The End Of Paper Bitcoin Summer

As summer now turns to fall in the northern hemisphere, the stonkcoiner dream of bitcoinizing finance is rapidly becoming a nightmare. The bitcoin paper summer of issuing shares to clueless financial markets at (extreme) overvaluations to thereby buy bitcoin on the cheap is ending, not with a bang of success but with a pretty unimpressive whimper.

The bitcoin treasury dream was nice; I even openly admit that it made some sense. 

For a few months, Wall Street merrily entertained the froth and fuelled the fires. But at last, financial gravity is reasserting itself: We’re all waking up from our summer fling with financial delusion, where things traded for more than what they’re objectively worth. It’s both wonderful and tragic to see standard corporate finance once more hold firm.

Earlier this year, our own David Bailey, CEO of BTC Inc, the owner of Bitcoin Magazine, told Bitcoin for Corporations, another arm of BTC Inc, that “if you can sell a dollar for more than a dollar, you do that trade all day long.”

Turns out, that free-lunch strategy(!) wasn’t free… wiping out investor money in the process has been a painful journey in learning that lesson.  

When you — the retail bagholder — are buying a security instead of real bitcoin, you’re typically doing so at a premium (e.g., an mNAV above 1). Perversely, this is both verifiably insane — why buy a dollar for more than a dollar…? — and the very force that animates these bitcoin treasury companies.

Those of us looking at this with justifiable criticism presumed that the mNAVs would come down to roughly 1 via shares falling or staying flat while bitcoin’s fiat price rose. Fate played a trick on us by crashing the bitcoin price instead. In consequence, quite a lot of these airy, financial-alchemy monstrosities fell by much greater multiples.

Bailey’s own NAKA, for which Bitcoin Magazine provides certain marketing services, has been the most amusing (and for many people around these parts, financially tragic). When NAKA announced a major, $5-billion program of share issuance last month, the stock collapsed downward some 30% on the news — and kept tumbling thereafter, down a neat 70% from its initial pump around the announcement of reverse-merging with KindlyMD; $NAKA has fallen a whopping 85% from its highest point in May, recently setting a new low of $3.28.

“The market price tells you whether you’re right or wrong,” said Moshe Shen, managing director at APAC Wintermute Trading, on Day 1 of the recently concluded Bitcoin Asia in Hong Kong. I guess that tells us enough about the dubious prospects of Nakamoto and other bitcoin treasury companies.

The bitcoin treasury magic ended

The recurring pump-and-dump effect of issuing more shares for a bitcoin treasury strategy no longer come with a great pump to the share price; it falls, as sanity and traditional corporate finance would suggest. It doesn’t matter how many thousands of coins Saylor’s Strategy is eating, the price of MSTR keeps falling, having returned the sum total of zero percent to common shareholders since November last year; Metaplanet, having recently passed 20,000 coins in hyped-upii celebrations has seen its stock fall all the way back to levels not seen before the paper bitcoin summer kicked off.

In a recent article chronicling the treasury phenomenon, Nikou Asgari from the Financial Times remarked sourly that, “The crypto-buying strategy largely relies on issuing shares or raising debt to buy bitcoin and other tokens, hoping that this fuels share price growth.” Understating the point, she continues, “Raising capital becomes harder to do as company valuations fall, however.”

When the share price falls, and the mNAV compresses toward 1, the free-money magic goes away. We’ll find out if the hundreds of treasury companies out there have (any?) viability once the magic money-printing era is over.

Even Tyler Evans of UTXO Management, another BTC Inc and Nakamoto-involved company, confessed as much to Asgari in that same FT article: The market “got irrationally overheated,” and that the paper bitcoin summer “was the peak for both hype and for the number of companies launching.”

At the tail end of paper bitcoin summer, we see reality reasserting itself, dramatically recovering from the collective delusion that market prices on the world’s most liquid markets could veer so far off mNAV course.

Here’s a bold prediction: In a year’s time, bitcoin treasury companies won’t be a thing. Most of the lower-tiered ones won’t survive, and will instead spit out the coins they so gluttonously and recklessly gobbled up. The ones with serious moat and competent management teams, like Strategy or Metaplanet, will survive, but see their mNAV shrink to a sliver above zero, where they logically belong.

The paper bitcoin summer has ended, and I for one couldn’t be more excited to see these nightmares go back to the ethereal dreamlands from whence they came.