What Bitcoin contagion might look like

🔸 Plus: Emily Sundberg is "the Carrie Bradshaw of money" 🔸 Lobbyists want to end the Cash ISA tax break 🔸 “Private Banker” is a new TV drama from Japan on Netflix 🔸

Feb 10, 2025

The markets, year-to-date

S&P 500: 6,025.99 ⬆️ 2.45%
FTSE 100: 8,700.53 ⬆️ 5.33%
Bitcoin: $95,898.71 ⬆️ 2.61%
GBP to USD: $1.2408 ⬇️ 0.88%
GBP to EUR: €1.2014 ⬆️ 2.53%
(As of Friday market close.)

The contagion whale

Gwyneth Paltrow checking her Coinbase account in the movie “Contagion”.

Last week’s post, “Bitcoin’s inevitable collapse”, which described the potential bubble forming in crypto, was one of the most-read articles we have ever published on Moneyin2. (If you are a new subscriber because of it, welcome!) Although Moneyin2 is not a crypto newsletter the topic is hot right now — and poorly understood by most people. So this week we’re going to look again at how Bitcoin has infiltrated traditional finance and why that should worry savers and investors — like us! — who simply want to reach financial security and independence.

Around the world, 78 companies with publicly traded stock now have Bitcoin on their balance sheets, according to data from crypto security company Coinkite. This means they bought some Bitcoin and are counting it as an asset that forms part of the value of the company as a whole (“market capitalisation” is the technical term).

This is an astonishing fact.

By linking their market cap to the price of Bitcoin they hope to boost their stock and deter short sellers. After all, it is difficult to “short” a company — to bet that its stock will go down — if the Bitcoin on its books is increasing in value by the day.

Usually, companies want their balance sheets to feature cash, stocks, bonds, or property. Those assets are not very volatile, they represent real things of value that can be used to pay debts, and they can be easily valued over the long-term.

Bitcoin is the opposite of that.

Its price is highly volatile and it is impossible to predict where it will be one year from now. Also, as we told you last week, Bitcoin doesn’t represent anything of real value. It’s merely a token, a symbol, a piece of software code that reflects the supply and demand of people willing to buy or sell. There is no actual “asset” backing its value — which is why it is so different from cash, stocks, bonds, or property.

OK, so some companies have made bets on crypto and are enjoying the fact that Bitcoin keeps criss-crossing the $100,000 per coin mark. So what? They still make things and provide services. Who cares what’s on the balance sheet as long as they stay in business, create jobs, and reward people who have funded their operations by buying their stock?

Hold that thought.

Some of these companies have actually stopped being in business in a meaningful way and are now merely repositories for Bitcoin. The FT found a hotel development company that has given up on hotels and now just owns Bitcoin:

Japanese company Metaplanet … last year switched from developing hotels into becoming a “bitcoin treasury company” and has been rewarded with a more than 2,000 per cent share price rise. Last month it announced plans to raise ¥116bn ($750mn) in new shares in order to add to the 1,762 bitcoins it holds.

There is also Semler Scientific, which detects chronic diseases. It bought $88.5 million of Bitcoin and its stock has doubled in value. The company says Bitcoin will be its “primary treasury asset” moving forward.

And KULR Technology, a U.S. company that makes thermal energy products for NASA and the U.S. Navy, where the CEO said he plans to spend up to 90% of the company’s cash on Bitcoin.

The whale

But the whale in all this is a company that you may already have heard of because its approach to Bitcoin is so extreme it has landed on the front page of the Wall Street Journal: MicroStrategy, or “Strategy” as it rebranded itself recently. The company’s $87 billion market cap is nearly double the value of its Bitcoin holdings.

Strategy’s, er, strategy used to be about providing analytics software to large companies. Now it calls itself “the world's first and largest Bitcoin Treasury Company,” and the majority of its financial activity involves acquiring more and more Bitcoin. Strategy now owns about 2% of all Bitcoin.

Let’s stop and think about this for a second.

People need hotels, disease diagnostics, thermal energy, and analytics software. But these companies are walking away from the real-world tasks they were created for in favour of magic internet money. The magic internet money is not backed by any tangible asset. It’s not backed by cash, stock, bonds, or property. It’s just a price on a dashboard reflecting the supply and demand of gamblers betting on magic internet money.

And the magic internet money held by Strategy is being valued by stock investors at twice what it is actually worth.

What could possibly go wrong?

Well, a lot. The price of Bitcoin will not go up forever. In fact, Bitcoin has a long history of not going up. It has lost more than 75% of its value at least twice. At some point, it will come down.

What will these stockholders do when that happens?

Obviously, they will begin selling stock, very fast. It’s one thing to lose money on Bitcoin. It’s another to lose twice that amount of money because your falling stock was valued at double the price of the thing it represented. No one is going to buy the stock of a company that does nothing except hold a declining asset.

And a company whose primary Bitcoin assets are in decline has only two equally grim choices:

Sell the Bitcoin at a loss (and exacerbate the selling of Bitcoin).
Or book the declining value on the balance sheet (which will exacerbate the declining value of the stock).

How contagion works

When the mass sale of one asset — Bitcoin or stock, in this case — triggers the mass sale of an unrelated asset — Bitcoin or stock, either way — you have contagion.

Right now, the world of crypto isn’t big enough to crash the entire system, the way overvalued mortgages did in 2008 (think Michael Lewis’s book/movie “The Big Short”). The global market cap of all crypto in existence is $3.2 trillion. That sounds like a lot, but for context the total market cap of the S&P 500 is $52 trillion — and that’s just one index in one country.

And yet, among Strategy’s investors are Capital Group, which runs mutual funds, and Norges Bank Investment Management, Norway’s $1.5 trillion sovereign wealth fund.

The camel’s nose is already under the tent, in other words. It’s a matter of time before we find out what Bitcoin contagion looks like. Fingers crossed.

The Moneyin2 Guide to Wealth

The Moneyin2 Guide to Wealth will get you the biggest return on your savings by maximising cash matches from your employer, free cash from the government, and shielding your investment gains from tax. It takes you step-by-step through the world of pensions, SIPPs, ISAs and ETFs — all in plain English.

And for dessert …

Emily Sundberg (above) is the Carrie Bradshaw of money, apparently.
Some City lobbyists want to end the Cash ISA tax break. Because that would force ISA savers to invest in stock instead. The City makes its money from selling investments (like stock), not cash savings. Cynical if true.
“The S&P 500 is trading at about 22 times what analysts expect its constituent companies to earn over the next 12 months. That’s far above its average, since 1990, of 16.4 times expected earnings”, according to the WSJ.
“Private Banker” is a new TV drama from Japan on Netflix that follows the world of billionaires Ponzi schemes, affairs, and succession battles.

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