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Until the price of Bitcoin recovers, the business model of Bitcoin treasury companies will remain under immense strain.
During the summer, Strategy sold Bitcoin at $60K and then bought it back weeks later for $80K.
Investors looking for exposure to the upside potential of Bitcoin are better off just buying it directly.
- 10 stocks we like better than Strategy ›
When investing, a fundamental principle has always been to “buy low, sell high.” In other words, pick up an asset at a low price and then sell it at a higher price. That’s true for equities, and it’s also true for Bitcoin (CRYPTO: BTC).
That’s why I’m so concerned about the Bitcoin treasury companies right now. They are turning that core piece of investment logic on its head: They are buying high and selling low. From my perspective, that makes them very unattractive investment targets.
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Strategy sells at $60K and then buys at $80K
To see this dynamic in action, consider what happened to Strategy (NASDAQ: MSTR), formerly known as MicroStrategy, this summer. From June 30 to Aug. 10, the company sold Bitcoin four times, at prices ranging from $59,256 to $64,262. For the sake of argument, let’s call this $60K.
Then, on Aug. 31, Strategy made its first Bitcoin buy in weeks. It bought Bitcoin at $80,318. Again, for the sake of argument, let’s call this $80K.
So, if you only consider the data from June 30 to Aug. 31, Strategy was buying high and selling low. At this point, you might be asking yourself: Why would Strategy possibly want to do this?
Image source: Getty Images.
The answer is simple: When it sold, the company needed the money. Strategy needed to sell off some of its Bitcoin to fund ongoing operations and make payments on its preferred stock offerings. So it had to accept whatever price Mr. Market offered.
Now, this could be a one-time event, and maybe there’s nothing to worry about. Maybe the price of Bitcoin is on the climb once again, and Strategy can go back to buying low and selling high.
Strategy certainly wants investors to think this. They don’t want to admit that there is a flaw in their Bitcoin treasury company model. But the reality is that the company’s strategy only makes sense if the price of Bitcoin is rising. If the price of Bitcoin is declining or trading sideways (as it was during June and July), then it does not.
Why not just buy Bitcoin?
Taking a big-picture view, a surprising number of Bitcoin treasury companies appear to be in trouble. Some are trading for less than the combined value of their Bitcoin holdings. Some are winding down operations entirely. Others are pivoting into AI or any other fast-growth area. And still others are consolidating with bigger Bitcoin treasury companies.
Just look at the stock market performance of publicly traded Bitcoin treasury companies. Strategy is down 58% over the past year. Twenty One Capital is down 71% over the past year. Strive is down 78%.
At this point, you’re better off just buying Bitcoin and waiting for the price to rebound. For a brief period, Bitcoin treasury companies were able to defy expectations and outperform Bitcoin. But over the long haul, there’s just simply no way to out-Bitcoin Bitcoin.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Strive. The Motley Fool has a disclosure policy.
