The Microstrategy Risk: Bitcoin On Balance Sheets

Some seem to think so at least based upon the response to the model he set up for Microstrategy. Since it was so successful, others are copying what he did. How will this work out?

Bitcoin getting added to balance sheets could be a good idea. However, what happens if Bitcoin becomes the company "savior"? This is something that we have to consider.
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It is being reported that 3% of all Bitcoin is in the hands of 61 publicly traded companies. This could be a positive except it is not exactly the who's who of corporations.

Here is where a potential problem could arise. It is also what we take a look at in this article.

The Microstrategy Risk: Bitcoin On Balance Sheets
There is a huge difference between Apple or Google adding BTC to the balance sheet and a lesser known company simply using it as a replacement for its business model. In other words, this is not a supplement to existing operations. Instead, it is a total replacement.

Certainly, while the bull is running, everything looks dandy. The value keeps appreciating, presenting shareholders with increasing stock prices.

However, what happens if there is a significant pullback, especially if this is for an extended period of time?

Here is where companies can get themselves in hot water.

Bitcoin is known for its volatility. This is what makes it such an exceptional trading vehicle. The challenge is many of these companies are using it as the basis for the business existence. These are no longer traditional companies. CEOs opted to turn them basically into investment funds, with a single asset as the holding.

Bailing Incompetence Out
It would appear this is a move to bail the incompetent out.

Since many companies are joining the party late, their Bitcoin price is relatively high. Saylor has the benefit of some early purchases, maintaining a much lower cost figure on average. Thus, he has a bit more room to maneuver.

Others might not be so lucky.

If the price falls, liquidation could be forced. This would mean a sizeable loss could be felt. When this happens, companies end up cornered. Often the only path out is bankruptcy court.

Let us contrast this with a viable business that uses Bitcoin to supplement its operations. It is common for balance sheets to have many different assets as successful companies seek to put their excess cash to work.

It is interesting that Meta shareholders overwhelmingly turned down the chance to invest in Bitcoin as part of the company treasury. Obviously, Meta has a successful business. If it had decided on Bitcoin purchase, it would simply be a holding. The business model of the corporation would still be in place.