Why Bitcoin treasury corporations may face capital erosion

Why are corporations embracing Bitcoin as a part of their company treasury technique?

Lately, an rising variety of corporations has embraced Bitcoin as a part of their company treasury technique. This development, initially seen as experimental, gained momentum when Technique, a US-based software program firm, began changing its money reserves into Bitcoin (BTC) again in 2020. 

Technique’s transfer sparked widespread curiosity amongst different companies seeking a hedge against fiat currency debasement and the potential for Bitcoin’s worth appreciation.

By mid-2025, over 220 public corporations worldwide had adopted comparable methods, collectively holding about 592,100 BTC (roughly $60.03 billion in worth as of June 23, 2025). This has led to the creation of what some name “Bitcoin proxies,” shares whose values largely mirror Bitcoin’s worth fluctuations. The attraction is evident: When Bitcoin’s worth rises, these corporations’ inventory costs soar, giving traders an oblique route to realize publicity to Bitcoin.

For these corporations, holding Bitcoin brings quite a few advantages. Throughout bullish crypto market cycles, the worth of their Bitcoin reserves can quickly recognize, boosting their stability sheets and attracting traders on the lookout for crypto publicity with out shopping for the digital asset instantly. 

Some executives even tout Bitcoin as “digital gold,” presenting it as a long-term retailer of worth that may defend in opposition to inflation. Technique’s chairman, Michael Saylor, has argued that Bitcoin may outperform money as a retailer of worth over time. This technique has paid off for some corporations; Technique’s inventory worth, as an example, has risen nearly tenfold since it began its Bitcoin acquisition in 2020.

Nevertheless, regardless of the potential rewards, the dangers are important. Bitcoin is highly volatile, with its worth topic to sharp fluctuations inside brief durations. In contrast to conventional company belongings, Bitcoin isn’t liquid or secure, which raises issues about monetary stability for corporations that transcend small allocations and make Bitcoin a central a part of their enterprise technique.

VanEck warns of capital erosion dangers for Bitcoin-heavy company treasuries

In June 2025, VanEck, a world asset supervisor famend for its crypto funding merchandise, raised a purple flag relating to the rising accumulation of Bitcoin by company treasuries. 

Matthew Sigel, VanEck’s head of digital belongings analysis, warned that some corporations is likely to be on the point of “capital erosion.” In easy phrases, capital erosion happens when an organization’s worth (or shareholders’ fairness) diminishes regardless of the corporate’s holdings in Bitcoin.

Sigel’s concern stems from how corporations finance their Bitcoin purchases. Many Bitcoin-heavy companies problem new inventory or tackle debt to raise capital for Bitcoin acquisition. 

If an organization’s inventory worth is excessive sufficient (buying and selling at a premium to its internet asset worth, or NAV), issuing new shares can profit current shareholders by elevating extra money than the underlying belongings are price. This was the technique adopted by Technique’s Michael Saylor, who issued inventory and bonds to fund Bitcoin purchases when his firm’s share worth was excessive.

Nevertheless, this mannequin is sustainable solely so long as the corporate’s inventory worth stays elevated. If the inventory worth begins to commerce at or close to its NAV, new share issuances will dilute current shareholders with out including worth. 

This shift, from accretive to dilutive capital elevating, may result in “capital erosion,” the place the corporate’s inventory worth falls as the worth of its Bitcoin holdings isn’t sufficient to help new investments with out harming current shareholders.

Do you know? Web asset worth (NAV) is a key measure used to evaluate an organization’s worth. It represents the distinction between an organization’s belongings and liabilities. Primarily, it’s the “book value” of an organization, displaying what could be left for shareholders if all belongings have been bought and money owed paid off.

How Semler Scientific’s Bitcoin-heavy technique led to capital erosion

Semler Scientific’s Bitcoin-heavy technique led to capital erosion, as its inventory worth plummeted regardless of Bitcoin’s rise, highlighting the dangers of over-reliance on Bitcoin for company treasuries.

Semler Scientific, a US medical expertise agency, noticed its inventory initially surge when the corporate adopted a Bitcoin-first treasury technique, buying hundreds of BTC.

Nevertheless, by mid-2025, the corporate confronted a major problem: Regardless of Bitcoin’s worth climbing, Semler’s stock price plummeted over 45%. At that time, Semler’s market capitalization was decrease than the worth of its Bitcoin holdings. Market capitalization means the entire worth of an organization’s excellent shares. 

If Semler’s market capitalization is decrease than the worth of its Bitcoin holdings, it signifies that the market is undervaluing the corporate in comparison with its belongings, which is a critical concern for traders.

This example underscores the dangers of over-reliance on a unstable asset like Bitcoin. Whereas Bitcoin’s worth can drive up the worth of Bitcoin-heavy company treasuries in a bullish market, it additionally introduces volatility danger, sharp worth fluctuations that may harm the corporate’s total stability and inventory worth.

If Semler’s inventory continues to commerce at a reduction to its Bitcoin reserves (that means the market worth of the inventory is decrease than the worth of its Bitcoin holdings), it may wrestle to lift capital by means of fairness issuances (issuing new shares to lift cash). Usually, when corporations problem new shares, they promote them on the present market worth, which could dilute current shareholders’ worth if the inventory worth is low.

This situation illustrates capital erosion, a time period VanEck warned about, which happens when an organization’s monetary technique results in a discount in its worth. For instance, if Semler’s inventory worth stays low, it’ll change into tougher for the corporate to lift funds by issuing new shares or debt, particularly if traders are unsure in regards to the firm’s long-term stability. Primarily, the corporate dangers shedding investor confidence, which might have an enduring unfavorable influence on its means to develop or execute its enterprise technique.

The hidden dangers corporations overlook in Bitcoin treasury methods

As Bitcoin turns into a well-liked treasury asset, many corporations deal with its upside whereas ignoring scientific and behavioral warnings. 

Behavioral finance analysis shows that executives typically exhibit overconfidence and herd habits, adopting Bitcoin with out stress-testing long-term volatility. Research additionally spotlight loss aversion, the place companies hesitate to promote underperforming belongings, risking deeper losses as an alternative of creating rational exits.

Scientific fashions additionally reveal that Bitcoin’s worth follows a “fat tail” distribution. This implies excessive crashes are usually not uncommon outliers — they’re statistically seemingly. Which means a company stability sheet heavy with Bitcoin is uncovered not solely to the asset’s personal turbulence but in addition to systemic turbulence throughout the blockchain sector.

A living proof is Grayscale Bitcoin Trust (GBTC). For years, it traded at a premium to NAV, solely to crash to a steep low cost throughout the 2022-2023 bear market. Buyers who entered on the peak noticed large losses regardless that Bitcoin’s worth hadn’t dropped proportionally. The belief’s lack of a redemption mechanism trapped traders, a warning for treasury-heavy companies reliant on secondary market sentiment.

However why did the GBTC premium disappear?

The GBTC premium vanished as new, lower-fee Bitcoin funding merchandise like ETFs from ProShares and Valkyrie entered the market, drawing investor curiosity away. On the identical time, diminished demand and tighter arbitrage alternatives made GBTC much less engaging, particularly given its six-month lockup interval and declining institutional participation.

A company treasury holding giant BTC reserves with out redemption mechanisms may undergo the identical destiny — i.e., being pressured to promote at depressed costs to fulfill debt or fairness obligations.

What’s typically neglected is blockchain’s systemic danger. Sensible contract liquidations, token interdependencies and centralized alternate failures can set off sharp worth spirals. These dangers are hardly ever factored into conventional treasury planning.

To navigate this panorama, corporations must transcend hype and construct rigorous danger fashions, stress-testing Bitcoin holdings beneath worst-case eventualities. With out these safeguards, companies danger capital erosion, investor dilution and strategic failure. The subsequent wave of adopters would profit from stress-testing their treasuries in opposition to excessive however believable eventualities grounded in empirical information.

Do you know? Three Arrows Capital and BlockFi suffered large losses in 2022 after GBTC flipped from a premium to a steep low cost, dropping over 40% beneath its internet asset worth. With out a redemption possibility, these companies have been trapped in a shedding place regardless of Bitcoin’s precise market worth being increased. This miscalculation contributed to their eventual collapse.

Classes for Bitcoin treasury administration from the 2008 monetary disaster

The warnings about capital erosion for Bitcoin treasury corporations are strikingly just like the state of affairs main as much as the 2008 world monetary disaster. 

Through the disaster, many monetary establishments relied on excessive leverage to gas fast development. For instance, Lehman Brothers and Bear Stearns used extreme leverage to tackle dangerous subprime mortgages and monetary merchandise. When asset costs started to fall, these corporations discovered themselves unable to fulfill their obligations, resulting in mass insolvencies. 

Lehman Brothers, specifically, filed for chapter in September 2008, whereas Bear Stearns was pressured to promote itself to JPMorgan Chase after a liquidity disaster. The leverage mannequin labored solely so long as asset costs stored rising. After they didn’t, the system collapsed.

Equally, Bitcoin treasury companies that depend on issuing extra inventory or borrowing cash to accumulate Bitcoin are uncovered to the identical dangers. If Bitcoin’s worth falls sharply, these corporations may discover themselves overextended, unable to lift funds or cowl liabilities, simply as banks have been throughout the 2008 disaster. Corporations like AIG additionally relied on dangerous monetary merchandise, reminiscent of credit score default swaps, and confronted large losses when the market crashed, finally requiring a authorities bailout.

The cautionary lesson right here is not only about leverage but in addition the dangers related to extreme optimism. When traders change into overly assured in an asset’s development potential, they might overlook the dangers of sudden market shifts. This type of optimism can result in important monetary instability if the market strikes in opposition to expectations. 

Subsequently, it’s important to contemplate the next:

• Put together for volatility: Bitcoin’s worth can fluctuate wildly. Be ready for sharp declines, particularly throughout market corrections or world monetary shifts.
• Perceive the dangers: Whereas Bitcoin has nice potential, it’s nonetheless a extremely unstable asset. Don’t overexpose your portfolio to a single funding.
• Diversification is essential: Keep away from placing all of your assets into Bitcoin. Diversify your funding portfolio to unfold danger throughout varied belongings.
• Don’t depend on short-term positive aspects: For those who’re investing in Bitcoin for long-term growth, don’t panic over short-term worth fluctuations; nevertheless, remember that sudden drops can result in important losses.
• Danger administration: Have a danger administration technique in place, together with setting stop-loss orders or defining clear entry and exit factors in your investments.

Do you know? A credit score default swap (CDS) is a monetary contract that gives insurance coverage in opposition to the default of a borrower. It grew to become extensively recognized throughout the 2008 disaster when establishments like AIG confronted large losses as a consequence of their publicity to dangerous mortgage-backed securities.

Methods to forestall capital erosion in Bitcoin treasury corporations

VanEck’s Sigel emphasizes the necessity for Bitcoin treasury corporations to behave preemptively to keep away from capital erosion. 

A few of his key suggestions embrace:

• Pause inventory issuance: If the corporate’s inventory worth falls beneath 95% of its NAV for 10 consecutive days, it ought to cease issuing new shares. This is able to forestall additional dilution of shareholder worth when the market isn’t pricing the corporate optimistically.
• Think about share buybacks: If the inventory worth underperforms relative to Bitcoin’s worth, corporations may take into account shopping for again shares to scale back the NAV low cost and focus the possession amongst fewer shareholders.
• Reevaluate the technique: If an organization’s inventory persistently trades beneath NAV, it could must rethink its Bitcoin technique. Choices embrace mergers, spinoffs and even abandoning the Bitcoin-focused mannequin to unlock shareholder worth.
• Align govt incentives: Corporations ought to make sure that govt compensation is tied to the per-share worth of the inventory fairly than the entire quantity of Bitcoin holdings. This discourages extreme accumulation of Bitcoin for the sake of measurement and encourages executives to deal with sustainable worth creation.

Thus, Bitcoin could supply company treasuries innovation, upside and headlines, however with out disciplined technique, it will possibly additionally result in irreversible capital harm. VanEck’s warnings are usually not speculative; they’re rooted in hard-earned classes from each conventional finance and crypto historical past. 

Ultimately, it’s not who holds essentially the most Bitcoin — it’s who survives the following downturn with their fundamentals intact.