Strive CIO says prolonged bitcoin weakness could drive treasury firm consolidation

Consolidation or restructuring of bitcoin treasury companies is likely if the current market weakness persists, according to Strive Chief Investment Officer Ben Werkman.

Speaking to The Block's Gareth Jenkinson at BTC Prague on Friday, Werkman warned that some firms could face pressure from the debt structures many put in place during last year's DAT boom.

"You know, bitcoin moving higher solves a lot of issues for these companies," Werkman said. "The longer it stays down here, the more risk there is that companies would need to start selling bitcoin, whether it's to fund operations or to right-size debt obligations. But I do think you will see consolidation."

Werkman argued that prolonged weakness, with bitcoin (BTC) already down around 50% from its all-time high near $126,000 in October, could increase pressure on companies that financed their treasury strategies with convertible debt, particularly where those arrangements include collateral or coverage requirements that risk turning them into forced sellers.

"It was one of the reasons why for Strive, we were one of the only ones that didn't take any convertible bonds," he said. "We were an equity-only raise, and that's the reason you've been able to see us continue to progress throughout the entire bear market."

Werkman pointed to Strive's acquisition of fellow bitcoin treasury firm Semler Scientific as an example of the type of consolidation that could become more common.

While some are surprised that more M&A activity has not yet come about, Werkman said the reality is that no company wants to sell to another at a discount. "With Semmler Scientific, it was kind of the perfect storm of opportunities. Eric Semler was a huge believer in the preferred model. They didn't get the votes to get it done … but he saw that Strive was the company that had the corporates or the capital structure to be able to do that."

Werkman noted that some treasury companies are already restructuring their balance sheets, citing efforts by firms such as Nakamoto to reduce debt burdens and regain financial flexibility.

"You've seen them taking a lot of actions trying to get out from under the debt that they have to free themselves up to be able to operate again," Werkman said.

Buying Strategy's 32 BTC

Werkman also acknowledged Strive's announcement that it bought 32 BTC last week, matching the amount sold by Strategy the week prior. 

Strive CEO Matt Cole subsequently announced the acquisition of another 73 BTC for around $4.7 million on Monday, taking the firm's total holdings to 19,105 BTC.

"We thought it would be fun to go buy the 32 bitcoin that Strategy sold," Werkman said. "You saw Matt and Saylor, they were on a panel here in Prague together just the other day where Michael told Matt he's going to want those 32 bitcoin back. But price is going to be a lot higher before he's gonna be able to get those bitcoin back."

However, Strategy's sale served an important purpose, in Werkman's view, explaining that one thing the industry needs to solve is to get rating agencies to view bitcoin as a non-zero value asset, especially amid concerns over how they will continue to pay out dividends to investors.

"Right now with the rating that they gave Strategy, which is effectively a junk bond rating, what they're doing is they're marking down the value of the bitcoin on their balance sheet to zero, and so the 32 bitcoin sale was actually strategic," Werkman said. "They need to prove to the market that if the conditions were right, they are willing to sell bitcoin in order to pay those dividends. And in order do that, they need show the market that the market is deep enough and liquid enough for them to be able to sell the bitcoin and capture that value."

As Strive has its own dividend obligations, Werkman said the company had been clear from the start that it would also sell bitcoin if conditions were right. "You can't build a balance sheet on a single asset and say, we're never willing to use that asset. We need to continue to prove how resilient bitcoin is as an asset class."