Bitcoin Treasury Companies could be subject to 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. Initially seen as an experimental trend. gained momentum Strategy, an US-based software firm, began 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 devalued.

In mid-2025 over 220 companies had implemented similar strategies and collectively held about 592 100 BTC. (approximately $60.03 Billion in value on June 23, 2025). It has been a success. led Some call it “Bitcoin proxies” Stocks whose value largely reflects Bitcoin’s fluctuation. Investors are attracted to this because when Bitcoin prices rise, their stock values soar.

Bitcoin is a valuable asset for many companies. The value of these companies’ Bitcoin reserves may increase rapidly during bullish crypto markets cycles. This can boost their balance sheets, and attract investors who are looking to gain exposure in crypto without purchasing the digital currency directly. 

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 has been hailed as the best store of wealth over time. The strategy is paying off. Strategy’s share price has risen by a significant amount. risen nearly tenfold since it began its Bitcoin acquisition The year 2020 is a new decade.

The risks, however, are substantial, even though the rewards may be great. 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 in June 2025 raised the alarm about corporate treasurers’ increasing acquisition of Bitcoin. 

Matthew Sigel is VanEck’s director of digital asset research. warned Some companies may be at the edge of bankruptcy “capital erosion.” Simply put, capital erosion happens when the stock value or shareholders equity of a company decreases.

Sigel is concerned about how Bitcoins are purchased by companies. Bitcoin-heavy businesses often take on new debt or issue stock to fund their Bitcoin 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 of Strategy used this strategy to purchase Bitcoins when the share price for his company was high.

This model can only be sustained as long as the stock price of the company remains high. When the NAV is reached or exceeded, new shares will dilute current shareholders and not add value. 

It is possible that this shift in capital raising from being a source of enhancing to dilution could result in “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 worth. Net asset value (NAV) is the difference in assets and liabilities of a business. It’s essentially the difference between a company’s assets and liabilities. “book value” This is a diagram of the value left to shareholders after selling all assets and paying off debts.

Semler Scientific’s Bitcoin strategy has led to capital loss

Semler Scientific’s Bitcoin-heavy approach led to 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, an American medical technology company, experienced a surge in its shares when it implemented 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. 

Investors should be concerned if Semler’s market cap is less than its Bitcoin assets. This means the market undervalues 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 company.

Semler may struggle to raise funds through equity issues (issue new 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. The company is at risk of losing its investor’s confidence. This can negatively impact its ability to execute or grow its business.

Bitcoin treasury strategy: hidden risks that companies ignore

Many companies are focusing on the upside of Bitcoin, ignoring behavioral and scientific warnings. 

Research on behavioral finance shows Executives often adopt Bitcoin without stress testing long-term volatility. Loss aversion is another study that highlights. When firms are reluctant to exit underperforming assets they risk even greater losses.

Science models include: reveal Bitcoin follows the price of a “fat tail” distribution. This means extreme crashes are not rare outliers — they’re statistically likely. It means that corporate balance sheets heavily weighted with Bitcoin are exposed not just to Bitcoin’s volatility, but to systemic fluctuations across the Blockchain sector.

This is a case in point Grayscale Bitcoin Trust (GBTC). It was trading at an elevated premium over NAV for many years before it crashed to a significant discount during the bear market in 2022-2023. 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 to treasury heavy firms dependent on secondary market sentiment.

Why did the GBTC Premium disappear?

Investors lost interest in GBTC as lower-cost Bitcoin ETFs like those offered by ProShares or Valkyrie, which offer Bitcoin investments at a lower fee, entered the market. GBTC was also less attractive due to a reduced market demand and fewer arbitrage opportunities, particularly given the six-month locking period 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 rarely get factored in to traditional treasury plans.

In order to navigate the Bitcoin landscape, businesses need go beyond hype, and create rigorous risk models. They should stress-test Bitcoin holdings using worst-case scenario scenarios. If these safeguards are not in place, companies risk losing capital, diluting investors and failing to achieve their strategic goals. Stress-testing their Treasury against plausible but extreme scenarios based on empirical data would be beneficial to the next wave of adopters.

Did You Know? Three Arrows Capital, BlockFi and other firms suffered huge losses after GBTC flipped to a steep discounted price in 2022. It dropped over 40% below the net asset value. 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 treasuries.

It is not hard to imagine how similar the current situation for Bitcoin Treasury Companies and the global financial crises in 2008 was. 

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. As asset prices fell, many companies were unable to pay their debts, and faced mass insolvency. 

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. Leverage model only worked so long as asset price rose. The system crashed when they stopped.

The risks are the same for Bitcoin treasury companies that depend on issuing new stock or borrowing to buy 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 and other companies that relied on high-risk financial products such as credit default Swaps suffered huge losses during the 2008 crisis.

This cautionary tale isn’t just about the dangers of excessive optimism, but also leverage. Investors who are overconfident in the growth potential of an asset may not be aware of market fluctuations. If the market does not move in line with expectations, this type of optimism could lead to financial instability. 

It is important to take into consideration the following factors:

• Prepare for volatile weather: Bitcoin’s price can change dramatically. Prepare yourself for sudden drops, particularly during corrections in the market or financial changes around the world.
• Know the risks Bitcoin may have great potential but it’s still an asset that is highly volatile. Don’t overexpose your portfolio to a single investment.
• Diversification of the economy is essential Don’t put all of your money into Bitcoin. Diversify the assets in your portfolio to reduce risk.
• You shouldn’t depend on quick-term profits: Then you should consider yourself to be investing in Bitcoin for long-term growthDo not panic over price changes that are short term. 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? The credit default swap is a contract between two parties that insures against default by a borrower. It was made widely public during the 2008 Crisis when AIG and other institutions suffered huge losses as a result of exposure to high-risk mortgage-backed security.

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 from his book include:

• Stock pause: Stop issuing new stock if your company’s share price has fallen below 95% NAV in 10 consecutive days. It would stop further diluting shareholder value when market pricing isn’t optimistic.
• Buy back shares: Companies may consider purchasing shares if the price of the stock falls short of the value Bitcoin, in order to lower the NAV and reduce ownership.
• Evaluate your strategy It may be time to reconsider a Bitcoin strategy if a stock is consistently trading below NAV. Optional strategies include a merger, spin-offs or abandoning the Bitcoin model altogether 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 Bitcoins.

Bitcoin can offer corporate treasurers innovation, upside, and even headlines. But without a disciplined strategy it could also cause irreversible damage to capital. VanEck’s cautions are not just speculative, but are grounded in lessons that have been learned from the history of both crypto and traditional finance. 

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