Companies Face Bitcoin Fallout as Prices Plunge Below $90,000

The recent decline in cryptocurrency values has caused significant turmoil for companies that invested heavily in bitcoin. Following a record high of over $126,000 in October 2023, the price of bitcoin plummeted below $90,000 in November, raising concerns about the sustainability of businesses that had bet their financial futures on this digital asset.

Why Companies Invest in Bitcoin

Many organizations turned to bitcoin as a strategy to diversify their cash reserves, hedge against inflation, and attract investors seeking high returns. Some firms, particularly those already operating in the cryptocurrency sector, such as exchanges and mining companies, were well-positioned to acquire and hold bitcoin. However, firms from unrelated industries also began to invest, contributing to rising demand and further inflating bitcoin’s value.

The Risks of Bitcoin Investment

Investing in bitcoin comes with substantial risks, especially for companies that have borrowed funds to finance their purchases. Many firms utilized convertible bonds, which typically offer lower interest rates but can create complications if share prices decline. When bitcoin prices drop, the attractiveness of these companies diminishes, leading to potential liquidity crises as investors may demand cash repayments instead of shares.

As the market began to shift in late summer 2023, confidence in companies heavily reliant on bitcoin waned. Eric Benoist, a tech and data expert at Natixis bank, noted that the market’s perception quickly turned to concerns about the stability of these firms, with questions arising about their potential bankruptcy. Carol Alexander, a finance professor at the University of Sussex, pointed out that regulatory uncertainty, cyberattacks, and fraud risks have further eroded investor trust in this volatile sector.

Impact on Major Players

One of the most notable casualties of this downturn is Strategy, a software company and the largest corporate holder of bitcoin, with more than 671,000 coins in its possession—approximately three percent of the total supply. Over a six-month period, Strategy’s share price plummeted by more than half, with its market value briefly dipping below the total value of its bitcoin holdings. The company’s reliance on convertible bonds has exposed it to the risk of significant cash repayments.

In contrast, semiconductor firm Sequans opted to sell 970 bitcoins to reduce its convertible debt. Neither Strategy nor Sequans responded to inquiries for comment.

Potential Market Consequences

If companies facing financial difficulties begin to liquidate substantial amounts of bitcoin, it could exacerbate the current downturn and lead to further price declines. Carol Alexander warned of considerable contagion risks within the cryptocurrency markets. Nevertheless, she suggested that the effects would likely remain confined to the crypto sector, with minimal impact on traditional financial markets. Dylan LeClair, head of bitcoin strategy at Japan’s Metaplanet, emphasized that while bitcoin is inherently volatile, this volatility represents a long-term investment opportunity.

Looking Ahead

Industry experts believe that firms will need to find ways to generate income from their bitcoin holdings, such as through innovative financial products, rather than relying solely on price appreciation. Eric Benoist indicated that while not all companies may survive this turbulent period, the model of investing in bitcoin will persist. Initiatives like The Bitcoin Society, led by French entrepreneur Eric Larcheveque, are emerging, with Larcheveque suggesting that falling prices may present a favorable opportunity to acquire bitcoin at lower costs.

As the sector navigates these challenges, the long-term future of bitcoin investment remains uncertain, but the conversation around its viability continues to evolve.