Strategy and Other Crypto Treasury Stocks Face a Dangerous Spiral. How They Can Break It. — Barrons.com
By Adam ClarkCompanies hoarding cryptocurrencies on their balance sheets have been hit hard in recent months and face a battle to recover in 2026. So-called 'crypto-treasury' stocks have seen both the value of their digital assets and the premium placed on their shares shrink.Barron's wrote about the threat facing the biggest crypto-treasury company Strategy — formerly known as MicroStrategy — and its peers in late October. Since then, Strategy stock is down more than 40%, outpacing the drop in value of its Bitcoin holdings.On the way up, crypto-treasury companies benefit from a virtuous circle — companies sell shares at a premium to their asset value, using that to acquire more tokens that then rise in value, driving higher share prices, and so on. But when share-price premiums disappear, new investors have little reason to buy stock instead of the token itself. Companies may then need to sell assets to cover costs or debt, triggering a downward spiral.However, there are ways to avoid a crash. Here's the likely playbook:Conserve cash: The first resort for any company facing a tough time is to reduce its expenses. For crypto-treasury companies, which have minimal operating costs unless they also have another business line, the primary method is to reduce or stop acquisitions of their chosen crypto."We do not expect further Bitcoin buying by the Bitcoin DAT [Digital Asset Treasury companies], wrote Standard Chartered analyst Geoff Kendrick in a recent research note.Some companies are publicly flagging scaled-back ambitions. Canada's Matador Technologies said this month it would remove references to goals of amassing 6,000 Bitcoin by 2027 and holding around 1% of the largest crypto's total supply from its publications.However, the risk is that without such purchases, shareholders lose confidence in the company's ability to benefit from future upward movements. That could explain why Michael Saylor's Strategy has returned to aggressive Bitcoin accumulation in recent weeks. Instead the company has established a $2.19 billion reserve in U.S. dollars to support dividend and interest payments."Strategy has enough cash to fund dividends for 21 months...Also, Strategy can still raise cash through equity facilities should it be needed," wrote Cantor analyst Brett Knoblauch in a research note.However, S&P Global Ratings reiterated its low-junk B-minus credit rating for Strategy this month, indicating concern about the company's debt."In the event of a stress, when its access to capital markets could be impeded, we believe [Strategy] would either have to defer payments (where possible) or rely on sales of Bitcoin to raise liquidity at a time when Bitcoin prices would likely be severely depressed," S&P analysts wrote.Stock buybacks: Buying back stock isn't normally attractive for a crypto-treasury company, which is focused on issuing shares to finance purchases of tokens. But if the value of the shares slips below that of its crypto holdings, then it makes sense to conduct a buyback.Japan's Metaplanet is the highest profile company that has used the strategy. One of the largest corporate holders of Bitcoin globally, in September it launched a program to buy back up to 150 million of its shares. That has helped drive its so-called mNAV, the multiple of the company's enterprise value relative to its Bitcoin holdings, back above 1.0.In some cases, companies have even sold some of their crypto holdings to fund share buybacks such as Peter Thiel-backed ETHZilla, which sold about $40 million worth of Ethereum to fund repurchases in October.Other crypto-treasury companies that have suffered big losses are also looking at potential stock buybacks. ALT5 Sigma, which holds a cryptocurrency token issued by World Liberty Financial — the privately held company co-founded by President Donald Trump and his two sons — has said it would consider repurchasing shares. The stock is down more than 70% this year so far.Consolidation: If crypto-treasury companies trade for a sustained period below the value of their digital-asset holdings, then they will become tempting takeover targets.Early signs of consolidation have already emerged. Bitcoin treasury company Strive agreed to buy peer Semler Scientific in September. Analysts expect more deals in future if stocks continue to be under pressure."We see a consolidation of Bitcoin holdings as a more likely outcome than selling. Consolidation is likely if the mNAVs of smaller players fall well below 1.0, or perhaps even below 0.5," Standard Chartered's Kendrick wrote.Hope: The most important factor for crypto-treasury companies in general is the performance of their chosen digital assets. The key to break the downward trajectory will be a rebound in prices.Bitcoin and other cryptocurrencies have largely been tracking the performance of technology stocks and other perceived risk assets in recent months. Some are betting on a turnaround — ARK Invest's Cathie Wood backed Ethereum treasury company Bitmine Immersion Technologies among a raft of crypto-related investments in recent trades.The big hope for the crypto sector in 2026 is the passing of the crypto market structure bill currently being worked on in Congress. That is expected to clear up how separate U.S. regulatory bodies oversee crypto markets and potentially unleash new institutional adoption.Write to Adam Clark at [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.