StanChart warns of potential liquidation risks for corporations adopting Bitcoin at high prices

A growing number of public companies are buying Bitcoin (BTC) for their balance sheets, but many could be exposed to significant losses if prices drop, according to a new Standard Chartered report shared with CryptoSlate.

The bank’s research, authored by head of digital assets research Geoffrey Kendrick, highlighted that 61 companies now hold Bitcoin in their corporate treasuries, collectively controlling 3.2% of the total Bitcoin supply that will ever exist.

This trend has surged in recent months, with imitators following in Strategy’s footsteps increasing their Bitcoin holdings from 50,000 BTC to 100,000 BTC in just two months.

High entry prices

Standard Chartered warned that many of these firms have entered the market at high valuations, often with net asset value (NAV) entry multiples above 1, signaling overexposure to price swings.

Kendrick emphasized that for at least half of these firms, the average purchase price exceeds $90,000 per Bitcoin and even a modest correction could lead to losses and reputational damage for firms seeking to mimic Strategy without similar risk tolerances or capital structures in place.

He warned that “Bitcoin is volatile” and such high average entry points make some companies particularly vulnerable.

According to Kendrick:

“We identify a pain level of 22% below the average purchase price as a potential liquidation level.”

He explained that a 22% drop below the average purchase price may be the threshold at which liquidation risk becomes real for companies holding Bitcoin in treasuries.

Drawing from historical market events, the report cited Core Scientific’s 2022 experience as an indicator of potential stress levels.

The report included a chart showing a wide spread in purchase prices across public companies, with many clustered in the $90,000 to $110,000 range. If markets reverse sharply, firms with thinner balance sheets or investor pressure could be forced to sell.

Demand rising despite risks

Despite the risks, Bitcoin’s role as a strategic treasury asset continues to gain traction among corporates. Kendrick attributed this to NAV multiples above 1 and lingering inefficiencies in how traditional finance evaluates crypto holdings.

Standard Chartered’s findings suggest that this wave of adoption is being driven by both long-term conviction and the fear of missing out, especially in light of recent bullish momentum in crypto markets.

Kendrick wrote:

“While I see these multiples as justified for now (due to market inefficiencies created by regulatory and investment committee conservatism), over time that justification will fade.”

As Bitcoin trades above the $100,000 mark, the momentum trade remains intact. However, Standard Chartered’s warning adds a note of caution: without prudent risk management, companies embracing BTC could face the same volatility that once pushed miners and speculators to the brink.

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