Bitcoin Treasury Companies could be subject to capital erosion

Why do companies embrace Bitcoin in their corporate treasury strategies?

Bitcoin has become a part of corporate Treasury strategy for an increasing number companies in recent years. Initially viewed as a trend that was experimental, gained momentum When Strategy, an American software company began converting its reserves of cash into Bitcoins (BTCThe upcoming 2020. 

Strategy’s decision has generated widespread interest from other businesses seeking a hedge against fiat currency Bitcoin price debasement, and its potential to appreciate.

Over 220 companies in the public sector worldwide adopted a similar strategy by mid-2025. Collectively, they held about 592 100 BTC. 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 an indirect way to get 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 has been deemed a superior store of wealth over cash. 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, an asset manager known for its cryptocurrency investment products, has raised the alarm in June 2025 about corporate treasurers’ increasing acquisition of Bitcoin. 

Matthew Sigel is VanEck’s director 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 a firm’s worth (or equity of shareholders) decreases even though the company holds Bitcoin.

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. 

In the case of a high stock price (trading higher than its Net Asset Value, NAV), a new share issue can be beneficial to existing shareholders as it raises more money. Michael Saylor from Strategy adopted this strategy when his stock price rose. He issued bonds and stocks to finance Bitcoin purchases.

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 accretive towards being dilutive 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 value. The net asset value is the difference between assets and liabilities. 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 lead to capital loss

Semler Scientific’s Bitcoin heavy strategy resulted in capital erosion as its share price fell despite Bitcoins’s increase. It highlights the risks associated with over-reliance of Bitcoins for corporate Treasury.

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

Semler was facing a major problem in mid-2025. Despite Bitcoins’ price rising, Semlers’ stock price plummeted over 45%. Semler’s market cap was then lower than its Bitcoin holdings. The market capitalization is the value of all outstanding shares. 

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

This illustrates how a company’s reliance on Bitcoin can be dangerous. Bitcoin can increase the value of corporate treasuries that are heavily Bitcoin-based in a bull market. However, this can also create volatility risks, which can negatively impact the stability and price of the 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. 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 Strategies: Hidden Risks Companies Overlook

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

Research on behavioral finance shows It is clear that many executives adopt Bitcoins without properly stress-testing the long-term volatility. Researchers have also found that firms who are hesitant to make rational decisions and sell assets with low performance risk experiencing even larger 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. 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.

This is a case in point Grayscale Bitcoin Trust (GBTC). It traded for years at a higher price than NAV only to fall to an extreme discount in the bear market of 2022-2023. When Bitcoin was at its peak, those who invested suffered huge losses, even though the price of Bitcoin hadn’t fallen proportionally. Investors were trapped by the trust because it lacked a redemption system. This is a warning to firms that rely 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 lower fees, 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.

The systemic risk of blockchain is often underestimated. Smart contract liquidity, token interdependencies, and exchange failures centralized can lead to sharp price swings. The risks of smart contracts, token interdependencies and centralized exchange failures can cause sharp price spirals.

Companies need to build robust risk models and stress test Bitcoin holdings in worst-case scenarios. If these safeguards are not in place, companies risk losing capital, investors, or strategic success. Stress-testing 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. Their eventual collapse was a result of this miscalculation.

Learn from 2008’s financial crisis about managing Bitcoin treasuries

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

In the middle of the financial crisis, many institutions used leveraged loans to accelerate their growth. Lehman Brothers, for example, and Bear Stearns took on subprime loans and other financial products with excessive leverage. 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. They didn’t and the system fell apart.

The risks are the same for Bitcoin treasury companies that depend on issuing new stock or borrowing to buy Bitcoin. These companies could find themselves in a similar situation as the banks during 2008, where they were unable to cover their liabilities or raise money if Bitcoins’ price drops sharply. AIG and other companies that relied on high-risk financial products such as credit default Swaps suffered huge losses during the 2008 crisis.

Here, the cautionary message is not only about excessive optimism but also about 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 for volatile weather: Bitcoins’ value is subject to wild fluctuations. 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 growthDon’t be alarmed by short-term fluctuations in prices, but do keep an eye on sudden price drops that can cause 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 a borrower’s default. During the 2008 financial crisis, institutions such as AIG suffered massive losses because of their exposure to mortgage-backed securities.

Bitcoin Treasury Company Strategies to Prevent Capital Erosion

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

Some of the key recommendations that he makes include:

• Stock pause: The company should cease issuing shares if the stock price drops below 95% NAV over a period of 10 days. It would stop further diluting shareholder value when market pricing isn’t optimistic.
• Share buybacks are a good option. Companies may consider purchasing shares when the NAV is below the Bitcoin value to lower the discount on the NAV and to concentrate ownership.
• Review the strategy It may be time to reconsider a Bitcoin strategy if a stock is consistently trading below NAV. Optional strategies include spin-offs, mergers and even giving up 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 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 cautions are based on hard-earned financial lessons and cryptocurrency history. 

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