Crypto Stocks Plunge 6% to 24% Amid Bitcoin Strategy Debate

Crypto stocks experienced a significant downturn on Friday, with notable declines in companies that hold bitcoin as part of their treasury strategies. Strategy (MSTR) and Semler Scientific (SMLR) both saw their stock prices drop by approximately 6%, despite bitcoin's price only decreasing by a little over 2%. Japan-listed Metaplanet faced an even steeper decline, with its stock price falling by 24%.

The market movements come as a debate continues on social media regarding the sustainability of Michael Saylor’s strategy of accumulating bitcoin through financial engineering. Critics argue that this approach, which relies on maintaining a market-to-net-asset-value (mNAV) ratio above 1.0, could lead to significant issues if the ratio falls below this threshold. A lower mNAV would indicate that the company's valuation is less than the value of its bitcoin holdings, potentially hindering its ability to raise capital and meet financial obligations.

This situation draws parallels to the experience of Grayscale’s bitcoin trust, GBTC, which traded at a premium to its net asset value during the 2020-2021 bull market. When bitcoin prices declined, the premium turned into a substantial discount, contributing to a series of financial collapses, including those of Three Arrows Capital and FTX. The resulting selling pressure caused bitcoin's price to plummet from a record high of $69,000 to $15,000 within a year.

Analysts and industry figures have weighed in on the debate, with some expressing concerns about the potential risks associated with the current strategies employed by bitcoin treasury companies. Nic Carter, partner at Castle Island Ventures, highlighted the uncertainty surrounding how much more bitcoin these companies will accumulate and when they might face a collapse. Others, such as Adam Back, CEO of Blockstream, offered a more optimistic view, suggesting that companies could manage a falling mNAV by selling bitcoin and buying back their own stock, thereby increasing the bitcoin per share for shareholders.