If the BTC Treasury Company chooses to sell off, will the market enter a "death spiral"?

Original Title: Wargaming Digital Asset Treasury Reflexivity

Original Source: Cheshire Capital

Original Translation: Ding Dang, Odaily

Editor's Note: Over the past few months, BTC treasury entities have been seen as a key driver of the crypto market and a strong cornerstone supporting Bitcoin's price. However, the reality may not be as robust as imagined. When price volatility is compounded by shareholder pressure, even treasury entities may transition from "guardians" to "sell-offers" in an instant. This article attempts to deduce the potential market path of BTC treasury entities in the next 6–12 months. Core assumptions:

· Entities: 10 BTC treasury entities holding varying amounts of Bitcoin, with market-to-net-asset-value multiples (mNAV) in the 1.0x–5.0x range.

· Disparities: Entity quality determined by treasury size and management beliefs/marketing capabilities.

· Background: Bitcoin's initial price is $120,000.

· Core Logic: Once some entities choose to sell BTC to buy back shares, it will trigger a round of reflexivity: price drop → mNAV under pressure → more entities forced to sell → intensified sell-off → further price drop.

Original Text

Assume there are 10 BTC treasury entities holding Bitcoin with different market-to-net-asset-value multiples and ranging from 1.0x to 5.0x. At this time, the price of BTC is $120,000. They vary in quality, where "quality" depends on treasury size and management's beliefs and marketing capabilities.

Some lower-quality BTC treasury entities are the first to fall below a 1.0x mNAV. For teams lacking strong beliefs, the most reasonable action is to sell some Bitcoin to buy back shares. After all, in the short term, this can lead to an increase in net asset value per share. Note that these entities are selling some BTC at a price of $120,000.

Due to the aforementioned sell-off, the Bitcoin price drops to $115,000 (this price is mainly used to illustrate the deduction scenario). Some other treasury entities (including those that have previously conducted buybacks) see their mNAV continue to decline due to the highly correlated Beta effect with BTC. As a result, another 4-5 entities sell Bitcoin to buy back shares, with these entities selling at a price of $115,000.

The market is gradually realizing that out of ten companies, probably eight or nine are more concerned about short-term shareholder defense rather than long-term BTC accumulation. Investors are beginning to anticipate that if these companies collectively need to sell 30% to 50% of their holdings, the outcome would be unimaginable. After all, even MSTR fell to a valuation level of 0.5x during the 2022 trough. As a result, BTC was quickly repriced to $100,000, and most treasury companies also fell below 1.0x.

Some medium-quality treasury companies that were still hesitating began to face dual pressure from the market and shareholders, forcing them to maintain mNAV and join the sell-off. At this point, the market saw around $500 million to $1 billion worth of Bitcoin being dumped weekly. Even high-quality companies (such as MSTR, 3350, XXI) found it challenging to defend through buy orders as the price fell to around 1.2x. BTC fell to $90,000.

The entire treasury company system, including high-quality players, had by now fallen below 1.0x. MSTR's preferred stock dropped below $0.7 per $1 face value, and there were even rumors in the market of Saylor considering suspending dividends. Some companies previously considered staunch hodlers (such as 3350, XXI) also began selling Bitcoin to cover operating costs. BTC fell to $80,000.

By this point, most low-quality treasury companies had nearly emptied their BTC treasuries. Early "bottom fishers" started entering the market, but the cruel aspect of reflexivity is that selling spreads upward along the quality chain, further amplifying in scale and speed. As the mid-to-high-quality companies surrendered completely, the largest Bitcoin holdings began entering the market, with weekly selling pressure reaching $1.5 billion to $3 billion.

It is worth noting that excluding MSTR, BTC treasury companies collectively hold about 350,000 BTC, roughly $400 billion at the current price. This sell-off could last a long time, and if MSTR is also compelled to participate, it will be even more brutal, potentially causing BTC to drop to $70,000.

Potential Outcomes

· Lower-quality companies end up benefiting. Because they were forced to sell BTC early, avoiding lower prices. However, once sold, the company no longer functions as an "iterative BTC treasury" but transforms into a "one-time valuation game." Even if sold only once, it will damage its reputation as a "diamond hand treasury company," leading to significant discounts on future fund inflows.

· If you believe BTC still maintains a 30-40% annual compound growth rate (I believe it does!), then companies that hold will eventually be fine. So far, I think only Saylor will go all out to hold onto BTC, but there may be other contenders (such as 3350, NAKA). However, until most of the sell-off is completed, no treasury company is worth a long-term bullish view.

· The Middleman is the most miserable. They are neither a radical "Shark" nor do they have enough faith. In the scenario above, these types of companies (such as MARA, RIOT, SMLR) would sell in Phases (6) to (7), with an average sell price of around $75,000.

· This logic also applies to other asset treasuries, but ETH may be an exception. Because the ETH treasury landscape is an oligopoly: BMNR and SBET hold approximately 75% of the treasury ETH (if DYNX and BTBT are included, the percentage reaches 90%). This enables them to potentially coordinate or engage in some form of collusion to avoid a vicious cycle of competitive selling. Although the likelihood of maintaining this agreement is slim, in situations of higher holding concentration, the probability of success increases.

· This can be likened to the traditional financial Archegos liquidation involving a banking consortium. The aggressive banks (such as Goldman Sachs, Deutsche Bank) liquidated first, yielding much better outcomes than those slow-motion players attempting a coordinated unwinding (Credit Suisse, Nomura).

Nota Bene: The BTC target price mentioned here is not $70,000; the price used in the text is solely for illustrative purposes of the scenario.

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