Bitcoin treasury equity strategy carries credit risk
The guest cautioned that corporate 'Bitcoin treasury' strategies funded by issuing perpetual preferreds or convertible debt are high-risk dollar credit plays vulnerable to late-cycle contractions.
The argument
The guest argued that accessing onshore dollar liquidity at high rates to buy offshore Bitcoin functions as a frontier credit arbitrage. In a late-stage credit cycle, these low-rated or unrated debt instruments are highly vulnerable if credit spreads widen or liquidity dries up.
The thesis, stress-tested
✓ What validates it
- ✓S&P downgrading corporate debt ratings for Bitcoin treasury companies
- ✓Inability to roll over convertible debt or preferred shares at viable rates
▸ Risks discussed
- ▸Widening credit spreads in the broader economy
- ▸Contraction of global dollar liquidity
- ▸Decline in Bitcoin price impacting the underlying asset backing
Hear it yourself
"It pulled in these stable coins, which had been proliferating for over a decade, and it's a growing market. Right? Over, I wanna say, a 186 roughly billion dollars of Tether. Circle has, you know, a lower market cap. It's not quite a trillion dollars yet, but let's just call it, you know, half 1,000,000,000,000, that type of ballpark, for for money supply of this new stable coin dollar that is a merchant. We with genius act passed last year, and this is a big change in the, the future of the the US dollar itself, the direction we were gonna take because Biden and and that administration was taking us one route, which was which was going down a CBDC road."
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