When cryptocurrency was at its highest, some companies began to accumulate them to diversify their cash flow, protect themselves against inflation or even attract investors seduced by the prospect of profit. But his reversal has serious consequences.
The collapse of cryptocurrencies since October has shaken companies that had made large-scale bets on bitcoin, whose shares on the stock market plunged, rekindling fears of a bubble.
Why accumulate bitcoins?
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Bitcoin initially rose this year, reaching a record high of more than $126,000 in early October.
Some companies then began to accumulate them to diversify their cash flow, protect themselves against inflation or even attract investors seduced by the prospect of profit.
Some were already linked to the sector, such as exchange platforms or “mining” companies which “manufacture” bitcoins, received as a reward for having participated in the proper functioning of this digital currency.
But others, from completely different sectors, also started buying it, helping to drive up its price.
Why is buying risky?
Betting on a constant rise in the price of bitcoin, some companies used what are called “convertible bonds”, that is to say they borrowed at low rates, offering the lender the possibility of repaying itself in shares.
Problem: if their stock starts to fall, for example because the fall of bitcoin makes their model less attractive, the investor prefers a repayment in cash.
The survival of the company is then conditional on its ability to raise the necessary cash.
What causes the fall of bitcoin?
Faults emerged in the fall, with bitcoin gradually falling until it fell below $90,000 in November, lower than in January, which undermined confidence in these companies’ models.
“The question that the market very quickly asked itself was: are these companies going to be in difficulty? Are they going to go bankrupt?”, reports Eric Benoist, technology specialist at Natixis.
For Carol Alexander, professor of finance at the University of Sussex, the bubble linked to this type of company is “slowly bursting”.
According to her, distrust is reinforced by regulatory vagueness and the risks surrounding them, these being subject to cyberattacks or internal fraud.
What happened to Strategy?
The software publisher Strategy, which did not respond to AFP, is the largest “accumulator” of bitcoins, with more than 671,000 units, or around 3% of all those that will ever exist.
But in six months, its stock fell by more than half, its capitalization even briefly falling below the value of its bitcoins.
In question, these famous convertible bonds, which expose it to the risk of having to repay a heavy debt.
To reassure the market, Strategy set up a $1.44 billion fund by selling shares.
In a similar situation, the semiconductor specialist Sequans liquidated 970 bitcoins to buy back part of its debt.
What risk of contagion?
If struggling companies flood the market by selling their bitcoins, their price may fall, making the situation worse.
“The risk of contagion on the crypto markets is then considerable,” believes Ms. Alexander, although according to her it is limited to the sector, without “major impact on traditional markets”.
“We consider this volatility” as “the price to pay for long-term upside potential,” Dylan LeClair, bitcoin manager for the Japanese Metaplanet, explains to AFP.
Initially specializing in the hotel industry, this company continues its purchases of bitcoins, which are now worth around $2.7 billion.
What future for the sector?
For Eric Benoist, these companies will have to monetize their bitcoin reserves, for example via financial products, and no longer rely solely on the price increase.
“Not all of them will survive”, but “the model will continue to exist”, he believes, deeming a consolidation of the sector inevitable.
The initiatives continue: at the end of November, French entrepreneur Eric Larchevêque launched The Bitcoin Society, a crypto treasury company.
The drop in prices is “a good opportunity since it allows you to buy bitcoin cheaper,” assures AFP the man who also co-founded the cryptocurrency portfolio specialist Ledger.
