title: Bitcoin BTC/USD treasury companies like Michael Saylor‘

Bitcoin BTC/USD treasury companies like Michael Saylor‘. MSTR (formerly MicroStrategy) were in focus as Brett Winton, the chief futurist at ARK Investment Management LLC

Treasury companies like Strategy Inc. (NASDAQ:MSTR), formerly known as MicroStrategy, which issues both equity and debt to fund Bitcoin purchases, could be setting themselves up for trouble in the long run, according to an ARK Investment Management LLC chief futurist.

What Happened: Brett Winton, the chief futurist at ARK Investment Management, took to X, formerly Twitter, to discuss the models used by Bitcoin treasury companies such as MSTR and new entrants like GameStop Corp (NYSE:GME) to fund BTC purchases.

According to Winton, an arbitrage opportunity exists as long as the stock prices for companies like MSTR trade at a premium to the net asset value (NAV).

As of its May 12 SEC filing, MSTR held 568,840 Bitcoins at an aggregate purchase price of $39.41 billion, whereas its market capitalization stood at a staggering $108.55 billion.

"Maybe BTC treasury company stock price trades at 3x NAV (net asset value) while competitors are launching/raising at 1x NAV," explained Winton in his X post.

"Arbitrage opportunity = competitors get more demand at a lower price = they grow faster and take market share."

According to him, if the treasury companies keep doing so, “a higher debt mix” will “be the seed that grows to destroy the business-less business model.”

"If the company is trading at 3x NAV, they can keep issuing equity until the arbitrage opportunity closes. Competitors are now launching/raising will accelerate that process."

However, as the equity to NAV gap closes, the companies will shift to debt for funding their BTC purchases, thus concocting the “recipe for disaster,” as underscored by Winton.

"A bit surprising to me that no one has pointed out the obvious. As long as the company stock trades at a premium to the BTC they hold (NAV) there is an arbitrage opportunity."

According to him, if the treasury companies keep doing so, “a higher debt mix” will “be the seed that grows to decompose the business-less business model.”

"If the company is trading at 3x NAV, they can keep issuing equity until the arbitrage opportunity closes. Competitors are now launching/raising will accelerate that process. But if they start mixing in more and more debt to do the BTC purchases, that seems like a recipe for disaster on the back end of this cycle."

See Also: Warren Buffett Shows How Patience Pays: 98% Of His $160 Billion Wealth Came After Turning 65, Thanks The Power Of ‘Compound Interest’

Why It Matters: MSTR is the largest BTC treasury company that has issues both equity and debt to purchase Bitcoins. Recently, GameStop announced its plans to join MSTR’s ranks.

MARA Holdings Inc (NYSE:MARA), Cantor Equity Partners Inc (NYSE:CEP), Riot Platforms Inc (NASDAQ:RIOT), and Galaxy Digital Holdings Ltd (NYSE:GLXY) follow MSTR closely in terms of having the highest proportion of their assets invested in Bitcoins.

Meanwhile, other experts believe that Bitcoin prices are poised to rise. Highlighting Tom Lee, the head of research at Fundstrat, the Moon Show noted on X Friday the potential for Bitcoin’s network value to equal that of gold.

Lee argued that Bitcoin’s versatility, acting as a risk-on asset in bull markets, combined with growing adoption, fuels network value and price appreciation.

Price Action: Shares of MSTR fell 4.73% on Thursday and rose 1.03% in premarket on Friday. The stock was up 32.34% year-to-date and 175.72% higher over the year.

Benzinga Edge Stock Rankings showed that MSTR had a stronger price trend over the short, medium, and long term. Its momentum ranking was solid at the 97.50th percentile, while the value ranking was very poor. You can check the details of other metrics here.

The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NYSE:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, were higher in premarket on Friday. The SPY rose 0.29% to $592.20, and the QQQ advanced 0.34% to $521.01, according to Benzinga Pro data.