Bitcoin is at risk of a "death spiral": Will BTC reserve companies trigger the next round of Crypto Assets market decline?

As more and more companies adopt the strategy of accumulating Bitcoin (BTC) as part of their cash reserves, the adoption rate of Bitcoin continues to grow. If managed properly, companies can benefit from capital appreciation, asset diversification, and inflation protection. However, not all Bitcoin buying strategies are the same. If a company lacks sufficient resources or scale, merely holding Bitcoin could lead to a complete collapse during a prolonged Bear Market. This chain reaction could exacerbate downwards pressure, resulting in dreadful consequences, even triggering the next round of Crypto Assets market downturn.

Different Ways for Companies to Hold Bitcoin

Globally, institutional adoption of Bitcoin is on the rise, with data from Bitcoin treasuries showing that the amount of Bitcoin held by institutions has doubled since 2024. Publicly traded companies currently hold over 4% of the total supply of Bitcoin. Interestingly, this rebound reflects a variety of reasons.

Strategy (formerly known as MicroStrategy): has been actively promoting a model of becoming a fund management company specializing in Bitcoin holdings. This strategy has proven effective, with Strategy's BTC holdings accounting for 53% of the company's total assets, equivalent to over 580,000 BTC.

Cautious Holding Companies: Other companies, such as GameStop or PublicSquare, have adopted a different strategy, tending to approach Bitcoin with caution rather than hoarding it in large quantities. This is the best option for those companies that only want to increase BTC on their balance sheets while still focusing on their core businesses. Such initiatives carry much less risk compared to companies that place all their business focus on holding Bitcoin.

However, more and more companies are adding Bitcoin to their financial reserves with the sole purpose of holding Bitcoin, which has a profound impact on their business and the future of Bitcoin.

How do companies focused on Bitcoin attract investors?

Establishing a successful Bitcoin financial company is not as simple as just buying a large amount of Bitcoin. If the sole purpose of the company is to hold, then its value will be entirely dependent on the amount of Bitcoin it holds. To attract investors to buy shares instead of directly holding Bitcoin, these companies need to provide performance that exceeds that of Bitcoin, achieving a "Net Asset Value Multiplier" (MNAV). In other words, they need to make the market believe that their stock is worth more than the total amount of Bitcoin the company owns.

The strategy achieves this by showing investors that buying MSTR stock is not just about owning a fixed number of BTC, but rather investing in an actively managed strategy that aims to increase the number of BTC per share. If investors believe that the strategy can steadily increase the number of BTC per share, they are willing to pay a higher price. However, this is only part of the story. Once investors believe in this commitment, the Strategy will need to continue raising funds to purchase more Bitcoin.

MNAV Premium: How to Build and Collapse

A company can only achieve an MNAV premium by continuously increasing the amount of Bitcoin it holds. The strategy is to achieve this goal by issuing convertible bonds, which allow borrowing at low interest rates. They also utilize the At-the-Market (ATM) strategy—selling new shares when the stock price exceeds the intrinsic value based on Bitcoin. This allows them to buy more Bitcoin for every dollar raised, increasing the amount of Bitcoin per existing share.

This self-reinforcing cycle—where the premium effectively raises capital, which in turn purchases more BTC, thereby driving up the stock price—causes the stock price to be far higher than the intrinsic value of the Bitcoin directly held by Strategy. However, this process is fraught with risk. For many companies, this model is unsustainable in the long run. Even pioneers like Strategy are facing pressure due to the plummeting price of Bitcoin. Nevertheless, more than 60 companies have adopted the Bitcoin accumulation model in the first half of 2025. As this number increases, new companies will more clearly face this risk.

The Risks of Small Businesses Actively Accumulating Bitcoin

Unlike Strategy, most companies lack the scale, reputation, and status of leaders like Michael Saylor, which are crucial for attracting and maintaining investor confidence—essential for achieving high valuations. They also lack credit and market power. As a result, small businesses often have to borrow at higher interest rates and with stricter limitations, leading to high and difficult-to-manage debt costs.

If during a Bear Market, their debts are collateralized with Bitcoin, a rapid price drop will lead to a margin call. During a prolonged period of downward pressure, refinancing will become extremely difficult and costly for companies that are already under pressure. Worse still, if the company shifts its entire core business to buying Bitcoin, it will have no other stable sources of income and will completely rely on fundraising and the appreciation of Bitcoin's price.

Will large-scale corporate purchases of Bitcoin lead to a death spiral?

Due to many small businesses adopting a Bitcoin accumulation strategy, the consequences could be dire once the market declines. If the price of Bitcoin drops, they may find themselves helpless and forced to sell. Large-scale sell-offs will lead to an oversupply in the market, thereby increasing downward price pressure. As seen in the "crypto winter" of 2022, this could trigger a reflexive death spiral.

When a company sells off assets due to difficulties, it can drive down the price of Bitcoin, leading to the liquidation of assets from other similar companies. This negative chain reaction may cause the company to completely collapse. Conversely, the much-watched crash could damage overall investor confidence, and this "hedging" sentiment might lead to larger-scale sell-offs of other crypto assets due to market interconnectivity and the shift toward safer assets. As a result, regulators will be more vigilant, and potential investors may exit the crypto market.

Overcoming Strategy: The Risks of Fully Investing in Bitcoin

The unique position of Strategy is due to their status as pioneers. Few other companies possess the resources, influence, and competitive advantages that Saylor has. The risks associated with this strategy are multifaceted, and once they spread, they can have a negative impact on the entire market. As more and more publicly listed companies decide to incorporate Bitcoin into their balance sheets, they must carefully consider whether to hold a portion of Bitcoin or go all in. If they choose to go all in, they must weigh the consequences carefully. Although Bitcoin is currently at historical highs, the possibility of a Bear Market returning cannot be ruled out.

The rise of Bitcoin reserve companies is an important trend in the development of the crypto assets market. However, this strategy also comes with potential risks, especially for small businesses that lack sufficient scale and resources. Once the market enters a prolonged Bear Market, the collapse of these companies could trigger a chain reaction, potentially leading to the next round of crypto assets market downturn. Therefore, investors and businesses must carefully assess the risks when adopting Bitcoin reserve strategies and ensure they have adequate countermeasures in place.