The bitcoin-per-share dilution trap explained

Scott Melker breaks down why some companies are running into trouble with their bitcoin (BTC-USD) per-share strategies as Satsuma begins liquidating its bitcoin holdings and prepares to delist from the London Stock Exchange. Melker also examines why other companies are selling their bitcoin and what it could mean for investors in the growing crypto treasury market.

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Video Transcript

00:00 Speaker A

The strategy contained the seeds of its own destruction. The more companies copied it, the less unique each company became.

00:06 Speaker A

The less unique each became, the harder it was to justify its premium, and when the premium disappeared, the machine went into reverse.

00:13 Speaker A

A treasury company trading below the value of its assets can still issue shares and announce another Bitcoin purchase.

00:20 Speaker A

But if dilution grows faster than the Bitcoin treasury, the economics become worse for existing shareholders.

00:25 Speaker A

Bitcoin held by the company can increase while Bitcoin per share falls. That's the trap.

00:29 Speaker A

The headline says the company bought more Bitcoin, but the shareholder quietly owns less.

00:34 Speaker A

Common shareholders can lose even more once debt, convertible instruments and preferred securities are included.

00:39 Speaker A

That's why the right question was never simply how much Bitcoin does this company own.

00:43 Speaker A

The real questions are how it paid for the Bitcoin, how many shares it issued, whether Bitcoin per diluted share actually increased, what debt and dividend obligations sit ahead of common shareholders, whether the underlying business generates cash and whether the company can survive if its premium never returns.

00:54 Speaker A

Today, we're finally getting the answers.

00:57 Speaker A

Satsuma Technology shareholders have approved a plan to liquidate all 668 of the company's Bitcoin, return capital and delist from the London Stock Exchange.

01:05 Speaker A

The smarter web company sold 178 Bitcoin to repay a convertible instrument.

01:09 Speaker A

Sequans communications initially sold 1,025 Bitcoin and later disposed of nearly 80% of what remains to repay convertible debt.

01:17 Speaker A

It has ruled out additional Bitcoin purchases and plans to monetize its remaining holdings.

01:22 Speaker A

Nakamoto sold roughly 284 Bitcoin to raise 20 million for working capital.

01:26 Speaker A

CoinDesk reported that nearly 70% of its remaining 5,342 Bitcoin was pledged against a Kraken loan maturing in December.

01:35 Speaker A

Empery Digital has reportedly sold almost half its Bitcoin to finance debt repayments and share buybacks.

01:41 Speaker A

A proposed merger involving Cantor Equity party partners and BSTR Holdings, which was supposed to create a public company holding more than 30,000 Bitcoin, failed to close under its original terms because of market conditions.

01:51 Speaker A

Bitcoin miners including Marathon and Bitdeer have also sold Bitcoin while directing capital toward artificial intelligence infrastructure.

01:57 Speaker A

These companies are not identical. Their balance sheets, obligations and motivations are different.

02:01 Speaker A

But collectively, they tell us the same thing. The market is no longer rewarding the simple act of placing crypto on a corporate balance sheet.

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