Bitcoin Treasury Companies Could Face Capital Erosion

Why do companies embrace Bitcoin in their corporate treasury strategies?

Bitcoin is becoming a more popular part of the corporate treasury strategies of many companies. Initially seen as an experimental trend. gained momentum Strategy, a US software company started to convert its cash reserve into Bitcoin.BTCThe upcoming 2020. 

Strategy’s decision has generated widespread interest from other businesses seeking a hedge against fiat currency Bitcoins’ price can increase and debase.

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. The value of BTC has increased dramatically. led The creation of “Bitcoin proxies” Stocks whose value reflects Bitcoin’s fluctuation in price. Investors are attracted to this because when Bitcoin prices rise, their stock values soar.

Bitcoin has many benefits for these businesses. The value of these companies’ Bitcoin reserves may increase rapidly during bullish crypto markets cycles. This can boost their balance sheets, and attract investors who are looking to gain exposure in crypto without purchasing the digital currency directly. 

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

The risks, however, are substantial, even though the rewards may be great. 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 against capital erosion for corporate treasuries that are heavily Bitcoin-dependent

VanEck (a global asset management company renowned for their crypto investments products) raised a warning in June 2025 regarding the growing accumulation of Bitcoins by corporate Treasury. 

Matthew Sigel is VanEck’s director of digital asset 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 company 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. 

When a stock’s price is sufficiently high (trading above its NAV, or net asset value), a new share issue can be beneficial to existing shareholders because it raises more money than what the assets themselves are worth. Michael Saylor of Strategy used this strategy to purchase Bitcoins when the share price for his company was high.

This model can only be sustained as long as the stock price of the company remains high. In the event that stock prices start to fluctuate at or close to their NAV value, new share issues will reduce existing shareholder’s equity without increasing it. 

It is possible that this shift in capital raising from being accretive towards 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 value. The net asset value is the difference between assets and liabilities. 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 a capital erosion

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 (a US medical tech firm) saw the stock price of its company initially rise when it implemented a treasury first strategy that included acquiring BTC in thousands.

Semler was facing a major problem in mid-2025. Despite Bitcoins’ price rising, Semlers’ stock price plummeted over 45%. Semler’s value was less than that of Bitcoin at the time. Market capitalization refers to the entire value of an organization’s shares. 

Semler’s Market Capitalization being lower than Bitcoin value means the market has undervalued the company in comparison to its assets. That is of great concern to investors.

This illustrates how relying on volatile assets like Bitcoin can be dangerous. Bitcoins’ price may increase corporate treasuries containing Bitcoins in a bull market. However, this can introduce volatility risks, such as sharp price fluctuations that could hurt the company’s stability or stock price.

Semler may struggle to raise funds through equity issues (issuing shares). When companies sell new shares at current market prices, it can dilute the value of existing shareholders if stock price is low.

VanEck warns against the term capital erosion. It occurs when an organization’s financial strategies lead to a decrease in 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. In essence, the company runs a risk of losing investor trust, which could have an adverse impact on their ability to grow and execute business strategies.

Bitcoin treasury strategy: hidden risks that companies ignore

Many companies are focusing on the upside of Bitcoin, despite scientific and behavioral cautions. 

The behavioral finance research shows It is clear that many executives adopt Bitcoins without stress-testing the long-term volatility. Researchers have also found that firms who are hesitant to make rational decisions and sell assets with low performance risk worse losses.

Science models include: reveal Bitcoin price is a. “fat tail” distribution. This means extreme crashes are not rare outliers — they’re statistically likely. A corporate balance sheet heavily laden with Bitcoin will be exposed to both the volatility of the Bitcoin asset and the systemic volatility across the entire blockchain industry.

This is a case in point Grayscale Bitcoin Trust (GBTC). During the bear market in 2022-2023, the price of bitcoin traded higher than its NAV for many years. Those who invested at the height of Bitcoin’s value suffered huge losses, even though Bitcoin had not fallen proportionately. Investors were trapped by the trust because it lacked a redemption system. This is a warning to firms that rely on secondary market sentiment.

Why did the GBTC Premium disappear?

As new Bitcoin products with lower fees like the ETFs of ProShares, Valkyrie and others entered the market to attract investors, the GBTC premium disappeared. GBTC became less appealing due to reduced demand, tighter arbitrage and declining participation by institutions.

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.

Blockchain’s systemic risks are often ignored. Smart contract liquidity, token interdependencies, and exchange failures centralized can lead to sharp price swings. These risks are not often considered in traditional Treasury planning.

Companies need to build robust risk models and stress test Bitcoin holdings in worst-case scenarios. These safeguards are essential to protect firms from capital erosion, investor dilution, and strategic failure. Stress-testing their Treasury against plausible but extreme scenarios based on empirical data would be beneficial to the next wave of adopters.

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. These firms, without a redemption plan, were stuck in a loss despite Bitcoins’ actual market value. Their eventual collapse was a result of this miscalculation.

Learn from 2008’s financial crisis about managing Bitcoin’s Treasury.

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

In the context of the financial crisis, many institutions turned to high leverage in order to achieve rapid growth. Lehman Brothers, for example, and Bear Stearns took on subprime loans and other financial products with excessive leverage. These companies became insolvent when asset values began to drop. 

Lehman Brothers filed for bankruptcy, and Bear Stearns had to be sold to JPMorgan Chase following a liquidity crises. Leverage model only worked so long as asset price rose. The system crashed when they stopped.

Similar risks are also present for Bitcoin treasury companies that borrow money or issue more shares to buy Bitcoin. These companies could find themselves in a similar situation as the banks during 2008, where they were unable to cover their liabilities or raise money if Bitcoins’ price drops sharply. AIG and other companies that relied on high-risk financial products such as credit default Swaps suffered huge losses during the 2008 crisis.

Here, the cautionary message is not only about excessive optimism but also about 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 for volatile weather: 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 of the economy is essential Don’t put all of your money into Bitcoin. Spread your risk over a variety of assets by diversifying your portfolio.
• You shouldn’t depend on quick-term profits: You’re not a member? investing in Bitcoin for long-term growthDon’t be alarmed by short-term fluctuations in prices, but do keep an eye on sudden price drops that can cause significant losses.
• Risk management: Set up a strategy for risk management, such as setting up stop-loss order or clearly defining entry and exit points.

Did you Know? Credit default swaps (CDS) are financial contracts that provide insurance against default by a borrower. It gained widespread attention during the financial crisis of 2008, when AIG suffered huge losses as a result of its exposure to high-risk mortgage-backed bonds.

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: The company should cease issuing shares if the stock price drops below 95% NAV over a period of 10 days. It would stop further diluting shareholder value when market pricing isn’t optimistic.
• Share buybacks are a good option. Companies may consider purchasing shares if the price of the stock falls short of the value Bitcoin, in order to lower the NAV and reduce ownership.
• Review the strategy A company may have to change its Bitcoin strategy if the stock price is always below NAV. Optional strategies include merging, spinning out or dumping the Bitcoin model altogether to maximize shareholder value.
• Align executive incentives: The compensation of executives should be based on the value per share of stock, not the amount of Bitcoins held. It discourages the accumulation of Bitcoins for size’s sake and encourages executive compensation to be tied to sustainable value creation.

Bitcoin can offer corporate treasurers innovation, upside, and even headlines. But without a disciplined strategy it could also cause irreversible damage to capital. 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.