fundraising during bull markets, allowing it to buy more Bitcoin without hurting shareholders.

However, the report notes significant differences in the cash flow of these firms. Companies like Strategy and Marathon Digital are losing substantial amounts of money from their day-to-day operations, approximately $78.3 million and $43.5 million each quarter, respectively. They rely entirely on selling new shares at high prices to stay afloat. In contrast, firms like Metaplanet, Semler Scientific, and CoinShares are either profitable or have sufficient cash reserves, enabling them to handle costs without needing to sell shares or dip into their BTC stash.

If Bitcoin prices drop or the hoarding strategy fails, and the market stops valuing these companies far above the actual worth of their holdings, Marathon and Nakamoto could face significant trouble. They may be forced to sell Bitcoin or issue lots of new shares every quarter, potentially reducing the value for existing investors. Strategy, being larger and more trusted by investors, is in a stronger position but is still exposed to this risk. The report underscores the need for these companies to diversify their strategies and reduce their reliance on favorable market conditions to ensure long-term sustainability.