What do a manufacturer of chocolate-flavored whiskey (yes, really), a seller of a “sober-up” potion and a shark-repellant sunscreen promoter all have in common?
Obviously, it’s not the products they’re selling.
According to the Associated Press, these companies share an interest in cryptocurrencies. In an attempt to boost their viability and appeal to investors, they’ve all published press releases and held press conferences announcing that they’re diversifying their corporate savings with crypto. Sometimes they go as far as pivoting from their core product/service into cryptocurrency.
You may have heard the term for these types of companies: Crypto treasury companies also known as “digital asset treasury” companies or DATs.
Michael Saylor’s Strategy (formerly MicroStrategy) was the first high-profile company to pursue this financial strategy. Way back in August of 2020 – MicroStrategy announced its first bitcoin purchase: 21,454 BTC for $250 million (average price ≈ $11,653 each). Today, Strategy is the world’s largest corporate bitcoin owner with over 640,000 BTC. And they’ve obviously enjoyed a significant appreciation in bitcoin price since those initial purchases over the years – today, their cost basis per bitcoin is just a little over $70,000.
This crypto treasury approach made Strategy, and Michael Saylor, a hero in crypto communities.
Other companies eventually took note – and followed suit.
If that was all that happened, this might have been just a small footnote in corporate financial history. (Trust me, there IS such a thing as corporate financial history.)
We already know a lot of everyday Americans want exposure to crypto’s growth potential – makes sense for companies to get involved, too.
Doesn’t it?
So how are crypto treasury companies doing?
Well, according to Samuel O’Brient with Business Insider, they might have done better to stick with their original business idea… no matter how lackluster it was. The vape company, the European soccer investor (fine – football), and “an energy solutions provider” (Enron?)
All of those companies pivoted into cryptocurrencies with great, self-created fanfare.
Probably for the boost in media exposure (since cryptocurrency is so newsworthy these days).
Possibly as a way to expand the company’s business and profits.
Possibly for other reasons…
The results, at least, are not in doubt. Retail investors decided that they wanted to invest in companies that diversified into crypto.
For a while, Bloomberg says it was all the rage. Some 140 companies diversified with bitcoin alone! Others tried to be different – adding ether or Solana or XRP instead of BTC.
Retail traders who invested into these companies, hoped that simply buying crypto would make the companies worthwhile. Maybe retail traders who thought that owning crypto directly was too complicated for them? Whatever their motives, they’ve been left holding the bag. Business Insider’s O’Brient tells us:
“For retail investors, however, the picture is stark,” analysts at 10X Research said a note at the end of last week. “They’ve effectively lost around $17 billion, as new shareholders overpaid for bitcoin exposure by an estimated $20 billion.”
$17 billion!
What went wrong?
Saylor and Strategy bought bitcoin early and often for a reason: They believe in bitcoin’s long-term value.
I would argue that this recent wave of DATs did not have the same motivation. Often, they just weren’t succeeding at their core business – so they looked at Strategy’s example and turned to crypto into their corporate “hail Mary” play.
Alina Volkova explains it like this: The growth engine for many DATs is their ability to trade at a price higher than the actual value of their crypto holdings. This allows them to sell shares to buy more crypto, creating a powerful accumulation cycle in bull markets.
DATs were relying on the willingness of unsophisticated investors to pay $5 for $1 in bitcoin. So long as they were, the company could keep buying bitcoin (funded by issuing fresh shares). So long as crypto prices keep going up, they benefit from a positive feedback loop.
Here’s the problem: It doesn’t make financial sense to pay $5 for $1 in bitcoin. If the DAT in question is simply acquiring cryptocurrency – without adding value somehow, without changing their business models or increasing profits – how much longer can this positive feedback loop last?
Not very long. When prices slipped earlier this month, when the line stopped going up, a lot of people suddenly saw that the emperor had no clothes.
Let me be clear: Retail investors were left holding the bag here not because cryptocurrencies are bad assets! (There is risk in investing into cryptocurrencies just like there is risk in investing into anything. Frankly, it’s the risk that makes the possibility of return on investment possible).
No, retail investors were left holding the bag because they overpaid for crypto exposure. There’s no reward without risk – but there IS such a thing as reward-free risk. That’s what a LOT of people were really buying.
It’s an absurd way of diversifying with cryptocurrencies.
Maybe back in 2020, when it was arguably true that you needed a computer science degree and an obsessive personality to own crypto directly.
But not anymore!
Direct ownership is the name of the game
If you’re seriously looking into cryptocurrencies for the growth potential they represent, then you need to take them seriously enough to do your due diligence. Then take the opportunity to maximize your return on investment.
Because there is no substitute for direct ownership. None.
The world is filled with “entrepreneurs” who will sell you $1 in assets for $5 or $10 – maybe they call it a “convenience fee” or “costs of management.” But all it really represents is a transfer of wealth from you to them. This is obviously not a sustainable investment strategy!
And that’s why the smart money in chooses to own assets directly instead of aiming for arms-length, indirect ownership (along with the additional risks and costs involved).
If you treat investing like playing the slot machines in Vegas, direct ownership is not for you. I’d go even farther and say, if you invest for entertainment purposes, direct ownership might be a mistake. Direct ownership in general and BitIRA in particular is best for those who are serious enough about their investing to do their due diligence and make their own decisions.
If you’re the type of person who is willing to take ownership of your decisions, and eager to diversify your savings with the future of money? In that case, BitIRA might be perfect for you. Start your research into cryptocurrencies with BitIRA’s free Info Guide – or, if you’re ready to get started, you can sign up online right now (anytime, day or night) in less than 10 minutes.
And whatever you do, please remember – paying $5 for $1 is not a winning strategy. No matter what the press releases or promoters say…
