Key Points
Strategy has started to sell some of its Bitcoin, prompting a loud outcry in the crypto community.
Other Bitcoin treasury companies are also in trouble, suggesting that Strategy’s financial problems may be more than temporary.
While Strategy has shown the ability to outperform Bitcoin for short periods of time, it is unlikely to outperform Bitcoin over the long haul.
- 10 stocks we like better than Strategy ›
Just two years ago, Strategy (NASDAQ: MSTR) was the talk of the stock market. It had somehow figured out a way to outperform Bitcoin (CRYPTO: BTC), and its aggressive, nonstop strategy of accumulating Bitcoin as quickly as possible seemed like a stroke of genius.
So, could the same phenomenon happen again as soon as Bitcoin goes into bull market mode? Strategy CEO Phong Le is convinced that it could happen; all that’s required is for investors to patiently wait out the current crypto bear market.
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Will Strategy’s new strategy work?
The problem, quite frankly, is that Strategy has already ruffled the feathers of quite a few crypto investors with its new approach of “Sometimes sell your Bitcoin.” Remember, this was the company that famously told investors, “Never sell your Bitcoin.”
At one point, Strategy Executive Chairman Michael Saylor told investors they might want to think about mortgaging their homes or selling other financial assets to buy more Bitcoin. Then, he told them to sell a kidney to buy more Bitcoin. That’s how much he believed in Bitcoin.
Image source: Getty Images.
As a result, Strategy has been forced to put maximum spin control on its new “Sometimes sell your Bitcoin” strategy. At first, the company said it would just be a one-time event. Now, it looks like it might be happening on a regular, recurring basis.
And that’s what has me worried. The financial flywheel that worked to perfection when Bitcoin was soaring in value now is working in reverse. Once some companies sell their Bitcoin, that may force other companies to sell their Bitcoin. Very rapidly, unrealized losses could turn into realized losses.
Just look at all the high-profile companies that are now rethinking their Bitcoin treasury company business models. The latest victim was Trump Media & Technology Group (NASDAQ: DJT), which just reported a staggering $190 million loss on its crypto position. Before that, it was Twenty One Capital (NYSE: XXI), which reported a $414 million loss on its Bitcoin holdings.
If not Strategy, then who?
That’s not to say other companies won’t outperform Bitcoin during the next Bitcoin bull market. For example, Bitcoin mining companies have shown the ability to outperform Bitcoin during bull market rallies.
However, many Bitcoin miners are now pivoting to artificial intelligence (AI). It’s simply more profitable to use their massive computing power for AI rather than to mine new BTC. Just look at all the billion-dollar AI compute deals being signed by Bitcoin miners.
Some other company will certainly find a way to outperform Bitcoin. Most likely, it will be a winner from the new Digital Asset Market Clarity Act. This is a key piece of legislation that Strategy CEO Phong Le says could be a strong positive catalyst for the price of Bitcoin.
Unfortunately, the biggest winner is unlikely to be Strategy or any of the other Bitcoin treasury companies. Investors have finally figured out that companies attempting to “out-Bitcoin Bitcoin” can only do so for limited periods of time.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
