Bitcoin Treasury Peril: VanEck Unveils Crucial Capital Erosion Risks

In recent years, the allure of Bitcoin for corporate treasuries has grown immensely. Companies, seeking a hedge against inflation and a path to potential asset appreciation, have increasingly added the digital asset to their balance sheets. What began as an experimental move by a few pioneers has transformed into a notable trend, with hundreds of public companies collectively holding significant Bitcoin reserves. Yet, beneath the surface of this promising strategy, a leading global asset manager, VanEck, has raised a critical warning: the very strategies meant to boost corporate value could instead lead to devastating capital erosion. Understanding this peril is crucial for any business navigating the complex world of corporate crypto strategy.

Why Are Companies Embracing Corporate Bitcoin Strategy?

The journey of corporate Bitcoin adoption began in earnest around 2020, spearheaded by software companies like MicroStrategy. Their bold move to convert cash reserves into Bitcoin (BTC) sparked a wave of interest. The rationale was simple: protect against fiat currency debasement and capitalize on Bitcoin’s price appreciation. By mid-2025, over 220 public companies globally had adopted similar corporate Bitcoin strategies, holding substantial amounts of BTC. This trend led to the emergence of “Bitcoin proxies” – stocks whose values largely mirror Bitcoin’s price movements, offering investors indirect exposure to the digital asset.

For these companies, holding Bitcoin offers clear advantages:

• Balance Sheet Boost: During bullish crypto market cycles, the value of Bitcoin reserves can appreciate rapidly, enhancing financial statements.

• Investor Attraction: Companies with Bitcoin holdings can attract investors seeking crypto exposure without direct asset purchase.

• “Digital Gold” Narrative: Many executives, including MicroStrategy’s Michael Saylor, champion Bitcoin as a long-term store of value, potentially outperforming traditional cash over time.

MicroStrategy’s stock price, for instance, saw significant gains since its initial Bitcoin acquisitions in 2020, validating the strategy for some. However, this promising facade hides significant risks, particularly related to Bitcoin’s inherent volatility.

Understanding Capital Erosion: VanEck’s Crucial Warning

In June 2025, VanEck, a respected global asset manager, issued a stark warning regarding the increasing accumulation of Bitcoin by corporate treasuries. Matthew Sigel, VanEck’s head of digital assets research, highlighted the risk of “capital erosion.” Simply put, capital erosion occurs when a company’s overall value or shareholders’ equity diminishes, even if its Bitcoin holdings appear substantial.

Sigel’s concern centers on how companies finance their Bitcoin purchases. Many Bitcoin-heavy firms issue new stock or take on debt to raise capital for Bitcoin acquisition. When a company’s stock trades at a premium to its Net Asset Value (NAV) – the difference between assets and liabilities – issuing new shares can be beneficial, raising more money than the underlying assets are worth. MicroStrategy initially used this strategy, issuing stock and bonds to fund Bitcoin purchases when its share price was high.

However, this model is sustainable only as long as the company’s stock price remains elevated. If the stock price begins to trade at or near its NAV, new share issuances become dilutive. This means they harm existing shareholders without adding real value. This shift, from accretive to dilutive capital raising, directly leads to capital erosion. The company’s stock price can fall as the value of its Bitcoin holdings alone cannot support new investments without negatively impacting current shareholders.

Navigating Crypto Market Volatility: Lessons from Semler Scientific and GBTC

The risks associated with Bitcoin’s inherent crypto market volatility are not theoretical; they are playing out in real-world scenarios. Semler Scientific, a US medical technology firm, serves as a recent example. Its stock initially surged after adopting a Bitcoin-first treasury strategy and acquiring significant BTC.

However, by mid-2025, Semler faced a critical issue: despite Bitcoin’s price climbing, Semler’s stock price plummeted over 45%. At that point, Semler’s market capitalization – the total value of its outstanding shares – was lower than the value of its Bitcoin holdings. This indicated the market was undervaluing the company relative to its assets, a serious concern for investors. This situation highlights the dangers of over-reliance on a volatile asset. While Bitcoin’s price can boost corporate treasuries in a bullish market, it also introduces significant volatility risk, with sharp price fluctuations that can harm a company’s overall stability and stock price.

Another stark example of crypto market volatility and its impact on corporate holdings is the Grayscale Bitcoin Trust (GBTC). For years, GBTC traded at a premium to its NAV, attracting investors. However, during the 2022-2023 bear market, it crashed to a steep discount. Investors who bought at the peak saw massive losses, even though Bitcoin’s spot price had not dropped proportionally. The trust’s lack of a redemption mechanism trapped investors, serving as a critical warning for treasury-heavy firms reliant on secondary market sentiment.

Why did the GBTC premium vanish?

• New Competition: Lower-fee Bitcoin investment products, such as ETFs from ProShares and Valkyrie, entered the market, drawing investor interest away.

• Reduced Demand: Institutional participation declined, lessening overall demand for GBTC.

• Arbitrage Opportunities: Tighter arbitrage opportunities made GBTC less attractive, especially given its six-month lockup period.

A corporate treasury holding large BTC reserves without clear redemption mechanisms could suffer a similar fate, potentially being forced to sell at depressed prices to meet debt or equity obligations.

The Hidden Risks: Beyond the Obvious for Bitcoin Treasury Holders

As Bitcoin gains popularity as a treasury asset, many companies focus solely on its upside, overlooking crucial behavioral and scientific warnings. Behavioral finance research reveals that executives often exhibit overconfidence and herd behavior, adopting Bitcoin without thoroughly stress-testing for long-term volatility. Studies also highlight loss aversion, where firms hesitate to sell underperforming assets, risking deeper losses instead of making rational exits.

Scientific models indicate that Bitcoin’s price follows a “fat tail” distribution, meaning extreme crashes are not rare outliers but statistically likely events. This exposes a corporate balance sheet heavy with Bitcoin not only to the asset’s own turbulence but also to systemic turbulence across the broader blockchain sector. Risks such as smart contract liquidations, token interdependencies, and centralized exchange failures can trigger sharp price spirals. These systemic risks are rarely factored into traditional treasury planning.

To navigate this landscape, companies need to move beyond hype and build rigorous risk models. Stress-testing Bitcoin holdings under worst-case scenarios is essential. Without these safeguards, firms risk capital erosion, investor dilution, and strategic failure. Future adopters must stress-test their treasuries against extreme but plausible scenarios grounded in empirical data.

Lessons from the 2008 Crisis for Modern Bitcoin Treasury Management

The warnings about capital erosion for Bitcoin treasury companies share striking similarities with the events leading up to the 2008 global financial crisis. During that period, many financial institutions relied on high leverage to fuel rapid growth. For example, Lehman Brothers and Bear Stearns used excessive leverage to take on risky subprime mortgages and financial products. When asset prices began to fall, these companies found themselves unable to meet their obligations, leading to widespread insolvencies. Lehman Brothers filed for bankruptcy in September 2008, and Bear Stearns was forced to sell itself after a liquidity crisis.

The leverage model worked only as long as asset prices kept rising. When they didn’t, the system collapsed. Similarly, Bitcoin treasury firms that rely on issuing more stock or borrowing money to acquire Bitcoin are exposed to similar risks. If Bitcoin’s price falls sharply, these companies might find themselves overextended, unable to raise funds or cover liabilities, much like banks during the 2008 crisis. Companies like AIG also relied on risky financial products, such as credit default swaps, and faced massive losses when the market crashed, ultimately requiring government intervention.

The cautionary lesson is not just about leverage but also the risks associated with excessive optimism. When investors become overly confident in an asset’s growth potential, they may overlook the risks of sudden market shifts. This kind of optimism can lead to significant financial instability if the market moves against expectations. Therefore, it’s essential to consider the following for effective Bitcoin treasury management:

• Prepare for Volatility: Bitcoin’s value can fluctuate wildly. Be prepared for sharp declines, especially during market corrections or global financial shifts.

• Understand the Risks: While Bitcoin offers potential, it remains a highly volatile asset. Avoid overexposing your portfolio to a single investment.

• Diversification is Crucial: Do not put all resources into Bitcoin. Diversify your investment portfolio to spread risk across various assets.

• Long-Term View, Short-Term Awareness: If investing for long-term growth, avoid panic over short-term price fluctuations. However, be aware that sudden drops can lead to significant losses.

• Robust Risk Management: Implement a clear risk management strategy, including setting stop-loss orders or defining clear entry and exit points for investments.

Preventing Capital Erosion: Actionable Insights from VanEck Bitcoin Experts

VanEck’s Sigel provides concrete recommendations for Bitcoin treasury companies to preemptively avoid capital erosion. These actionable insights stem from a deep understanding of both traditional finance and the unique dynamics of the crypto market. Companies serious about safeguarding their Bitcoin holdings should consider:

• Pause Stock Issuance: If the company’s stock price consistently falls below 95% of its NAV for a set period (e.g., 10 consecutive days), it should halt issuing new shares. This prevents further dilution of shareholder value when the market is not valuing the company optimistically.

• Consider Share Buybacks: If the stock price underperforms relative to Bitcoin’s value, companies might buy back shares. This can reduce the NAV discount and concentrate ownership among fewer shareholders, potentially boosting per-share value.

• Reevaluate the Strategy: If a company’s stock consistently trades below NAV, a fundamental rethinking of its Bitcoin strategy may be necessary. Options could include mergers, spin-offs, or even abandoning the Bitcoin-focused model to unlock shareholder value.

• Align Executive Incentives: Executive compensation should be tied to the per-share value of the stock, not just the total amount of Bitcoin holdings. This discourages excessive accumulation of Bitcoin purely for size and encourages executives to focus on sustainable value creation for shareholders.

While Bitcoin offers corporate treasuries innovation, upside potential, and media attention, without a disciplined strategy, it can also lead to irreversible capital damage. VanEck’s warnings are not mere speculation; they are rooted in hard-earned lessons from both traditional finance and crypto history. Ultimately, the success of a Bitcoin treasury strategy isn’t measured by who holds the most Bitcoin, but by who survives the next market downturn with their financial fundamentals intact and their shareholder value protected.