In brief
Strategy’s 3% ownership of Bitcoin is approaching “problematic” levels, threatening its reserve asset status, Sygnum says.
Acquisition vehicles have catalyzed Bitcoin demand similar to the impact of ETFs.
Liquid supply constraints could reverse the improvements in volatility, crucial for institutions.
Acquisition vehicles have successfully driven demand for Bitcoin in recent years, but their aggressive accumulation strategies may be undermining the asset’s long-term institutional appeal.
That’s according to the latest analysis from Swiss digital asset bank Sygnum, published on Tuesday.
While these vehicles have supported market demand, Sygnum warned that Strategy’s goal of owning 5% of Bitcoin’s supply risks undermining its status as a safe haven and could render it unsuitable as a reserve asset for central banks.
On Monday, Strategy purchased another 1,045 Bitcoin, worth approximately $110 million, bringing its current total to 582,000 BTC, equivalent to nearly 3% of the maximum Bitcoin supply that will ever exist.
These purchases have gained an all-time profit of above 56%, according to a rough estimate from Saylor Tracker.
While this has helped boost Bitcoin’s price and profile, Sygnum warns the concentration is approaching dangerous levels.
“Large, concentrated holdings are a risk for any asset, Sygnum said in its report. “Strategy’s holdings are approaching a point where they become problematic.”
By portraying its leveraged, large-scale approach as the “new norm,” Strategy may be overshadowing the valid case for smaller, risk-adjusted treasury allocations, which Sygnum sees as a better fit for most companies.
Liquidity, market structure risks
Strategy’s model operates a high-beta proxy, utilizing convertible debt to acquire more Bitcoin while capitalizing on the momentum of its own stock price during bull markets, according to an analysis by Sherwood.
Whenever Bitcoin rallies, Strategy’s stock, MSTR, trades at a premium, enabling the company to raise capital and buy more Bitcoin, fueling a cycle of leverage and bullish sentiment.
Yet the risk in these scenarios is clear.
If Bitcoin enters a prolonged downturn and MSTR falls below the conversion prices of its outstanding notes, the model starts to crack, and it may be forced to liquidate part of its Bitcoin holdings to cover debt obligations, Sygnum researchers explained.
“The perpetual dividend mitigates the risk” from debt-funded Bitcoin purchases, where gains and losses move in lockstep, they noted.
But if Strategy “chooses to sell Bitcoin instead to avoid the additional drag of the share discount,” the result could be a “very damaging signal to the market.”
Edited by Sebastian Sinclair
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