Bitcoin Vault Company: A Bubble Will Eventually Burst

It has been half a year since the first report about Strategy( and the original MicroStrategy) company was released. During this time, the company has not only changed its name but also expanded the variety of financial products, continued to accumulate Bitcoin, and led many companies to follow its strategic model. Bitcoin reserve companies now seem to be everywhere.

This article will explore whether the operations of these Bitcoin reserve companies align with initial predictions and attempt to summarize the future direction of this trend.

Warning Signal

In December of last year, Strategy Company seemed almost invincible: its Bitcoin return key performance indicators accumulated at an astonishing annual growth rate of over 60%, with optimism running high. Most of the arguments in the report released at that time were either ridiculed, ignored, or maliciously challenged. Currently, the stock price, priced in either dollars or Bitcoin, is roughly on par with what it was then, with little evidence supporting the previous predictions.

Unfortunately, very few people understand the most important conclusion in the report from last December - regarding the sources of Bitcoin returns. This metric has issues and should raise concern for any serious investor.

Bitcoin profits — that is, the increase per share of Bitcoin — are actually transferred from new shareholders to old shareholders. Many new shareholders purchase shares hoping to achieve high Bitcoin profits, but these profits either come directly from the company's large-scale ATM issuance or indirectly from purchasing stocks borrowed by neutral hedge funds that hold the company's convertible bonds. This is precisely the Ponzi aspect of the company's operations — publicly boasting of Bitcoin profits far exceeding traditional returns while concealing the fact that these profits do not originate from the company's business but rather from new investors themselves. As long as they are willing to provide capital, this harvesting will continue. The scale of harvesting is proportional to the level of confusion, which can be measured by the premium of common stock relative to the company's net assets. This premium is cultivated and maintained through complex yet enticing corporate narratives, promises, and financial products.

It is important to clarify that even if a company within the Bitcoin space constructs a Ponzi scheme, it does not mean that Bitcoin itself is a Ponzi scheme. The two are independent assets. In the past, during the era when metals were the standard for currency, Ponzi schemes also existed, but that does not mean that precious metals themselves are Ponzi schemes.

Continuous Accumulation

The Strategy company announced in December last year that it purchased approximately 21,550 Bitcoins for about $2.155 billion. This purchase utilized the funds from the ATM issuance in the previously launched "21/21 Plan." Subsequently, the company made multiple additional purchases of Bitcoin.

By the end of 2024, the company proposed to increase the authorized number of Class A common stock by 30 times and the authorized number of preferred stock by 200 times. This provides greater flexibility for future financial operations. By the end of 2024, Strategy will hold approximately 446,000 Bitcoins, with a Bitcoin yield of 74.3%.

The Emergence of Permanent Preferred Stock

In early 2025, Strategy launched a perpetual preferred stock named Strike. Each share offers an 8% cumulative dividend, which can be converted into common stock. The company subsequently issued $2 billion in convertible bonds. Soon after, the company released a new prospectus allowing for the issuance of up to $21 billion in Strike perpetual preferred stock.

Next, the company launched Strife perpetual preferred shares, offering a 10% cash dividend, with priority over common shares and Strike. Through these financing activities, Strategy's Bitcoin holdings surpassed 500,000 coins.

In May, the company announced the launch of another $21 billion common stock ATM issuance. This validates previous predictions: the management will continue to issue new shares that are overvalued relative to the underlying Bitcoin asset value in order to capture the premium.

In June, the company launched Stride perpetual preferred shares, offering a 10% optional non-cumulative cash dividend.

Bitcoin Treasury Company's Bubble

The concept of Bitcoin earnings from Strategy has rapidly spread among many small companies worldwide. Many struggling companies have turned to the Bitcoin treasury strategy in an attempt to save their stock prices. These companies include:

• Metaplanet( Original Red Planet Japan)
• Méliuz SA
• Vanadi Coffee SA
• Trump Media & Technology
• Bluebird Mining Ventures Ltd
• H100 Group

These troubled companies have turned their eyes to Michael Saylor and Strategy, believing they have found the path to wealth. However, they are actually caught in a massive wealth transfer, and the Bitcoin treasury company bubble is heading towards its end.

Conclusion

When the Bitcoin bear market arrives, many struggling Bitcoin vault companies will be forced to sell off their assets. The more popular the strategy of Strategy becomes, the deeper the future Bitcoin crash may be, potentially destroying the equity value of most companies that stick to this strategy until the end.

Michael Saylor prefers to own more Bitcoin. Therefore, it is extremely naive to think that he would give up arbitrage opportunities. When the trading price of common stock is higher than the net asset value, companies can create risk-free profits for old shareholders by transferring wealth to new shareholders. This behavior will continue to manifest in the form of larger-scale common stock ATM issuances.

In the next round of the Bitcoin bear market, the stock price of Strategy may fall below the net asset value per share, causing significant losses for investors who buy stocks at a premium today. For investors in Strategy, the best course of action may be to follow the company and its insiders: sell the stocks.

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