The Rise and Concerns of Bitcoin Reserve Companies

It has been half a year since the first report on Strategy('s original MicroStrategy) was released. During this time, the company not only changed its name but also expanded its range of financial products, increased its Bitcoin reserves, and influenced other companies to follow Michael Saylor's strategy. Bitcoin reserve companies now seem to be everywhere.

This article will review whether the operations of these companies meet the initial expectations and attempt to summarize the future direction of this trend once again.

Warning Signal

Last December, Strategy seemed invincible: its Bitcoin yield indicator accumulated an annual growth rate of over 60%, and optimism was high. However, most of the arguments in the report at that time were either ridiculed, ignored, or questioned. Currently, the company's stock price is basically flat compared to that time, and the accuracy of the predictions has yet to be confirmed.

Unfortunately, few people understand the most critical conclusion in last year's report - the source of Bitcoin profits. The issues surrounding this metric should raise serious concerns for investors.

In fact, the Bitcoin returns ( per share growth of Bitcoin ) flows from new shareholders to old shareholders. New shareholders buy stocks hoping to achieve high Bitcoin returns, but these returns come from the company's large-scale issuance of new stocks or convertible bonds. This is precisely the Ponzi aspect of the company's operations - promoting Bitcoin returns that far exceed traditional returns while masking the fact that the returns do not come from business, but from the new investors themselves. As long as they are willing to provide funds, this harvesting will continue. The scale of harvesting is proportional to the degree of confusion, which can be measured by the premium of the stock price relative to the net asset value. This premium is constantly maintained through complex but enticing narratives, promises, and financial products.

It is important to clarify that even if Ponzi schemes appear in the Bitcoin space, it does not mean that Bitcoin itself is a Ponzi scheme. The two are independent assets. The accusations against Strategy are based on definitions, not exaggerations.

Continuous Accumulation

In December last year, Strategy announced the purchase of 21,550 Bitcoins for approximately $21.55 billion. This purchase utilized the funds raised from the stock issuance of the "21/21 Plan" initiated earlier. Subsequently, the company purchased Bitcoins multiple times, holding approximately 446,000 by the end of 2024, with a Bitcoin yield of 74.3%.

At the beginning of 2025, the company launched a new financing tool - Strike perpetual preferred shares. This tool offers an 8% cumulative dividend, which can be converted into common stock. In February, the company issued $2 billion in convertible bonds. Soon after, the company announced a plan to issue up to $21 billion in Strike stocks, indicating that the "21/21 plan" is expanding to a larger scale.

Controversies and Developments of New Tools

Subsequently, the company launched two types of perpetual preferred stock: Strife and Stride. Strife offers a 10% cash dividend, with a priority higher than Strike. Stride offers a 10% optional non-cumulative dividend, with the lowest priority. The introduction of these new instruments further complicated the company's financial structure.

The Rise of Bitcoin Vault Companies

The strategy model has rapidly spread among many small companies worldwide. Many companies on the brink of failure are turning to Bitcoin reserve strategies, resulting in a significant increase in stock prices. However, most of these companies face operational difficulties and may be forced to sell their Bitcoin assets if the market environment deteriorates.

Potential Risks

Although Strategy is currently performing well, its complex financial structure carries potential risks. In the event of an economic downturn, the value of the company's assets may decline significantly, while debt obligations remain. The prolonged slump in the Bitcoin market may further exacerbate this issue.

Conclusion

Strategies and their imitators are likely to continue increasing Bitcoin reserves by issuing new shares and innovating financial products, although this may lead to equity dilution. In the next round of Bitcoin bear market, these companies' stock prices may fall below net asset levels, causing losses for investors who currently buy stocks at a premium. For investors, it may be a wise choice to follow the insiders of the company in selling stocks.

Bitcoin is no longer the main strategy of these companies; investors are.