When a company announces it has purchased Bitcoin and its stock price falls instead, the market is usually repricing the move—not necessarily because the purchase itself is wrong. The core issue is that companies buy Bitcoin with borrowed money, and their valuation premium is built on the assumption that Bitcoin's price will only go up. Right now, both of those legs are shaky.
Reason 1: Excessive Leverage Makes Fundamentals Extremely Fragile
Most companies hoarding Bitcoin are copying Strategy (formerly MicroStrategy), raising money by issuing stock or convertible bonds to buy Bitcoin. In essence, this turns the company's equity into a leveraged Bitcoin ETF. The liability side consists of debt that must be repaid, while the asset side holds extremely volatile crypto. If Bitcoin's price drops, these companies can easily fall into a trap: the more the price falls, the more they borrow; the more they borrow, the bigger their losses.
In Q4 2025, Strategy recorded roughly $17.44 billion in unrealized losses due to Bitcoin's market cap shrinking, and its share price plunged about 48% for the year. American Bitcoin held 8,000 Bitcoin but suffered digital asset impairment losses of $117 million, with a net loss of $81.8 million in the same period. It had to execute a 1-for-15 reverse stock split just to stay listed. This is not an isolated case: about one in four publicly traded companies that hoard Bitcoin have seen their stock price fall below the total value of the Bitcoin they hold.
Risk note: Under fair value accounting rules, unrealized Bitcoin gains are not recorded in profit, but impairment losses directly hit the financial statements. The paper gains from buying Bitcoin are invisible, yet any price decline shows up in net income. When earnings are released, the market often looks at the numbers, not the story.
Reason 2: The Funding Model Is Running Out of Room
Strategy has been able to keep buying Bitcoin because the market was willing to pay a high premium (NAV premium) for its Bitcoin holdings. In mid-2025, this premium reached as high as 208%—every $1 of Bitcoin was reflected as $3 in the stock price. By the end of 2025, however, the premium had shrunk to just 4%. With the premium largely gone, issuing new shares to raise money became far less attractive. As a direct result, Strategy's Bitcoin purchases in Q3 2025 fell to the lowest of the year—only about 43,000 Bitcoin.
The main reason the premium disappeared is market saturation. By September 2025, at least 61 companies whose main business is not digital assets had adopted similar Bitcoin reserve strategies, and the market simply could not absorb this wave of copycat stock supply.
Scenario A: Arbitrage Investors Exit
Some early investors in these Bitcoin-hoarding stocks were actually making a "long Bitcoin volatility" trade. When the expected positive feedback loop—Bitcoin rises, stock rises, raise more money, buy more Bitcoin—broke down, it was these arbitrage-driven funds that pulled out first, not value investors.
Scenario B: Potential Selling Pressure from PIPE Deals
Many of these companies raise money through private investment in public equity (PIPE), which creates a large block of low-cost shares. Once these shares are unlocked, selling by early investors combined with falling Bitcoin prices can trigger a negative feedback loop: stock under pressure, more selling, forced Bitcoin sales, further Bitcoin drops—making it even harder for the share price to hold.
Practical Takeaways
How to check: When you see a company announce a Bitcoin purchase, don't just read the headline. Pull up its financials and calculate two numbers: Bitcoin holdings as a percentage of net asset value, and the ratio of enterprise value (EV) to the market value of Bitcoin held (MNAV). If MNAV has fallen to around 1 or even lower, the market is saying the company's other businesses are worthless beyond its Bitcoin stash.
Next steps: If you hold such a stock, pay special attention to whether the company has an independent, profitable business (for example, American Bitcoin's mining operations can lower costs). If it is just a shell that relies purely on financing to buy Bitcoin and its MNAV premium has vanished, the appetite for buying more coins will dry up. These stocks have extremely high beta—if Bitcoin drops 3%, they might fall 10%–15%. Be prepared for much larger swings.
