A growing number of public companies are increasingly turning to Bitcoin (BTC) as a strategic asset for their balance sheets. However, a recent report from Standard Chartered has highlighted potential risks that these companies may face if prices were to drop.
According to Standard Chartered’s research, 61 companies now hold Bitcoin in their corporate treasuries, collectively controlling 3.2% of the total Bitcoin supply. This trend has seen a significant uptick in recent months, with more companies following suit and increasing their Bitcoin holdings.
One of the key concerns raised by Standard Chartered is that many of these companies have entered the market at high valuations, with some purchasing Bitcoin at prices above $90,000 per coin. This exposes them to potential losses if there is a market correction, as their net asset value (NAV) entry multiples are already above 1.
Geoffrey Kendrick, head of digital assets research at Standard Chartered, warned that a 22% drop below the average purchase price could trigger liquidation risk for these companies. He pointed to Core Scientific’s experience in 2022 as an example of how companies could face significant stress levels if prices were to plummet.
Despite these risks, Bitcoin’s role as a strategic treasury asset continues to gain traction among corporates. Kendrick attributed this to NAV multiples above 1 and inefficiencies in how traditional finance evaluates crypto holdings. However, he cautioned that over time, these justifications may fade as market inefficiencies are addressed.
While Bitcoin continues to trade above the $100,000 mark, Standard Chartered’s warning serves as a reminder for companies to implement prudent risk management strategies. Without proper risk management, companies could face the same volatility that has impacted miners and speculators in the past.
Overall, the report underscores the growing interest in Bitcoin among public companies, but also highlights the importance of careful consideration and risk management when adding cryptocurrencies to corporate treasuries. As the market continues to evolve, it will be essential for companies to stay vigilant and adapt to changing market conditions.