The year-end plunge in cryptocurrencies has rattled companies that had bet heavily on bitcoin, sending share prices tumbling and reviving fears of a bubble.<\/p>\n
Below AFP explains what happens to these bitcoin-buying firms when prices drop.<\/p>\n
– Why accumulate bitcoin? –<\/p>\n
Bitcoin surged this year, reaching a record above $126,000 in October.<\/p>\n
Companies began buying and holding bitcoin to diversify their cash reserves, protect against inflation or attract investors chasing high returns.<\/p>\n
Some were already linked to the cryptocurrency, such as exchanges or “mining” firms that use powerful computers to earn bitcoins as rewards.<\/p>\n
Others from unrelated industries also started buying in, boosting demand and driving its price even higher.<\/p>\n
– Why is buying risky? –<\/p>\n
Many companies borrowed money to buy bitcoin, betting that its price would keep rising.<\/p>\n
Some relied on convertible bonds, which offer lower interest rates while giving lenders the option to be repaid in shares instead of cash.<\/p>\n
But problems can emerge if a company’s share price falls — for example, if a drop in the bitcoin price makes its business model less appealing.<\/p>\n
Investors may then demand cash repayment, leaving the company scrambling for liquidity.<\/p>\n
– What happens when bitcoin drops? –<\/p>\n
Trouble surfaced after the summer when bitcoin began falling, eventually dropping below $90,000 in November, undermining confidence in companies heavily exposed to it.<\/p>\n
“The market quickly started to ask: ‘Are these companies going to run into trouble? Could they go bankrupt?'” said Eric Benoist, a tech and data expert at Natixis bank.<\/p>\n
Carol Alexander, a finance professor at the University of Sussex, told AFP that regulatory uncertainty, cyberattacks and fraud risks are also deepening investor mistrust.<\/p>\n
– What happened to Strategy ? –<\/p>\n
Software company Strategy is the largest corporate holder of bitcoin, owning more than 671,000 coins, or about three percent of all the bitcoin that will ever exist.<\/p>\n
Over six months, however, its share price more than halved, and its market value briefly dropped below the total value of its bitcoin holdings.<\/p>\n
Pressure stemmed largely from its heavy use of convertible bonds, exposing it to the risk of repaying large amounts of debt in cash.<\/p>\n
To reassure investors, Strategy issued new shares to create a $1.44 billion reserve to fund dividend and interest rate payments.<\/p>\n
Semiconductor firm Sequans took a different route, selling 970 bitcoins to pay down part of its convertible debt.<\/p>\n
Strategy and Sequans did not respond to AFP requests for comment.<\/p>\n
– Could problems spread? –<\/p>\n
If struggling companies sell large amounts of bitcoin, prices could fall further, worsening losses.<\/p>\n
“The contagion risk in crypto markets is pretty considerable,” Alexander said.<\/p>\n
She added, however, that the impact would likely be confined to the crypto sector, with no major risk to traditional markets.<\/p>\n
“Bitcoin is inherently volatile in both directions, and we view that volatility as the cost of long-term upside,” Dylan LeClair, head of bitcoin strategy at Japan’s Metaplanet, told AFP.<\/p>\n
Originally a hotel company, Metaplanet now holds around $2.7 billion worth of bitcoin.<\/p>\n
– What’s the sector’s future? –<\/p>\n
According to Benoist, companies will need to generate income from their bitcoin holdings — such as through financial products — rather than relying solely on rising prices.<\/p>\n
“Not all of them will survive,” but “the model will continue to exist,” he said.<\/p>\n
New initiatives are emerging such as French entrepreneur Eric Larcheveque’s crypto treasury firm, The Bitcoin Society.<\/p>\n
He told AFP that falling prices are “a good opportunity because it allows you to buy more bitcoin cheaply.”<\/p>\n
lul\/ajb\/jkb\/gv\/ceg<\/p>\n
\u00a9 Agence France-Presse<\/p>\n","protected":false},"excerpt":{"rendered":"
The year-end plunge in cryptocurrencies has rattled companies that had bet heavily on bitcoin, sending share prices tumbling and reviving fears of a bubble. Below AFP explains what happens to these bitcoin-buying firms when prices drop. – Why accumulate bitcoin? – Bitcoin surged this year, reaching a record above $126,000 in October. Companies began buying […]<\/p>\n","protected":false},"author":3,"featured_media":22635,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_sitemap_exclude":false,"_sitemap_priority":"","_sitemap_frequency":"","jnews-multi-image_gallery":[],"jnews_single_post":{"subtitle":"","format":"standard","override":[{"template":"7","parallax":"1","fullscreen":"1","layout":"left-sidebar","sidebar":"default-sidebar","second_sidebar":"default-sidebar","sticky_sidebar":"1","share_position":"topbottom","share_float_style":"share-monocrhome","show_share_counter":"1","show_view_counter":"1","show_featured":"1","show_post_meta":"1","show_post_author":"1","show_post_author_image":"1","show_post_date":"1","post_date_format":"default","post_date_format_custom":"Y\/m\/d","show_post_category":"1","show_post_reading_time":"0","post_reading_time_wpm":"300","post_calculate_word_method":"str_word_count","show_zoom_button":"0","zoom_button_out_step":"2","zoom_button_in_step":"3","show_post_tag":"1","show_prev_next_post":"1","show_popup_post":"1","show_comment_section":"1","number_popup_post":"1","show_author_box":"1","show_post_related":"0","show_inline_post_related":"0"}],"image_override":[{"single_post_thumbnail_size":"crop-500","single_post_gallery_size":"crop-500"}],"trending_post_position":"meta","trending_post_label":"Trending","sponsored_post_label":"Sponsored by","disable_ad":"0"},"jnews_primary_category":[],"jnews_social_meta":[],"jnews_override_counter":{"view_counter_number":"0","share_counter_number":"0","like_counter_number":"0","dislike_counter_number":"0"},"jnews_post_split":{"post_split":[{"template":"1","tag":"h2","numbering":"asc","mode":"normal","first":"0","enable_toc":"0","toc_type":"normal"}]},"footnotes":""},"categories":[196],"tags":[1468,1052,272],"class_list":["post-22632","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-economy","tag-bitcoin","tag-business","tag-markets"],"_links":{"self":[{"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/posts\/22632","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/comments?post=22632"}],"version-history":[{"count":1,"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/posts\/22632\/revisions"}],"predecessor-version":[{"id":22637,"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/posts\/22632\/revisions\/22637"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/media\/22635"}],"wp:attachment":[{"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/media?parent=22632"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/categories?post=22632"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/news.iq\/en\/wp-json\/wp\/v2\/tags?post=22632"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}