Bitcoin's Death Spiral: When Treasury Companies Go From "Diamond Hands" to Selling Vanguard

The article explores a hypothetical but plausible "death spiral" scenario for Bitcoin (BTC) treasury companies, where initial selling triggers a reflexive cycle that could severely impact Bitcoin's price.

Core Scenario: The analysis models 10 BTC treasury companies with varying levels of conviction and financial health. It begins with Bitcoin at $120,000 and traces a chain reaction where price declines force companies to sell BTC to defend their market-to-net asset value (mNAV), leading to further price drops.
Trigger: Lower-quality companies, lacking strong conviction, are the first to sell BTC to repurchase shares when their mNAV falls below 1.0x, starting at $120,000.
Reflexive Cycle: This initial selling pushes the BTC price down, causing more companies' mNAV to fall and forcing them to sell. The cycle intensifies, with weekly sell-offs growing from $500M-$1B to $1.5B-$3B, ultimately repricing BTC down to $70,000 in the model.
Key Outcomes:
- Lowest-quality companies benefit by selling early at higher prices but lose their reputation as long-term "diamond hands," damaging future capital inflows.
- Mid-quality companies (e.g., MARA, RIOT) are hit hardest, selling at progressively lower average prices (~$75,000) as they lack both radical strategy and strong faith.
- High-quality companies like MicroStrategy (MSTR) are pressured to hold, but even they may be forced to capitulate if the cycle continues, massively amplifying selling pressure.
ETH Exception: The dynamic might not apply to Ethereum (ETH) treasury companies due to market oligopoly (BMNR, SBET hold ~75% of treasury ETH), which could allow for coordinated action to avoid a death spiral.
Traditional Finance Parallel: The scenario is compared to the Archegos meltdown, where aggressive banks that sold first (Goldman Sachs) fared better than those that tried to coordinate exits (Credit Suisse).
Important Note: The specific BTC prices ($120k to $70k) are for illustrative purposes within the deductive model and are not a direct price prediction. The core argument is about the dangerous, self-reinforcing mechanism that could be unleashed.

Original Article | Cheshire Capital

Compiled by Odaily Planet Daily

Translator | Dingdang

Editor's Note: Over the past few months, BTC treasury companies have been viewed as key drivers of the crypto market and a strong foundation supporting Bitcoin prices. However, this reality may be far less robust than imagined. When price volatility and shareholder pressure combine, even treasury companies can instantly shift from "guardians" to "sellers." This article attempts to deduce the potential market path for BTC treasury companies over the next 6–12 months. Core assumptions:

Entities: 10 BTC treasury companies, holding Bitcoin of varying sizes, with market-to-net-value (mNAV) multiples in the range of 1.0x–5.0x.
Difference: Company quality is determined by financial size and management conviction/marketing capabilities.
Background: The initial price of Bitcoin was $120,000.

Core logic: Once some companies choose to sell BTC to repurchase stocks, it will trigger a reflexive cycle: price drops → mNAV is under pressure → more companies are forced to sell → selling intensifies → prices fall further.

The original text is as follows

Assume there are 10 BTC treasury companies holding Bitcoin. They trade at varying premiums (mNAV multiples) on the secondary market, ranging from 1.0x to 5.0x. At this point, the BTC price is $120,000. Their quality varies, with "quality" depending on the size of the treasury, as well as management's conviction and marketing capabilities.

Some low-quality BTC treasury companies were the first to fall below 1.0 x mNAV. For teams lacking firm conviction, the most logical move was to sell some Bitcoin and repurchase shares. After all, this could increase net asset value per share in the short term. Note that these companies sold some BTC at $120,000.

As a result of the aforementioned sell-off, the Bitcoin price fell back to $115,000 (this price is primarily used for illustrative purposes). Due to the high beta correlation with BTC, some other treasury companies (including those that had previously repurchased shares) saw their mNAV values continue to decline. Consequently, another four or five companies sold Bitcoin to repurchase shares, at a price of $115,000.

The market gradually realized that perhaps eight or nine out of ten companies were more concerned with short-term shareholder defense than long-term BTC accumulation. Investors began to anticipate the consequences of these companies collectively selling 30% to 50% of their holdings. After all, even MSTR had fallen to a 0.5x valuation at its 2022 low. Consequently, BTC was quickly repriced to $100,000, and most treasury companies fell below 1.0x.

Some mid-quality treasury companies, previously hesitant, began to feel pressure from both the market and shareholders to maintain their mNAV and joined the sell-off. At this time, the market saw approximately $500 million to $1 billion in Bitcoin sell-offs per week. Even high-quality companies (such as MSTR, 3350, and XXI) struggled to defend their positions with buy orders when the price fell to around 1.2x. BTC fell to $90,000.

The entire treasury company ecosystem, including high-quality players, saw its BTC/USD ratio fall below 1.0x. MSTR preferred shares fell below $0.70 to $1 par, and there were even rumors that Saylor was considering suspending dividends. Some companies previously considered staunch holders (such as 3350 and XXI) also began selling Bitcoin to cover operating costs. BTC plummeted to $80,000.

By this point, most low-quality treasury firms had nearly emptied their BTC coffers. Early "bottom-pickers" began to enter the market, but the cruelty of the reflexive cycle lies in the fact that the sell-off would spread up the quality chain, further amplifying its scale and speed. As mid- and high-quality firms also capitulated completely, the largest Bitcoin holders began to enter the market, with weekly selling pressure reaching $1.5 billion to $3 billion.

It’s important to note that, in addition to MSTR, BTC Treasury companies collectively hold approximately 350,000 bitcoins, worth approximately $40 billion at current prices. This sell-off is long enough to continue, and if MSTR is forced to participate, the sell-off will be even more brutal, potentially sending BTC down to $70,000.

Possible results

The lowest-quality companies actually benefited because they were forced to sell their BTC first, avoiding lower prices. The problem is that once they sell, the company ceases to be an "iterative BTC treasury" and becomes a "one-time valuation gamble." Even a single sale would damage their reputation as a "diamond hand treasury company," significantly reducing future capital inflows.
If you believe BTC still has the potential for a 30-40% compound annual growth rate (which I do!), then holding on will ultimately be fine. Currently, I believe Saylor is the only company that will desperately hold onto BTC, but there may be other candidates (such as 3350 or NAKA). However, until the majority of the sell-off is complete, it's not worth a long-term bullish position for any treasury company.
The worst hit are the middle-of-the-roaders. They are neither radical “sharks” nor have enough faith. In the above scenario, these companies (such as MARA, RIOT, SMLR) will be sold in stages (6) to (7), with an average selling price of about $75,000.
This logic also applies to treasury companies for other assets, but ETH may be an exception. This is because ETH treasury companies are oligopolistic: BMNR and SBET hold approximately 75% of treasury ETH (90% if DYNX and BTBT are included). This makes it possible for them to form some kind of coordination or "collusion" to avoid a vicious cycle of selling. While the likelihood of such an agreement ultimately being maintained is low, the probability of success increases with greater concentration.
This is analogous to the banking consortium that was involved in the Archegos meltdown in traditional finance. Aggressive banks (like Goldman Sachs and Deutsche Bank) were the first to liquidate their positions, resulting in far better outcomes than slower-moving players (like Credit Suisse and Nomura) who attempted to coordinate their exits.

Note: The target price of BTC here is not $70,000. The price in the article is only used to illustrate the deduction scenario.