The Bitcoin Treasury Reckoning - Why People Are Blaming JPMorgan

0:00 Hey everyone, it's Richard.

0:00 You're watching the Plain Bagel.

0:01 It hasn't been that long since we last talked

0:03 about Bitcoin Treasury Companies uh here on the channel,

0:06 but oh boy, it's been a painful short while for many of these stocks.

0:11 Just a few months ago,

0:12 these so-called digital asset treasury companies or DATO for short,

0:15 were having the time of their lives.

0:17 Stocks were jumping hundreds of percentage points just

0:19 on the announcement of their Bitcoin or other crypto treasuries.

0:23 and Strategy, the leader of the pack,

0:24 run by Bitcoin and AI image generator enthusiast Michael Sailor,

0:28 was taking advantage of what many would dub the infinite money glitch,

0:31 whereby it would issue shares to buy more Bitcoin and see

0:34 its stock price surge as Bitcoin's price continued to rise.

0:37 But over just the past couple of months, the unthinkable has happened.

0:42 Bitcoin's price stopped going up with the crypto having fallen 30% from its

0:46 all-time high reached in October and cryptocurrencies

0:48 as a whole experiencing a broad sell-off

0:50 with the Treasury companies who dedicated

0:52 themselves to acquiring these assets being hit

0:55 even harder with strategy itself having fallen over 60% since its high in July.

1:00 Now, of course, if you zoom out, the latest correction in Bitcoin's price isn't

1:03 really that meaningful on a relative basis.

1:06 It really just marks the reversal of the rally we've seen under President Trump.

1:10 But given that many of these Bitcoin treasuries entered

1:12 the space while Bitcoin was approaching its all-time highs,

1:15 many of these companies are now underwater on their investments.

1:18 With even Strategy, who's been accumulating Bitcoin over many years,

1:22 having a cost basis that's now not far off of the current price of Bitcoin.

1:26 And it's raised some concerns and questions over

1:28 the financial health of these companies and whether

1:29 they could find themselves being forced to liquidate

1:32 their holdings and pulling cryptocurrencies down with them,

1:35 which is notable given that these companies

1:36 have come to own 5% of all outstanding

1:39 Bitcoin and over the past couple of quarters

1:41 have been the largest buyer of the cryptocurrency.

1:44 Now, naturally, this troubling news has led to some

1:46 turmoil among those who are irresponsibly long on strategy.

1:49 And to handle the fallout,

1:50 we've seen some investors adopt a interesting tactic to shunt

1:55 responsibility for entering a leveraged investment on a volatile asset,

2:00 blaming Wall Street.

2:01 You see, over the weekend,

2:02 we had some pretty wild claims circulating online around the company strategy,

2:06 ranging from claims that the US

2:08 government was contemplating a multi-billion dollar investment

2:10 in the company and was just waiting for the stock to fall low enough.

2:13 A tweet that the CEO sailor himself

2:15 brought some attention to after liking to claims

2:18 that the sell-off in strategy is actually

2:20 a premeditated attack by none other than America's

2:24 largest bank JP Morgan with many enthusiasts

2:27 encouraging others to boycott the institution and many

2:30 online creators declaring proudly that they stand

2:32 with Michael Sailor in [music] this madeup conflict.

2:35 Now here it's worth highlighting that not all the posts against

2:38 JP Morgan are specifically part of this sort of pro- strategy movement.

2:42 Uh there are some who have criticized JP Morgan for banking Jeffrey

2:45 Epstein and alternatively for debanking a number

2:48 of prominent crypto investors or institutions.

2:51 And look, I'm not going to sit here and claim

2:52 conversely that I stand with JP Morgan and whatever this is.

2:57 I think there are a lot of valid

2:58 criticisms of many of these large financial institutions.

3:01 We're definitely seeing strategy investors trying to tag onto that movement,

3:04 encourage investors to try and prompt a sort of GameStop meme stock

3:08 rally 2.0 0 despite a lot of the claims around JP Morgan sort

3:12 of targeting this business not really showing any evidence and those that do

3:16 claim to have again evidence often just misinterpreting the data we do have.

3:21 And so today I wanted to tackle these two types of topics.

3:23 On the one hand, what this decline in Bitcoin's price means for these treasury

3:26 companies including strategy where there's some

3:29 kind of disagreement around whether this means

3:31 that the company will have to liquidate if the price falls below their uh

3:34 average cost basis or if the company will be completely fine as the CEO claims.

3:38 and then separately at the risk of being accused of being an industry plant

3:42 attacking the JP Morgan situation and what

3:44 we actually know about what's going on there.

3:46 So, we're covering a lot of ground.

3:47 I'll leave chapters in the description down below

3:49 if you want to skip to the different sections,

3:51 but let's start off with Bitcoin's price

3:52 and what we know so far about its decline.

3:54 And frankly, it's not a lot.

3:57 So far, a lot of Bitcoin's price decline has

3:59 been broadly attributed to a general flight from riskier assets.

4:02 Markets have seemingly grown worried about uh lofty tech valuations

4:06 or the so-called AI bubble and the uh potential for the Federal Reserve

4:11 to hold off on further rate cuts given that it see signs

4:13 of a weakening economy but still wants to keep inflation under control.

4:17 And over the last little while,

4:18 we've seen signs that the restrictive monetary policy from the central bank has

4:22 started to bite into markets and started to decrease liquidity in the system.

4:26 Uh, for example, we've seen the repo market,

4:28 which is really just a short-term lending market for financial institutions,

4:32 start to experience some strain

4:34 with the Federal Reserve's reverse repo facility,

4:36 which you can just think of as a place

4:38 for financial institutions to park their excess cash,

4:41 having fallen dramatically from $2 trillion to 2 billion.

4:45 And the standing repo facility,

4:47 which you can think of as a place for financial institutions

4:50 to borrow from the Federal Reserve when cash is harder to access,

4:54 has started to see some activity, albeit currently just a small amount.

4:57 Now, I've seen a lot of posts really blow these two charts out of proportion.

5:01 But all it really means is that we

5:02 are seeing lending conditions starting to tighten up,

5:05 which you generally expect from quantitative

5:07 tightening and restrictive interest rates.

5:09 And generally when it gets harder to borrow money,

5:11 we tend to see money leave assets like Bitcoin

5:14 to be used for other purposes like deleveraging debt.

5:17 So while there aren't any clear catalysts contributing to the sell-off

5:20 in the same way that we saw in 2022,

5:22 we have seen a general sense of pessimism take

5:24 over the markets which has contributed to the crypto sell-off.

5:27 And for digital asset treasury companies who

5:29 have gone allin on these crypto assets, it's been pretty devastating.

5:33 Prior to the sell-off, many Bitcoin treasury companies were trading at premiums

5:37 to the value of the Bitcoin they held,

5:39 meaning that their market cap to net asset value or the price

5:42 per share divided by the Bitcoin per share was above one.

5:46 Strategy in fact saw its multiple rise as high as three times during 2024,

5:51 meaning that investors were effectively paying $3

5:53 to Strategy for $1 of Bitcoin exposure.

5:57 And this premium valuation is ultimately

5:59 what allowed companies to continue this type

6:01 of operation to raise capital by selling shares uh cycle that into Bitcoin

6:05 thereby increasing the price of Bitcoin

6:07 and improving their valuation for the Bitcoin

6:09 they already hold leading to again this so-called infinite money glitch.

6:13 With this recent decline, however, that boon has quickly evaporated.

6:17 Standard Charter estimates that with Bitcoin's price under $90,000,

6:21 half of Bitcoin Treasury companies will

6:23 have lost money on their Bitcoin purchases.

6:25 And companies like Strategy and Metanet, another popular Bitcoin treasury,

6:29 have seen their valuations decrease recently

6:31 from two times to now under one times, meaning that these shares now trade

6:36 at a discount to their Bitcoin net asset value.

6:40 Now, it's worth noting that strategy on its website does

6:42 show its MNAV multiple as still being above one times,

6:46 but that's because it's using its enterprise value

6:48 rather than the market cap for their common shares,

6:51 meaning they're including the value of their debt in the numerator,

6:54 which in some cases isn't inherently unreasonable.

6:57 And as is, the MNAV is a very limited gauge.

7:00 But even this figure has quickly been approaching one,

7:03 and it's worth making the distinction that price per share

7:05 is currently less than the value of Bitcoin per share.

7:09 And this valuation compression puts some

7:10 of these companies in a precarious position.

7:12 Uh the only reason the business model of selling shares

7:15 to buy Bitcoin worked was because of this valuation premium.

7:19 The fact that investors were kind of turning a blind eye to math for a second.

7:23 Now that the shares are trading at a discount to net asset value,

7:27 it doesn't really make sense to keep issuing shares.

7:29 It will actually destroy value for current shareholders.

7:32 And in fact, it actually incentivizes these companies to now sell their Bitcoin

7:37 to buy back their shares since that would

7:39 be a better use of shareholder capital.

7:41 And we may in fact see shareholders start pressuring these companies to do that.

7:45 The issue, of course,

7:46 is that that could naturally trigger a sell-off for the very crypto assets

7:50 that these companies base their value off of and further exacerbate the issue.

7:53 As treasury companies sell, Bitcoin's price could decrease,

7:56 thereby further compressing valuations and forcing

7:58 further treasuries to also start selling, hurting the valuation of whatever

8:03 cryptocurrencies these companies have left over.

8:05 And in fact, some have speculated that part of the sell-off

8:07 we've seen has been a result of just this.

8:09 There's also, of course, the issue of how many of these treasury

8:12 companies actually funded their Bitcoin purchases.

8:14 Because in addition to issuing shares,

8:16 many firms also took on leverage by issuing convertible notes.

8:20 uh something that works great when the asset

8:21 is growing hundreds of percent a year

8:24 uh but not so much when the price is suddenly stagnant or even decreasing.

8:27 We may see companies again forced to sell some

8:29 of their holdings to meet the payment obligations that they've promised.

8:33 Now for strategy itself,

8:34 there's been a lot of debate online about whether the company would

8:36 survive a decline in Bitcoin's price below its cost basis of $74,000,

8:42 the point in which the company would actually

8:43 have an unrealized loss on its Bitcoin holdings.

8:46 But there is some truth to the argument that strategy

8:48 would survive a price decrease below this cost basis of $7400.

8:54 It's just not evidence that the company is

8:56 a safe investment like some are interpreting it.

8:58 You see, as of September end, Strategy had $8.2 billion in convertible

9:02 notes and $5.8 billion in preferred shares.

9:05 Both of which we'll refer to as debt here,

9:07 but are technically hybrid securities with features of both debt and equity.

9:11 Now, for the last quarter ending September 30th,

9:13 the company paid 8.6 6 million in interest

9:17 and roughly $140 million in preferred share dividends which

9:20 if we crudely annualize gets us an annual obligation

9:23 for these instruments of roughly $600 million a year.

9:27 Now in addition to this strategy just this month also announced

9:30 a new europriced preferred share that self will be paying 10%.

9:34 So if we assume that the company sells all 7,750,000 shares of this new class,

9:39 it'll add another roughly $90 million to our obligations here.

9:42 So, in total, we have a ballpark estimate of $684 million

9:46 a year in payments the company has to make to its so-called creditors.

9:50 Now, because Strategy's earnings come almost

9:52 exclusively from the price appreciation of Bitcoin,

9:56 uh they don't have any cash flow to pay these amounts.

9:58 What they do have, however,

10:00 is $59 billion worth of Bitcoin on their balance sheet.

10:03 So, if the price doesn't fall further,

10:05 they could in fact meet this annual obligation for quite a long period

10:08 of time or alternatively just pay off their creditors at face value outright.

10:12 On top of that, as mentioned in our last video,

10:14 Strategy doesn't have standard leverage.

10:17 The company's most expensive form of capital,

10:19 the preferred shares, currently offer yields of around 10%.

10:23 Which is considered very high.

10:24 But the reason for this high yield is that missing a preferred share dividend

10:28 to your investors doesn't constitute a default

10:31 like missing an interest payment on debt would.

10:34 So if strategy found itself unable to pay its preferred share dividends,

10:38 it could simply skip them without that constituting a default

10:41 or forcing any sort of liquidation on the company.

10:44 Meanwhile, many of the convertible notes which do actually constitute debt

10:47 don't actually have an interest payment that Strategy needs to make.

10:50 Finally, strategies obligations to its creditors here

10:52 do come with a number of conventions

10:54 that again give the company a lot of leeway during a crypto sell-off.

10:58 For example, one of the preferred share classes

10:59 can actually pay its dividend in MSTR shares.

11:03 So again, there is some truth to the argument

11:05 that strategy is not really on the cusp

11:07 of bankruptcy because it has a lot of rights

11:09 and privileges with the debt that it's raised from creditors.

11:13 But while that addresses one type of risk,

11:15 it doesn't actually make the company a safe investment.

11:17 Yes, the company has the money it needs to pay back its creditors,

11:20 but that money will ultimately be coming from its common shareholders,

11:25 the shareholder equity on its balance sheet.

11:27 If Strategy starts selling Bitcoin to meet its obligations,

11:31 the stock is likely to crash further.

11:33 Uh the company's supposed Bitcoin yield or the increase

11:35 in Bitcoin per share would turn negative.

11:38 Shareholder equity would fall as money

11:39 is transferred from shareholders to creditors.

11:41 And any shares issued in the process while

11:43 yes it will help the company meet its creditor

11:45 obligations would just further deteriorate the value of current

11:49 shares held by investors given the valuation discount.

11:52 Now, alternatively, the company could say screw over its preferred

11:55 shareholders in favor of its common shareholders to keep its Bitcoin,

11:59 but that doesn't put it in a much better spot, right?

12:01 Because at that point,

12:02 the company is inhibiting its ability to further raise funds down the road,

12:06 uh, effectively killing its Bitcoin accumulation growth engine,

12:09 and you'd likely still see MSTR share price decrease as, uh,

12:12 shareholders convert into common share,

12:15 and just the news of it missing payments would still hurt the price.

12:19 So yes, technically the company could survive a further

12:22 Bitcoin price decline by liquidating its holdings and hurting investors,

12:26 but that's not really much consolation for investors

12:28 who are currently down on their investment.

12:30 Not to mention that with Strategy being the single

12:32 largest institutional holder of Bitcoin outside of ETFs,

12:35 the sale of the company's Bitcoin would certainly hit the price of the asset,

12:38 which could shift the infinite money glitch into a sort

12:41 of death spiral for digital asset treasury companies.

12:44 So yes, even with strategy not being in as precarious

12:47 of a situation as other treasury companies here,

12:49 there is a reason we've seen this meaningful decline in the stock's price.

12:53 And naturally, it doesn't bode well for DACA as a whole.

12:56 But that, my friends, is where we come to the old ace up the sleeve,

13:00 the strategy from strategy enthusiasts to combat this decline,

13:05 play victim to a conspiracy.

13:07 Again, over the weekend,

13:08 we had a number of rumors about Strategy circulating online

13:11 with the one that got the most traction being that JP Morgan,

13:14 the US banking giant,

13:16 was actually shorting the stock and trying to crush the cryptocurrency.

13:20 With some suggesting that the stock was actually

13:22 on the cusp of, get this, a short squeeze.

13:27 Sounds familiar.

13:28 with some suggesting that JP Morgan had entered a short

13:31 position so large it could put the bank out

13:34 of business if strategy rallied just 50% leading many to push

13:38 others online to join the fight by buying their shares.

13:42 No, those are some pretty tall claims.

13:44 Surely there's [music] some evidence to back up these arguments, right?

13:49 [laughter] Uh no, not even a little bit.

13:53 The publicly reported short interest on strategy

13:56 is currently around 10% of their outstanding float,

13:59 which is sizable, but not really aligned with what many are suggesting.

14:03 And in fact, this lack of evidence has itself been used

14:05 as proof that JP Morgan is surely hiding a massive short position.

14:10 But then why JP Morgan?

14:11 Why are we seeing this bank specifically being targeted here?

14:14 Well, it seems to revolve around a recent note on an announcement

14:18 that strategy faced the risk of being delisted from a number of indices.

14:22 You see, on October 10th, we had MCI, a global equity index company,

14:27 publish an announcement indicating that it was reviewing whether

14:29 digital asset treasury companies should be included in its indices.

14:33 This after it had made a similar announcement around MetPanet

14:36 specifically back in September with MCI noting that these DACA,

14:40 which again raised funds for the purpose of buying a financial asset,

14:44 have characteristics similar to investment funds,

14:46 which are currently not eligible for index inclusion.

14:48 Now, this was followed by a note sent out by JP Morgan to its own investors,

14:52 warning that strategy in particular faced the risk of being

14:55 dropped from benchmark indices like MCI USA and NASDAQ 100.

15:00 Something it argued would hurt their liquidity and decrease investor appeal.

15:04 And this whole issue isn't really anything new.

15:06 The company itself was snubbed by the S&P 500

15:08 because of its focus on just buying one asset.

15:10 It's not really an operating company that fits

15:13 nicely into that sort of index model.

15:15 But this JP Morgan note has been highlighted as the smoking gun,

15:18 the irrefutable proof, your honor,

15:21 that JP Morgan is secretly shorting strategy because their note warning

15:25 about this risk came over a month after MCI's own announcement.

15:30 I guess the argument is that the company's looking to dig up dirt

15:33 and and bring attention to this old news to to crush the company.

15:37 But yeah, [laughter] now since this initial note,

15:41 people have also dug up some other items

15:43 that they believe further proves a coordinated attack here.

15:46 Uh, for example, last Wednesday,

15:48 Empory Digital CEO Ryan Lane shared that some JP Morgan clients he was in touch

15:52 with had allegedly seen their margin requirements increase

15:55 meaningfully on their strategy shares early in July,

15:59 meaning they could no longer borrow as much

16:01 against the shares for the purpose of investing.

16:03 Something that he framed as a way

16:04 to reduce demand for the shares and force selling.

16:07 And just this week, some flagged the announcement by JP Morgan

16:10 that they had filed to sell structured notes offering leveraged exposure

16:14 to Black Rockck's Bitcoin ETF with this adding to the narrative

16:17 that JP Morgan is trying to take down strategy and eat their lunch.

16:21 But to the first point,

16:22 on top of it being hard to verify these claims and the fact

16:24 that the stock didn't actually sell off after the supposed July 7th shift,

16:28 it's not really uncommon for brokers to limit

16:30 the margin on volatile or risky positions.

16:33 In fact, if you go to TD, another brokerage,

16:35 you can see that they too have a restricted loan value on strategy of 25%.

16:40 So, bit of a smaller margin requirement, but still high at 75%.

16:44 And you can see that there's some positions

16:45 here that don't allow for any sort of borrowing,

16:48 which makes sense because banks don't want

16:49 to lend money on stocks that have a high

16:52 risk of losing investors money because it means

16:55 they might lose the money on their loan.

16:57 And last month, Strategy received a highly speculative credit rating.

17:01 So there's definitely this industry perception that it's a high-risk position.

17:05 And to the second point on the product launch, yes,

17:07 JP Morgan might be trying to compete

17:08 with strategy on this, but we've had financial institutions,

17:11 including JP Morgan, launching crypto offerings throughout all of 2025.

17:16 And it's interesting because an attack on strategy won't actually help the bank

17:20 with a launch of a competitive product if

17:22 it scares investors out of leveraged Bitcoin investments.

17:25 Now, there are also some who have highlighted a recent sale of 772,000

17:30 shares of MSTR by JP Morgan as proof that their targeting strategy,

17:35 but even that's sort of a nothing burger.

17:36 Outside of this just being a minuscule amount

17:39 relative to JP Morgan and even strategy size,

17:42 if you go to the company's 13F filings, you can see that yes,

17:45 the company did in fact sell shares in the last quarter

17:48 and does also actually in fact have put options on the stock,

17:51 which is a type of short bet.

17:53 But on the net, they actually have a net

17:56 long position in the hundreds of millions on the stock.

18:00 Now, again, some are arguing that JP Morgan's

18:02 hiding a short with uh swaps and the like,

18:04 but you can't really, you know, debunk claims that something's being hidden.

18:09 So, that's as far as I can go.

18:11 And of course, the idea that a 50%

18:12 increase in Strategy stock price would bankrupt JP Morgan,

18:16 who's 16 times larger than Strategy and has

18:20 six Strategies worth of shareholder equity alone, is fiction.

18:24 It's a total fabrication.

18:25 We made it up.

18:26 It's fiction.

18:27 It never happened.

18:28 So, it seems pretty clear that most of these rumors are

18:30 very much unsubstantiated uh attempts to just drive demand for the stock.

18:34 So, you got to be careful of any sort of claim you see on social media or any

18:37 personality who blindly cheerleads a given investment.

18:40 While some people try to build this sense

18:42 of community around a given stock or position,

18:45 uh, suggesting that it's about more than just the money they're trying to make,

18:49 we're clearly seeing people using false

18:50 narratives here to try and enrich themselves,

18:52 which is funny when you consider that that's

18:54 exactly what they're accusing big banks of doing.

18:56 And hey, there's certainly been evidence of that in the past.

18:59 But it'll be interesting to see when

19:00 the CFA program starts teaching spreading rumors

19:03 of a short squeeze and blaming banks

19:05 as a strategy for managing positions you've lost money on.

19:09 Now, none of this is to argue that Bitcoin is bound

19:11 to collapse or even that strategy is bound to see itself liquidate.

19:15 Of course, if we see the cryptocurrency recover to its longerterm trend,

19:18 the company is likely to follow suit.

19:20 But I did find the story fascinating

19:22 and wanted to take the opportunity to highlight

19:24 that for a business whose sole purpose is to sell shares to buy Bitcoin,

19:29 there is downside risk as we're seeing when those shares

19:32 sell off and no longer command that premium price.

19:35 Anyway, that's the video.

19:36 Thank you guys for joining me today.

19:37 I hope you found this video helpful or entertaining if if nothing else.

19:40 If you did, please do make sure to like, subscribe, all that good stuff.

19:43 It does help the channel tremendously.

19:44 and let me know your thoughts on Bitcoin Treasury companies,

19:47 the current situation we're seeing around strategy,

19:49 and which companies you think uh JP Morgan is secretly shorting into oblivion.

19:54 Any and all thoughts welcome down below.

19:56 Uh, thanks again for joining me and as always, be safe out