Bitcoin Treasury Firms Face 2025 Death Spiral Risk

Venture firm Breed has issued a stark warning to companies that hold Bitcoin on their balance sheets, suggesting that most so-called BTC treasury firms may not survive the next market downturn unless they maintain trading well above their net asset value (NAV). The firm's concern stems from a potential chain reaction triggered by a significant drop in Bitcoin prices, which could lead to a "death spiral" for these companies.

Breed's analysis begins with the premise that if Bitcoin, currently trading above $107,000, experiences a sharp decline, the market-to-NAV (MNAV) premium for these firms would shrink. This would make investors less inclined to pay extra for shares backed by a falling asset, leading to a drying up of fresh capital through equity placements or convertible debt. Capital is crucial for these businesses, many of which borrowed or raised funds to purchase more BTC, betting on the coin's price appreciation outpacing their financing costs. If this capital dries up as loans mature, lenders could call in margins and force sales, further depressing Bitcoin prices and creating a vicious cycle.

Each forced sale would lower the Bitcoin price, squeezing the balance sheets of other firms in the same predicament. Breed labels this scenario a "death spiral," where the downward pressure on Bitcoin prices leads to more liquidations, further exacerbating the price decline. Currently, most treasuries rely on equity funding, which provides a cushion against margin calls. However, Breed warns that if cheap debt tempts boards to lever up, the sector could become far more fragile. A sharp price swing could then push dozens of firms into compulsory liquidation simultaneously.

Breed predicts that only a handful of firms will survive this potential crisis. The survivors are likely to be those that maintain a rising Bitcoin-per-share value even in flat markets, communicate clearly with investors, and avoid unsustainable leverage. Strong governance and a cash buffer are more critical than headline BTC totals. Since MicroStrategy pioneered the corporate treasury playbook in 2020, over 250 organizations, including ETFs, listed miners, pension funds, and sovereign entities, have followed suit. If 2025 brings the deep correction Breed anticipates, the key metric will be how many bitcoins a company can still hold when the dust settles, rather than how many it once bought.

The report outlines a sequence of seven decline phases that could be triggered by a drop in Bitcoin prices, leading to a reduction in market capitalization and subsequent liquidations. This sequence could potentially initiate the next crypto bear market, posing a substantial threat to the majority of Bitcoin treasury companies. The "death spiral" is characterized by a vicious cycle where falling Bitcoin prices lead to forced selling, further depressing prices and causing more liquidations. This dynamic could create a self-reinforcing downward spiral, making it difficult for many firms to maintain their operations.

The report also highlights the potential impact on the broader crypto market. If a significant number of Bitcoin treasury firms fail, it could lead to a loss of confidence among investors, further exacerbating the downward trend. The report warns that this scenario could result in a prolonged bear market, with far-reaching consequences for the entire crypto ecosystem. According to the analyst's forecast, the firms that are likely to survive are those with robust risk management strategies and sufficient reserves to weather the storm. These firms will need to demonstrate discipline in their investment decisions and be prepared to adapt to rapidly changing market conditions. The report emphasizes the importance of diversification and prudent risk management in navigating the challenges ahead.

The report also suggests that the "death spiral" could be mitigated by regulatory interventions and industry-wide efforts to promote stability. However, the effectiveness of these measures remains uncertain, and the report cautions that firms should not rely solely on external factors for their survival. Ultimately, the fate of Bitcoin treasury firms will depend on their ability to adapt and thrive in an increasingly volatile and competitive market.