With wider adoption of the Bitcoin Treasuries among companies as well as governments, there arises some criticism and doubts on whether the model is sustainable or will it face the same fate as the 2009 Housing Market Crash or perhaps the 1929 US Stock Market Crash.
In this article, we will explore the previous crashes and compare the Bitcoin Treasury model to check for sustainability.
What is the Bitcoin Treasury Model?
Bitcoin Treasuries are funds created via the purchase of Bitcoins by debt (or sometimes with cash reserves) and benefits from the price appreciation in the long run. This method of investing was pioneered and popularized by Michael Saylor and his crypto investment firm MicroStrategy (now Strategy).
The Rise of MicroStrategy: How It Became World’s Largest Corporate Bitcoin Holder
The model rests on the hypothesis that the technologically advanced features of Bitcoins, such as anonymity, easy portability, a fully digital existence, universal acceptance, etc., will attract new investors. Since Bitcoin is in limited supply, as investors continue pouring in, it will create a positive price trend in the long term.
Top Bitcoin Treasuries include:
- Strategy– Founded as MicroStrategy by Bitcoin Treasury Model pioneer Michael Saylor.
- MARA Holdings – One of the first Bitcoin pioneers, albeit on a much smaller scale.
- XXI– Twenty One is a Bitcoin Treasury founded by Jack Mallers and backed by Softbank and Tether.
- Bitcoin Standard Treasury Company – Founded by lead cryptographer Adam Back and in collaboration with asset management firm Cantor.
- Riot Platforms – Riot is a Bitcoin mining firm that later established its own Bitcoin mining reserves.
The Sole Cause of Fear and Doubt in Bitcoin Treasuries
Bitcoin’s Price Volatility is the only major concern that alleviates different kinds of fears. Volatile assets without hard backing tend to fall prey to excessive short-selling in the markets.
A similar crisis has happened in the recent past when in 2009, the subprime mortgage crisis emerged due to excessive shorts on the debt instruments that covered housing loans.
Within the crypto markets, one such crisis depegged the Terra USD, ultimately sending it into a death spiral along with LUNA.
Is the Model Similar to the Housing Market Mortgage Crisis in 2009?
The US Housing Market and Housing Mortgage markets were seen as the safest kind of investments around 2005 to 2008, because housing was a need and it was believed that no one would default on their housing loans.
As a result, greater money poured into these markets, and at a certain limit, housing became more of an investment due to cheaper loans.
When people started defaulting on their loans due to any reason, the market panicked and the housing mortgage bonds crashed.
The crash basically took place because the assumptions on which it ran did not hold true around the later stage i.e, after 2007.
However, for Bitcoin, everything that propels it upwards is likely to hold it true. The reasons why Bitcoin is popular are its basic features like anonymity, portability, wide acceptance, censorship resistance, etc., and since these things are technologically ingrained into Bitcoin’s network, it is unlikely to change.
Even if some changes are forcefully brought, a hard fork can easily divert Bitcoin users towards a safer version of it. Hard forks have taken place in Bitcoin in the past and anyone with considerable support can execute it.
Comparison with Other Market Crashes
Terra Luna Crash
The Terra Luna Crash took place in May 2022 because of a sharp unsustained rise in LUNA’s price. The rise gave way to short sellers to bet against UST, a non-backed algorithmic stablecoin and ultimately crash the entire ecosystem, wiping out around $60 billion.
The cause of the crash boils down to two major factors: the quick rise of LUNA from $1 in January 2021 to $118 in April 2022; and due to the algorithmic nature of Terra USD.
In Bitcoin’s case, neither of the two factors exist. Bitcoin has stabilized its price and its growth trend has been intact since 2009. Further, the value of Bitcoin is backed by its technology, which gives it fundamental support. Therefore, a Terra-like fall is unlikely for Bitcoin even if all Bitcoin Treasuries abandon it (which again seems almost impossible).
Dot Com Crash
The Dot Com Crash of 1999-2000 was the result of an euphoria to invest in tech companies. The marker of a tech company before the crash was any company with a domain name i.e, a website with .com as TLD.
Several low value companies took undue benefit by simply booking domain names and registering their business as a tech company.
Later, when investors failed to get any decent return, the widespread sell off turned into a market crash for tech companies including Amazon which was newly established in 1996.
A similar crash is unlikely to happen in Bitcoin because of market cycles. When Bitcoin crashed between 2021 to 2023, it gave an exit to a major share of non-serious investors, which caused the dot com bubble and crash. Further, the price rise in Bitcoin took place in a long 14 year period, unlike the dot com bubble which crashed within half a decade.
Conclusion
Bitcoin Treasuries depend on the rising price trend in Bitcoin, which is unlikely to crash either in the way of Dot Com Crash of 2000 or the US Housing Mortgage Crisis of 2008 because of Bitcoin’s wider market cycles (4 years), proven track record of strong growth, fundamental strength, and better information sharing in the current age.
