Bitcoin Treasury Companies could be subject to capital erosion

Why do companies embrace Bitcoin in their corporate treasury strategies?

Bitcoin has become a part of corporate Treasury strategy for an increasing number companies in recent years. This was initially considered an experimental trend. gained momentum Strategy, a US software company started to convert its cash reserve into Bitcoin.BTCThe upcoming 2020. 

The move by Strategy has sparked interest in other companies seeking a hedge against fiat currency Bitcoin price debasement, and its potential to appreciate.

Over 220 public companies in the world had already adopted similar strategies by mid-2025. They collectively owned about 592,100 BTC, or roughly $60,03 billion as of June 23 2025. It has been a success. led The creation of “Bitcoin proxies” Stocks whose value largely reflects Bitcoin’s fluctuation. It’s easy to see why: when Bitcoin’s value rises, the stock prices of these companies soar. This gives investors an indirect way to get exposure to Bitcoin.

Bitcoin has many benefits for these businesses. In bullish cycles of the crypto-market, their Bitcoin reserves will appreciate rapidly, which can help boost their financial statements and bring in investors seeking crypto exposure, without having to buy the digital asset. 

Some executives even tout Bitcoin as “digital gold,” Presenting it as an inflation-protective long-term investment. Strategy’s chairman, Michael SaylorBitcoin has been argued to outperform the value of cash in time. The strategy is paying off. Strategy’s share price has risen by a significant amount. risen nearly tenfold since it began its Bitcoin acquisition The year 2020 is a new decade.

But despite potential rewards there are also significant risks. Bitcoin is highly volatileThe price of Bitcoin is subject to rapid fluctuations in a short period. Bitcoin, unlike traditional corporate assets is neither liquid nor stable. This raises questions about the financial stability of companies who make Bitcoin an integral part of their strategy.

VanEck warns corporate treasurers with Bitcoin heavy treasuries of the risk of capital erosion

VanEck – a leading global asset manager famous for its crypto investments – raised a warning in June 2025 regarding corporate treasuries’ growing accumulation of Bitcoin. 

Matthew Sigel, VanEck’s Head of Digital Assets Research warned Some companies may be at the edge of bankruptcy “capital erosion.” Simply put, capital erosion happens when a firm’s worth (or equity of shareholders) decreases even though the firm holds Bitcoin.

Sigel’s concerns stem from the way companies fund their Bitcoin purchases. Bitcoin-heavy businesses often take on new debt or issue stock to fund their Bitcoin purchases. raise capital for Bitcoin acquisition. 

In the case of a high stock price (trading higher than its Net Asset Value, NAV) issuing more shares could benefit shareholders. This is because they can raise money that is greater than their assets’ value. Michael Saylor from Strategy adopted this strategy when his stock price rose. He issued bonds and stocks to finance Bitcoin purchases.

The model will only work as long the price of the shares remains elevated. In the event that stock prices start to fluctuate at or close to their NAV value, new share issues will dilute shareholders’ existing shares without increasing shareholder value. 

It is possible that this shift in capital raising from being accretive towards being dilutive could result in “capital erosion,” The company’s share price will fall if the Bitcoin value is insufficient to justify new investments, without causing harm to existing investors.

Did you Know? It is used as a measure of a company’s worth. Net asset value (NAV) is the difference in assets and liabilities of a business. It’s essentially the difference between a company’s assets and liabilities. “book value” This is a diagram of the value left to shareholders after all debts and assets have been paid.

Semler Scientific’s Bitcoin strategy has led to capital loss

Semler Scientific’s Bitcoin heavy strategy resulted in capital erosion as the stock price fell despite Bitcoins’s increase. The risks associated with over-reliance of Bitcoins for corporate treasurers are highlighted.

Semler Scientific is a US-based medical technology company. The stock of the firm initially soared when it adopted a Bitcoin first treasury, and acquired thousands of BTC.

Semler was facing a major problem in mid-2025. Despite Bitcoins’ price rising, Semlers’ stock price plummeted over 45%. Semler’s market cap was then lower than its Bitcoin holdings. The market capitalization is the value of all outstanding shares. 

Semler’s value is below the Bitcoins it holds, meaning that investors are concerned about the undervaluation of the company.

The situation illustrates the dangers of relying too heavily on an asset as volatile as Bitcoin. Bitcoin can increase the value of corporate treasuries that are heavily Bitcoin-based in a bullish economy, but it can also cause volatility, causing sharp price changes which can harm the stability of the stock and the overall price.

Semler could have difficulty raising capital by issuing equity (new shares) if its stock price continues to be below the Bitcoin reserve value. When companies issue shares, they usually sell them at market value, which could dilute shareholders’ values if the price of the stock is low.

VanEck has warned against capital erosion. This occurs when the financial strategy of a business leads to its decreasing value. Semler, for example, will have a harder time raising funds if its stock price stays low. This is especially true if investors doubt the long-term stability of the firm. The company is at risk of losing its investor’s confidence. This can negatively impact its ability to execute or grow its business.

Bitcoin treasury strategy: hidden risks that companies ignore

Bitcoin is becoming a popular asset for treasuries, and many businesses are focused on its potential while disregarding scientific or behavioral warnings. 

The behavioral finance research shows Executives often adopt Bitcoin, without stress testing long-term volatility. Researchers have also found that firms who are hesitant to make rational decisions and sell assets with low performance risk higher losses.

Models of scientific models are also available reveal Bitcoin price is influenced by a number of factors “fat tail” distribution. This means extreme crashes are not rare outliers — they’re statistically likely. It means a balance sheet dominated by Bitcoin exposes a company to not just the asset itself, but to systemic turmoil across the Blockchain sector.

This is a case in point Grayscale Bitcoin Trust (GBTC). It traded for years at a higher price than NAV only to fall to an extreme discount in the bear market of 2022-2023. Even though Bitcoins’ price had not dropped as much, investors who bought at the top suffered massive losses. Lack of redemption mechanisms in the trust trapped investors. A warning to treasury heavy firms that are dependent on secondary markets sentiment.

Why did GBTC Premium disappear?

Investors lost interest in GBTC as lower-cost Bitcoin ETFs like those offered by ProShares or Valkyrie, which offer lower fees, entered the market. GBTC became less appealing due to reduced demand, tighter arbitrage and a six-month locking period.

A corporate treasury holding large BTC reserves without redemption mechanisms could suffer the same fate — i.e., being forced to sell at depressed prices to meet debt or equity obligations.

The systemic risk of blockchain is often underestimated. Smart contract liquidity, token interdependencies, and exchange failures centralized can lead to sharp price swings. These risks rarely get factored in to traditional treasury plans.

Companies need to build robust risk models and stress test Bitcoin holdings in worst-case scenarios. If these safeguards are not in place, companies risk losing capital, losing investors, or failing to achieve their strategic goals. Next-generation adopters will benefit by stress testing their treasuries using plausible, but extreme, scenarios.

Did you Know? Three Arrows Capital suffered massive losses when GBTC dropped from a high premium to a deep discount in 2022, falling over 40% under its net asset values. They were forced to lose money despite Bitcoin’s higher market value. The miscalculation led to the eventual failure of these firms.

The 2008 Financial Crisis has taught us a lot about how to manage Bitcoins treasury.

Similar to 2008’s global financial crisis, the warnings of capital erosion by Bitcoin Treasury companies is strikingly similar. 

Many financial institutions used high levels of leverage during the crisis to drive rapid growth. Lehman Brothers used high leverage, as did Bear Stearns to finance risky financial products and subprime mortgages. These companies became insolvent when asset values began to drop. 

Lehman Brothers in particular filed for bankruptcy on September 8, 2008 while Bear Stearns, after experiencing a crisis of liquidity, was forced to merge with JPMorgan Chase. The leveraged model only worked so long as the asset prices continued to increase. The system crashed when they stopped.

Bitcoin Treasury Firms that borrow money or issue more shares to buy Bitcoins are also exposed to these risks. In the event that Bitcoin prices fall sharply, companies like these could be overextended and unable cover debts or raise capital, similar to what happened with banks in 2008. AIG, for example, relied heavily on credit default swaps and suffered massive losses after the crash.

This cautionary tale isn’t just about the dangers of excessive optimism, but also leverage. Investors who are overconfident in the growth potential of an asset may not be aware of market fluctuations. The market may move against the expectations of investors if they are overconfident. 

It is important to take into consideration the following factors:

• Prepare yourself for the volatility Bitcoin’s price can change dramatically. Be ready for steep drops in value, especially when the markets are experiencing corrections.
• Understanding the Risks Bitcoin is a volatile asset, despite its great potential. Don’t overexpose your portfolio to a single investment.
• Diversification: Do not put all your funds into Bitcoin. Diversify the assets in your portfolio to reduce risk.
• Do not rely solely on gains in the short term: Then you should consider yourself to be investing in Bitcoin for long-term growthDo not panic over price changes that are short term. However, sudden falls can result in significant losses.
• Risk management: Set up a strategy for risk management, such as setting stop loss orders or clearly defining entry and exit points.

Did you Know? The credit default swap is a contract between two parties that insures against default. It was made widely public during the 2008 financial crisis, when AIG and other institutions suffered massive losses because of their exposure to mortgage-backed securities.

Bitcoin Treasury Companies: Strategies for preventing capital erosion

VanEck’s Sigel highlights the need for Bitcoin Treasury Companies to take proactive measures to avoid capital loss. 

His key recommendations include

• Stop stock issue: Stop issuing new stock if the price of company shares falls below 95 percent of NAV in 10 consecutive days. It would stop further diluting shareholder value if the stock market does not price the company positively.
• Buy back shares: In the event that the price of the stock falls below the value of Bitcoin, the company may buy back the shares in order to decrease the NAV discount. This will also reduce the number shareholders and increase the concentration.
• Review the strategy A company may have to change its Bitcoin strategy if the stock price is always below NAV. Optional strategies include mergers and spin-offs. Or, abandoning Bitcoin’s focus to maximize shareholder value.
• Align executive incentives: It is important that companies ensure executive compensation is based not on total Bitcoin holdings but rather the price per share. It discourages the accumulation of Bitcoins for size’s sake and encourages executive compensation to be tied to sustainable value creation.

Bitcoin offers corporate treasuries innovative upsides and news, but it also can lead to irreversible financial damage if not managed properly. VanEck’s cautions are not just speculative, but are grounded in lessons that have been learned from the history of both crypto and traditional finance. 

In the end, it’s not who holds the most Bitcoin — it’s who survives the next downturn with their fundamentals intact.