Warning: Few Bitcoin Treasury Companies Will Survive ‘Death Spiral,’ VC Report Claims

The world of Bitcoin treasury companies has seen rapid growth, especially in 2025, as firms increasingly convert traditional reserves into BTC. However, a stark warning has emerged from venture capital firm Breed: only the most disciplined and well-managed companies are likely to endure. A recent VC report highlights the risk of a potential ‘death spiral‘ that could severely impact companies holding significant Bitcoin on their balance sheets, particularly those trading close to their net asset value (NAV).

Understanding the Bitcoin Treasury ‘Death Spiral’

The core concern outlined in the Breed VC report revolves around a company’s ability to maintain a premium above its net asset value (MNAV). NAV represents a company’s total assets minus liabilities, essentially the value of its underlying holdings, including Bitcoin. A company’s share price often trades at a multiple of this NAV (MNAV). The report details a seven-phase decline triggered by a drop in Bitcoin’s price:

• Phase 1: BTC Price Drop: A decline in the market price of Bitcoin occurs.
• Phase 2: MNAV Compression: The company’s share price premium over its NAV shrinks, bringing the share price closer to the actual NAV.
• Phase 3: Financing Difficulty: Trading near NAV makes it harder for the company to raise debt or equity financing. Access to capital is crucial for these firms, often used for further BTC purchases.
• Phase 4: Debt Maturity & Margin Calls: As existing debt matures or if debt was used for purchases, margin calls can be triggered as the value of the collateral (Bitcoin) declines.
• Phase 5: Forced Selling: To meet debt obligations or margin calls, the company is forced to sell its Bitcoin holdings.
• Phase 6: Further BTC Price Decline: This forced selling adds supply to the market, potentially driving the price of Bitcoin down further, reinforcing the spiral.
• Phase 7: Consolidation/Failure: Weaker companies facing the spiral may be acquired by stronger firms, or ultimately fail.

This vicious cycle poses a significant risk to companies heavily invested in Bitcoin treasuries.

Why MNAV is Critical for Bitcoin Treasury Firms

The Breed report emphasizes that the health and survival of a Bitcoin treasury company are fundamentally tied to its ability to consistently command a multiple of its net asset value (MNAV). When a company’s stock trades at a significant premium to its NAV, it signals market confidence and provides a cushion against Bitcoin price volatility. This premium also makes it easier and more favorable to raise capital through equity offerings, as they can issue shares valued above the underlying asset value.

Conversely, when the MNAV premium erodes, and the share price nears the NAV, the company loses this strategic advantage. Raising fresh capital becomes dilutive and less appealing, trapping the company in a difficult position if it faces financial obligations or wants to capitalize on market opportunities.

Debt vs. Equity: A Key Differentiator

The VC report notes a crucial factor that could limit the immediate, widespread impact of this potential death spiral: financing methods. The authors state that currently, most Bitcoin treasury companies, including pioneers like MicroStrategy, have primarily financed their Bitcoin acquisitions through equity raises rather than debt.

Equity financing, while dilutive to existing shareholders, does not carry the same risk of margin calls and forced liquidation under market stress as debt financing does. If a company has used debt collateralized by its Bitcoin holdings, a significant price drop can trigger demands for more collateral or early repayment, leading directly to forced selling. Equity financing, while not immune to market sentiment affecting the share price, removes this direct liquidation pressure based on asset value alone.

The report suggests that because equity financing is currently prevalent, the potential implosion from a death spiral might be contained to individual companies rather than triggering a systemic market-wide downturn. However, the forecast could change if debt financing becomes a more popular or necessary option for these firms in the future.

Who Will Survive? Lessons from the VC Report

According to the Breed report, navigating the challenges and avoiding the ‘death spiral‘ requires more than just holding Bitcoin. The authors conclude that only a select group of companies will manage to sustain a lasting MNAV premium and survive long-term. These survivors will distinguish themselves through several key attributes:

• Strong Leadership: Visionary and competent management capable of strategic decision-making in volatile markets.
• Disciplined Execution: Adherence to a clear strategy, avoiding impulsive decisions driven by short-term market swings.
• Savvy Marketing: Effectively communicating their strategy and value proposition to maintain investor confidence and MNAV.
• Distinctive Strategies: Implementing unique approaches that continue to grow Bitcoin-per-share, regardless of broader market fluctuations. This might involve operational businesses that generate capital for BTC acquisition, or other innovative models.

These factors go beyond simply accumulating BTC; they speak to the fundamental health and operational excellence of the business entity itself.

The Rise of Bitcoin Treasury Companies

The concept of corporate Bitcoin treasury gained significant traction following companies like MicroStrategy, led by Michael Saylor, which began acquiring substantial amounts of Bitcoin starting in 2020. This move popularized the idea that corporations could use BTC as a primary treasury reserve asset, potentially offering a hedge against inflation and a long-term appreciation opportunity compared to traditional cash holdings.

Since then, the trend has expanded significantly. Data from BitcoinTreasuries indicates that over 250 different types of organizations, including corporations, government entities, ETFs, pension funds, and digital asset service providers, now hold Bitcoin on their balance sheets or under management. This growing adoption underscores the importance of understanding the risks, such as the potential ‘death spiral‘, associated with this emerging treasury strategy.

Conclusion: Navigating the Risks

The Breed VC report serves as a crucial warning shot for the burgeoning sector of Bitcoin treasury companies. While the strategic move to hold BTC can offer potential benefits, it comes with inherent risks, particularly the vulnerability to a ‘death spiral‘ triggered by market downturns and exacerbated by financing structures. The report highlights that maintaining a strong MNAV premium and utilizing prudent financing methods, like equity over debt, are vital for resilience. Ultimately, the survival of these firms will depend on robust leadership, disciplined strategy, and the ability to adapt, proving that simply holding Bitcoin is not enough to guarantee longevity in a volatile market.