Retail investors lost $17 billion on overvalued Bitcoin stocks
Retail investors have suffered substantial losses amounting to approximately $17 billion as they sought exposure to Bitcoin through publicly traded companies holding the cryptocurrency in their treasuries. These firms, termed Bitcoin treasury companies, such as Metaplanet and MicroStrategy led by Michael Saylor, acquire Bitcoin by issuing shares, often at inflated premiums compared to the net asset value of their crypto holdings.
A report from 10X Research highlighted that these inflated premiums allowed companies to amass capital well beyond the actual value of their Bitcoin assets, enabling them to procure more of the digital currency. The report stated that retail investors experienced losses of about $17 billion, with new shareholders overpaying for Bitcoin exposure by approximately $20 billion. However, as market conditions shifted, the share prices of these companies plummeted, resulting in significant losses for investors.
The report indicated that the era of financial prosperity for Bitcoin treasury companies is drawing to a close. Metaplanet was singled out as a key example, with its market capitalization rising from $1 billion to $8 billion, driven by a strategy of selling shares at substantial premiums to invest in Bitcoin. Following the market crash, Metaplanet’s market cap decreased to $3.1 billion, while its Bitcoin holdings were valued at $3.3 billion, causing its market value to asset value ratio to fall to 0.99. Shareholders faced losses of $4.9 billion in market value, while the company managed to accumulate $2.3 billion in Bitcoin, a fact pointed out ironically in the report.
Similarly, MicroStrategy’s shares, initially trading at multiples of the value of its Bitcoin holdings, currently hover around 1.4 times their underlying asset value. 10X Research has called for a new business model for companies with digital treasuries to ensure their survival. The report advocates for a shift away from purchasing Bitcoin at inflated NAVs towards operating as asset arbitrage managers. Although this transition may limit growth prospects, future profitability will be determined by management efficiency and flexibility. Researchers assert that smart digital treasury companies can still generate annual returns of 15–20%.
The timing of the report aligns with a volatile period in the crypto markets, characterized by the largest wave of futures position liquidations in history, surpassing $19 billion. The message to investors is clear – gaining Bitcoin exposure through public companies carries concealed risks, signaling the end of an era of easy profits.
