These Companies Own the Most Bitcoins – Are They an Investor’s Goldmine or a Risky Gamble?

When “Satoshi Nakamoto”—pseudonym for the person who released the whitepaper that introduced the concept of Bitcoin in 2008—launched the Bitcoin craze, it’s likely that few if any investors predicted that by 2025, public companies would collectively hold over $103 billion worth of bitcoin. Over the last five years, public companies have accelerated their stockpiling of crypto, particularly Bitcoin, with the number of Bitcoin (BTC) held by these corporations up 159% from the previous year. As a result, these corporations represent a significant portion of today’s BTC whales. 

These companies, known as Bitcoin proxy companies, or “proxies,” by crypto natives, are opening up investors to a new type of investing called “bitcoin proxy investing.” Bitcoin proxy investing involves buying shares in companies with significant Bitcoin exposure. This approach offers you indirect exposure to Bitcoin through traditional stock channels, especially if you can’t buy BTC directly or want a short-term investment option. Although this type of investment can deliver impressive returns, it comes with considerable risk, one of the most critical being that you could lose your entire capital. Nevertheless, it could be a good opportunity to diversify your portfolio and take advantage of Bitcoin’s volatility.

What Companies Are Heavily Invested in Bitcoin?

Typically, companies keep their reserves in low-risk options like bonds and Treasury bills to preserve their capital. However, Bitcoin provides them with a way that’s more likely to amass more profit for them. When that happens, it boosts shareholder value. In bullish markets, Bitcoin proxy companies can often outperform financial assets such as stocks in general.

These Bitcoin treasury companies raise money through traditional means like stocks and convertible bonds, then use that capital to buy Bitcoin when it trades at attractive prices. As an investor, you do not have to worry about timing the market or safeguarding your BTC when you invest in these companies.

The Bitcoin treasury landscape is dominated by U.S.-based companies. The top five companies with the number of Bitcoin held as of July 29 are as follows: 

• Strategy.: 628,791 BTC 
• MARA Holdings, Inc.: 50,639 BTC
• Twenty One Capital (XXI) (plus merger partner Cantor Equity Partners (CEP)): 43,514 BTC
• Bitcoin Standard Treasury Company (BSTR): 30,021 BTC
• Riot Platforms, Inc (RIOT): 19,287 BTC

Other household names on the list include Coinbase Global, Inc., Block Inc. (XYZ), Robinhood Markets (HOOD), and GameStop Corp (GME).

The Benefits of Investing in These Companies

The share prices of Bitcoin treasury companies are generally positively correlated with BTC. In fact, they may rise more than BTC in bullish conditions. For example, Strategy’s share price has increased nearly 650% since Feb. 1, 2024, while Bitcoin has ‘only’ gained roughly 160% over the same period. 

Investors who are comfortable with holding a high-risk, yet diversified investment that can reap the benefits of both crypto and stock trading would find these Bitcoin treasury companies a nice fit for their portfolios.

The benefits include:

• Access to cheap capital: Companies can take advantage of credit facilities to scale in on BTC, borrowing at rates that could pay off even with a small rise in Bitcoin’s price.
• Investor interests: When companies invest in BTC, they usually attract and sustain investor interest, based on share-price outperformance that we’ve described.
• Diversified growth potential: Holding a portion of their treasury in bitcoin can present an opportunity for them to grow their money outside of traditional financial markets.
• Better return potential: Bitcoin’s historical performance often outpaces bonds and other traditional cash and its equivalents, making it even more attractive to these companies.

The Risks and Red Flags

Bitcoin proxy investing, like any other kind of investing, comes with risk. For example, investing in Bitcoin treasury companies that use leverage—such as issuing debt to buy more Bitcoin—can amplify both gains and losses, exposing investors to greater downside risk in volatile markets. If Bitcoin’s price drops significantly, these companies might not have enough money to pay its bondholders or repay its debts, and it might be forced to sell off its BTC or worse, go bankrupt, compounding losses beyond what a direct Bitcoin investment would incur

Other risks and red flags include:

• Extended bear markets: When Bitcoin’s price drops for long periods, it could lead to sustained selling pressure and huge unrealised losses for investors.
• Regulation: Shifting crypto regulation can sharply affect these companies, leading to unforeseen losses.
• Financing issues: If a company takes on too much debt or leverage to buy Bitcoin, this could seriously affect them later on.
• Pure speculation: These companies could be used solely for speculation, creating bubble-like conditions that threaten your investment.
• Share dilution risk: If a company continues to issue more shares to fund additional Bitcoin purchases, it dilutes how their Bitcoin holdings impact your investment.

How to Evaluate a Bitcoin-Heavy Stock

Bitcoin-heavy stocks are prone to huge price swings, which can translate into big losses if not well-managed. Adequate research and picking the right company are the first steps to managing your investments well. To guide your research, begin by answering the following questions:

1. What’s the Company’s Core Business? Is It Profitable Without Bitcoin? 

Before you invest in any company, check out its core business model. Is this model profitable aside from its bitcoin holdings? Will it be profitable without them? For example, Strategy is overly exposed to bitcoin. Its gains and losses in recent years have often been dependent on Bitcoin’s price moves. If BTC takes a hit, Strategy could take a harder one.

2. What Percentage of Their Balance Sheet Is BTC? 

If a company has a large percentage of its balance sheet/reserves in BTC, it might not be a good fit for you as a long-term, risk-averse investor. Pay close attention to how much of the company’s market cap derives from Bitcoin speculation vs. actual business value. If this is a lot, it could mean your holdings could fluctuate significantly during periods of high BTC volatility.

3. Is the Stock Trading at a Premium Just Because of Bitcoin Exposure? 

Understanding the fundamentals of any company is key, especially when it comes to investing in these “proxies.” Do you know what the company’s BTC strategy is? Are they in debt? If so, how much? If BTC were to crash, would the proxy be able to pay off its loans and remain in business?

You have to do extensive research before investing in any of these companies. The best online brokers provide robust research services. The best robo-advisors offer easy account setup, robust planning, account services, and portfolio management, typically at low cost. Tools like Bloomberg Terminal for fundamentals and TradingView for technical analysis can help you make an informed decision. Do not forget to combine on-chain data, and never rely on a single data source or tool, but always combine input from these sources for a balanced outlook.

The Bottom Line

Bitcoin proxy investing is still a relatively new way of investing in Bitcoin, one that’s less than five years old. While it is ideal for investors who want a high-risk, short-term investment in BTC, it might not align with your long-term investment goals.

Just because a company holds Bitcoin does not make it immune to downturns or business failures, so manage your expectations. If you desire a more direct way of investing in crypto, it’s best to buy Bitcoin, since you can monitor and manage it yourself. Alternatively, you can decide to invest in spot Bitcoin ETFs that mix other assets and BTC, so it reduces your exposure even further. As always, keep an eye out for BTC price moments and keep tabs on any company you choose to invest in.