Bitcoin’s decline to $70,000 signals a potential structural crisis that may overshadow the FTX collapse.

Bitcoin’s recent decline is putting the “treasury company” strategy to a significant test.

In recent months, the approach seemed straightforward, requiring firms to liquidate stock or low-cost convertible notes, acquire Bitcoin, and depend on increasing prices along with a sustained equity premium to manage the rest.

However, as Bitcoin approaches $70,000, a level considerably below the acquisition cost for many corporate investors, the dynamics of this strategy may be on the verge of a reversal.

#1 Bitcoin BTC $70,370.17 -7.28% Market Cap $1.41T 24h Volume $87.03B All-Time High $126,173.18 Sectors Coin Layer 1 PoW

On February 2, Michael Burry, the investor known for The Big Short, cautioned about this scenario. He described a reflexive unwinding where declining Bitcoin prices compress equity premiums, close the issuance window, and transform a strategy of “accumulate forever” into “sell to survive.”

The concern extends beyond mere price fluctuations to structural leverage. Treasury firms have quietly evolved into a leveraged representation of Bitcoin’s value and the market’s readiness to finance them. If either element falters, the entire strategy could falter.

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Strategy’s average price becomes psychological barrier

Strategy (previously known as MicroStrategy) continues to be a benchmark for this trade as it has standardized the playbook.

In a recent SEC filing, the firm disclosed it holds 713,502 Bitcoin at an average acquisition price of $76,052 per coin, totaling an aggregate purchase price of $54.26 billion.

This average price serves as a psychological threshold, even though accounting standards and long-term confidence mean the firm is not obligated to sell near that cost. Nevertheless, when Bitcoin trades below this level, the market begins to pose difficult questions regarding the company’s ability to continue large-scale purchases and at what price.

Burry’s scenario analysis indicates that certain price points could lead to escalating repercussions. He contends that Bitcoin’s decline below $70,000 could result in Strategy facing multi-billion-dollar unrealized losses and leave capital markets “essentially closed.”

At $60,000, he describes an “existential crisis,” which could affect other treasury firms. Should the leading cryptocurrency drop to $50,000, he anticipates miner bankruptcies and forced selling would exacerbate the downturn.

The calculations quickly evolve into a narrative issue. With 713,502 Bitcoin, a decrease from Strategy’s average cost of $76,052 to $70,000 suggests approximately $4.3 billion in unrealized losses.

This aligns with Burry’s “multi-billion” characterization. At $60,000, the gap increases to about $11.5 billion, and at $50,000, it expands to roughly $18.6 billion.

Importantly, these figures do not automatically trigger liquidation, nor does it imply that the Michael Saylor-led firm would divest its holdings.

However, they can influence how investors assess the equity and, crucially, whether the company can continue to issue stock, preferred shares, or convertibles on favorable terms.

Nonetheless, historical data offers insights into how firms behave during downturns. Blockchain analysis platform Lookonchain reported that Strategy’s BTC holdings were in the red for over 500 days during the 2022–2023 bear market.

During that period, the company sold 704 Bitcoin on December 22, 2022, and subsequently repurchased 810 coins. Aside from that occasion, they have adhered strictly to a buy-and-hold strategy.

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Metaplanet illustrates the volatility risks

Meanwhile, Japan’s Metaplanet provides a further clear example of the inherent risks associated with Bitcoin treasuries.

Since 2024, the firm has positioned itself as a Bitcoin treasury player, aiming to acquire 210,000 BTC by 2027.

However, its analytics dashboard indicates that its current holdings of 35,102 BTC have already experienced nearly $1 billion in unrealized losses, along with approximately $355 million in outstanding debt.

The implications are significant because such a large figure increases the cost of refinancing and makes new issuance more burdensome.

Treasury firms can endure paper losses if they have time and affordable access to capital. Once investors begin to factor in tighter financing conditions, the equity shifts from being a “BTC-per-share growth story” to a stressed wrapper around a volatile asset.

This is where a “death spiral” starts to appear less like mere speculation and more like a structural risk.

When a company trades at or near the value of its Bitcoin, or at a discount, issuing equity becomes accretive on a per-share basis. The market senses the slowdown, and the multiples can compress further.

This is the reflexive loop Burry emphasizes: price declines lead to reduced premiums, which narrows the funding window, resulting in fewer acquisitions, a weakened narrative, and further price drops.

It is worth noting that debt and preferred financing can bridge the gap, but only at a significant cost.

Strategy’s recent filing also revealed an increase in the dividend rate on one of its preferred instruments (STRC) to 11.25%. This serves as a reminder that the cost of carry can escalate rapidly when risk appetite diminishes.

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Will the bubble in Bitcoin treasury companies burst?

The structural risks have led to comparisons with historical financial bubbles, igniting a heated discussion among analysts.

Charles Edwards, the founder of Capriole, stated that the “DAT model” (Digital Asset Treasury) represents a leverage explosion waiting to occur. He pointed out that there are currently 200 Bitcoin treasuries, likening them to the investment trusts of 1929.

He remarked:

“By the end of 1929 there were around 600 investment trusts. The trusts caused the 1930 crash. The trusts are the same as DATs, the only difference is instead of buying stocks, DATs buy Bitcoin.”

Bitcoin Treasury Companies vs 1920 Investments Trusts (Source: Capriole)

Edwards argued that there is no viable business model for generating yield on a fixed-supply asset, thus incentivizing leverage when market net asset values decline.

He noted that Bitcoin treasuries hold 12% of all Bitcoin and predicted an unwinding that would make the collapses of Luna and FTX appear as “child’s play.”

Conversely, Bitcoin analyst Adam Livingston countered this comparison, labeling it a “category error stacked on a historical analogy stacked on a vibes-based panic attack.”

Livingston contended that 1920s trusts were circular-leverage machines where trusts owned other trusts, balance sheets were opaque, and margin debt was widespread. He noted that when prices fell in 1929, forced liquidations occurred instantly.

He stated:

“Bitcoin treasury companies are… not that. They hold a single, fully auditable bearer asset. No rehypothecation chains. No hidden cross-ownership.”

Livingston emphasized that public filings, public wallets, and mark-to-market accounting ensure transparency.

He argued that yield does not necessitate inflation in the underlying asset but rather access to capital markets and time arbitrage. He also challenged the notion that equity dilution constitutes leverage or that convertibles function as reflexive margin calls.

Livingston concluded:

“There is no automatic liquidation engine like Luna or FTX. Bitcoin does not vanish when price goes down.”

What's next for Bitcoin treasury companies?

Bitcoin’s behavior during risk-off periods has increasingly mirrored that of a high-beta liquidity instrument, responsive to the same forces that influence growth stocks and speculative credit.

During times of broader market stress, correlations rise, margins tighten, and selling becomes compelled rather than voluntary.

This is significant because the treasury-firm model is explicitly designed for the opposite environment: abundant liquidity, willing buyers of equity, and confidence that the rally will outpace dilution and financing costs.

In a scenario where investors seek higher yields and volatility renders convertibles more costly, the model may not collapse immediately, but it ceases to compound.

In light of this, market analysts are outlining three potential scenarios to frame the upcoming quarter.

The first is stabilization and re-opening. In this scenario, Bitcoin recovers toward or above critical cost-basis levels, volatility decreases, and treasury firms regain a premium over net asset value (NAV).

In this case, the DATs can resume equity issuance, allowing renewed accumulation and the trade to re-leverage.

The second scenario involves a gradual drawdown where Bitcoin’s price declines without capitulation.

In this situation, the BTC treasury companies’ premium compresses toward 1x NAV, issuance becomes unfeasible, and firms shift from aggressive buying to balance-sheet preservation.

This results in shareholders shouldering the impact of Bitcoin’s underperformance, while management concentrates on managing financing costs.

The third scenario is Burry’s cascade risk. If Bitcoin drops sufficiently to trigger miner distress and broader forced selling, capital markets can tighten sharply.

Treasury firms with debt and preferred obligations face a more challenging reality where raising capital becomes exceedingly costly, and the urge to maintain solvency may begin to outweigh the commitment to never sell.

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