Bitcoin Treasury Companies Could Face Capital Erosion

Why is Bitcoin a part of corporate Treasury strategies?

Bitcoin is becoming a more popular part of the corporate treasury strategies of many companies. This was initially a trend that was seen as an experiment. gained momentum Strategy, a US software company started to convert its cash reserve into Bitcoin.BTC( ) will be back in 2020. 

The move by Strategy has sparked interest in other companies seeking a hedge against fiat currency Bitcoins’ price can increase and debasement is possible.

Over 220 public companies in the world had already adopted similar strategies by mid-2025. They collectively owned about 592,100 BTC, or roughly $60,03 billion as of June 23 2025. The value of BTC has increased dramatically. led Some call it “Bitcoin proxies” Stocks whose value largely reflects Bitcoin’s fluctuation. It’s easy to see why: when Bitcoin’s value rises, the stock prices of these companies soar. This gives investors a way to indirectly gain exposure to Bitcoin.

Bitcoin has many benefits for these businesses. In bullish cycles of the crypto-market, their Bitcoin reserves will appreciate rapidly, which can help boost their financial statements and bring in investors seeking crypto exposure, without having to buy the digital asset. 

Some executives even tout Bitcoin as “digital gold,” Presenting gold as a store of long-term value, which can be used to protect from inflation. Strategy’s chairman, Michael SaylorBitcoin is a better store of value than cash over the long term, according to. The strategy is paying off. Strategy’s share price has risen by a significant amount. risen nearly tenfold since it began its Bitcoin acquisition In 2020,

But despite potential rewards there are also significant risks. Bitcoin is highly volatilePrice fluctuations can be dramatic within a very short time. Bitcoin does not have the same liquidity or stability as traditional corporate investments. Companies that make Bitcoin part of their core business strategies, and allocate more than small amounts, may be concerned about its financial stability.

VanEck warns against capital erosion for corporate treasuries that are heavily Bitcoin-dependent

VanEck – a leading global asset manager famous for its crypto investments – raised a warning in June 2025 regarding corporate treasuries’ growing accumulation of Bitcoin. 

Matthew Sigel, VanEck’s Head of Digital Asset Research warned There are some businesses that could be in danger of going under. “capital erosion.” Simply put, capital erosion happens when the stock value or shareholders equity of a company decreases.

Sigel’s concerns stem from the way companies fund their Bitcoin purchases. Bitcoin-heavy companies often issue debt or new shares to finance their purchases. raise capital for Bitcoin acquisition. 

When a stock’s price is sufficiently high (trading above its NAV, or net asset value), issuing more shares will benefit shareholders because they can raise money that is greater than what the assets themselves are worth. Michael Saylor from Strategy adopted this strategy when the stock price of his company rose. He issued bonds and stocks to finance Bitcoin purchases.

The model will only work as long the price of shares in a company is high. In the event that stock prices start to fluctuate at or close to their NAV value, new shares issued will dilute shareholders’ existing holdings without increasing shareholder value. 

The shift from capital raising that is enhancing to one which dilutes could have serious consequences. “capital erosion,” Where the stock price of the company falls because the Bitcoins it holds are not sufficient to fund new investments. Existing shareholders will be hurt.

Did you Know? It is used as a measure of a company’s value. The net asset value is the difference between assets and liabilities. Essentially, the balance sheet is just that. “book value” The value of an organization, showing the amount that would remain for its shareholders after all debts and assets are paid.

Semler Scientifics’ Bitcoin-heavy approach led to capital loss

Semler Scientific’s Bitcoin-heavy approach led to a capital loss, with its stock falling despite Bitcoin’s growth. This highlights the dangers of relying too heavily on Bitcoin as a corporate treasurer.

Semler Scientific is a US-based medical technology company. The stock of the firm initially rose when it adopted a Bitcoin first treasury and acquired thousands of BTC.

Semler faced an important problem by the middle of 2025: Bitcoin was still rising in price, but Semler had not been able to keep up with it. stock price plummeted over 45%. Semler’s market cap was then lower than its Bitcoin holdings. Market capitalization refers to the entire value of an organization’s shares. 

Semler’s value is below the Bitcoins it holds, meaning that investors are concerned about the undervaluation of the company.

The situation illustrates the dangers of relying too heavily on an asset as volatile as Bitcoin. Bitcoins’ price may increase corporate treasuries containing Bitcoins in a bullish environment, but volatility risks, such as sharp price fluctuation, can be detrimental to the overall stability of the company and its stock.

Semler may struggle to raise funds through equity issues (issuing shares). When companies sell new shares at current market prices, it can dilute the value of existing shareholders if stock prices are low.

VanEck warns against the term capital erosion. It occurs when an organization’s financial strategies lead to a decrease in value. Semler, for example, will have a harder time raising funds if its stock price stays low. This is especially true if investors doubt the long-term stability of the firm. In essence, the company runs the risk of losing investor trust, which could have an adverse impact on their ability to grow and execute business strategies.

Bitcoin Treasury Strategies: Hidden Risks Companies Overlook

Many companies are focusing on the upside of Bitcoin, despite scientific and behavioral cautions. 

The behavioral finance research shows It is clear that many executives adopt Bitcoins without testing the volatility over a long period of time. Loss aversion is another study that highlights. When firms are reluctant to exit underperforming assets they risk even greater losses.

Models of scientific models are also available reveal Bitcoin price is a. “fat tail” distribution. This means extreme crashes are not rare outliers — they’re statistically likely. A corporate balance sheet heavily laden with Bitcoin will be exposed to both the volatility of the Bitcoin asset and the systemic volatility across the entire blockchain industry.

The following is an example. Grayscale Bitcoin Trust (GBTC). For many years it was trading at a high premium over NAV. However, during the bear market in 2022-2023, this price dropped to a significant discount. Even though Bitcoins’ price had not dropped as much, investors who bought at the top suffered massive losses. Lack of redemption mechanisms in the trust trapped investors. A warning for firms with a heavy reliance on secondary markets.

What happened to the GBTC bonus?

As new Bitcoin products with lower fees like the ETFs of ProShares, Valkyrie and others entered the market to attract investors, GBTC’s premium disappeared. GBTC was also less appealing because of reduced demand and reduced arbitrage possibilities, as well as its 6-month lockup and decreasing institutional participation.

A corporate treasury holding large BTC reserves without redemption mechanisms could suffer the same fate — i.e., being forced to sell at depressed prices to meet debt or equity obligations.

Blockchain’s systemic risks are often ignored. Smart contracts, token dependencies and failures of centralized exchanges can cause sharp price spikes. These risks are not often considered in traditional Treasury planning.

Companies need to build robust risk models and stress test Bitcoin holdings in worst-case scenarios. These safeguards are essential to protect firms from capital erosion, investor dilution, and strategic failure. Next-generation adopters will benefit by stress testing their Treasury under extreme, but plausible scenarios that are backed up with empirical data.

Did you Know? Three Arrows Capital suffered massive losses when GBTC dropped from a high premium to a deep discount in 2022, falling over 40% under its net asset values. They were forced to lose money despite Bitcoin’s higher market value. The miscalculation led to the eventual failure of these firms.

The 2008 Financial Crisis has taught us a lot about how to manage Bitcoins treasury.

Similar to 2008’s global financial crisis, the warnings of capital erosion by Bitcoin Treasury companies is strikingly similar. 

Many financial institutions used high levels of leverage during the crisis to drive rapid growth. Lehman Brothers used high leverage, as did Bear Stearns to finance risky financial products and subprime mortgages. These companies became insolvent when asset values began to drop. 

Lehman Brothers in particular filed for bankruptcy on September 8, 2008 while Bear Stearns, after experiencing a crisis of liquidity, was forced to merge with JPMorgan Chase. The leveraged model only worked so long as the asset prices continued to increase. The system crashed when they stopped.

The same risk exists for Bitcoin Treasury firms who rely on borrowing or issuing additional stock to purchase Bitcoin. In the event that Bitcoin prices fall sharply, companies like these could be overextended and unable cover debts or raise capital, similar to what happened with banks in 2008. AIG, for example, relied heavily on credit default swaps and suffered massive losses after the crash.

This cautionary tale isn’t just about the dangers of excessive optimism, but also leverage. If investors are too confident about an asset’s potential for growth, they could overlook risks associated with sudden market changes. The market may move against the expectations of investors if they are overconfident. 

Consider the following when making your decision:

• Prepare yourself for the volatility Bitcoin’s price can change dramatically. Prepare yourself for sudden drops, particularly during corrections in the market or financial changes around the world.
• Understanding the Risks Bitcoin is a volatile asset, despite its great potential. Don’t overexpose your portfolio to a single investment.
• Diversification of the economy is essential Do not put all your funds into Bitcoin. Spread the risk of your investments across a range of different assets.
• You shouldn’t depend on quick-term profits: Then you should consider yourself to be investing in Bitcoin for long-term growthDo not panic if you see a short-term fluctuation in price. However, sudden falls can result in significant losses.
• Risk management: Set up a strategy for risk management, such as setting stop loss orders or clearly defining entry and exit points.

Did you Know? Credit default swaps (CDS) are financial contracts that provide insurance against the failure of a lender. It was made widely public during the 2008 financial crisis, when AIG and other institutions suffered massive losses because of their exposure to mortgage-backed securities.

Bitcoin treasury company strategies to avoid capital erosion

VanEck’s Sigel stresses the importance of Bitcoin Treasury Companies acting preemptively in order to prevent capital erosion. 

Some of the key recommendations include

• Stock pause: Stop issuing new stock if the price of a company’s shares falls below 95 percent of its NAV in 10 consecutive days. The company would not further dilute shareholder value if the stock price is below 95% of its NAV.
• Buy back shares: In the event that the NAV is below the Bitcoin value of the shares, the company may buy back the shares in order to decrease the discount. This will also reduce the number of shareholders.
• Evaluate your strategy A company may have to change its Bitcoin strategy if the stock price is always below NAV. Optional strategies include mergers and spin-offs. Or, abandoning Bitcoin’s focus to maximize shareholder value.
• Align executive incentives: The compensation of executives should be based on the value per share of stock, not the amount of Bitcoins held. The executive should be encouraged to concentrate on creating sustainable value rather than accumulating Bitcoin for its own sake.

Bitcoin offers corporate treasurers innovation, upside, and attention, but it also can lead to irreversible financial damage if not managed properly. VanEck’s warnings do not come from speculation; rather, they stem from hard-earned lessons learned in both the traditional financial and crypto histories. 

In the end, it’s not who holds the most Bitcoin — it’s who survives the next downturn with their fundamentals intact.