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In a twist of dot-com era déjà vu, a growing number of microcap companies are experiencing euphoric share price rallies, not because of a revolutionary product or acquisition, but simply for buying bitcoin. This crypto strategy pivot is in response to the success of Nasdaq-listed MicroStrategy (MSTR) which has seen its share price surge over 150% in the past 12-months. ABSI this week looks at this latest crypto craze. 

From London’s AIM market to the ASX in Sydney, shell companies and struggling microcap firms are finding a new lease on life by announcing plans to hold bitcoin on their balance sheets. The underlying business model? Buy bitcoin. Announce it. Watch the share price soar.

The origin of this phenomenon can be traced back to August 2020, when MicroStrategy (MSTR), a Nasdaq-listed business intelligence software firm led by Michael Saylor, announced it would allocate a portion of its corporate treasury into bitcoin. Over time, the company doubled, and then quadrupled, down. Today, it holds over 226,000 bitcoins, valued at over $14 billion, funded by a mix of cash, convertible debt, and equity issuance.

Source: StopSaving

MicroStrategy’s share price has surged more than 10-fold since its initial bitcoin foray, frequently outperforming bitcoin itself in percentage terms. In effect, the company has become a leveraged bet on the digital currency.

Naturally, others have taken note.

According to a recent Financial Times report, the trend is gaining traction in the UK and Australia. In London, companies like Listco, a dormant AIM-listed shell, saw its shares skyrocket more than 40% in a day after announcing plans to acquire bitcoin using proceeds from a share placing. Similarly, Vinanz, a London-listed miner that recently pivoted to bitcoin accumulation, rallied sharply on the news.

In Australia, the ASX has seen similar moves. DigitalX (DCC), one of the few crypto-native firms on the exchange, has long held bitcoin on its balance sheet. But more recently, microcaps like Locate Technologies (LOC) and Opyl (OPL) have created exposure to cryptocurrencies and have seen huge stock price appreciation.

Source: Koyfin

These are not blockchain innovators or crypto service providers. They are traditional companies, or shells, without a sustainable operating model, seeking reinvention via bitcoin ownership.

Why is the market reacting so positively? The answer lies in a potent mix of crypto enthusiasm, scarcity, and speculation.

For one, institutional investors in certain jurisdictions face limited options for bitcoin exposure. Buying MicroStrategy has long been a workaround. But with its US$20+ billion market cap, MicroStrategy may seem out of reach or overvalued to many retail or microcap-focused investors. A smaller, cheaper, local listed company with a few million dollars in bitcoin might appear more accessible, or more explosive.

Second, the strategy plays into the narrative of bitcoin as “digital gold.” With fiat currencies under pressure, central bank credibility questioned, and inflation volatility still looming, bitcoin remains a magnet for alternative-asset enthusiasts. That allure is amplified when wrapped in the skin of a public equity with liquidity.

Third, there is the age-old play of financial alchemy: convert hype into equity. As MicroStrategy has demonstrated, one can issue shares at a premium, use the proceeds to buy more bitcoin, and repeat the cycle, essentially arbitraging speculative demand into capital inflow.

It’s a modern version of the old resource shell game: raise money, buy an asset, talk up the value, and raise more money.

Source: Koyfin

But while the gains may be immediate, the risks are abundant.

1. No Operating Moat

These companies are not building crypto infrastructure or generating yield, they’re simply speculating. Their fortunes are entirely tied to the price of bitcoin, often without any hedging strategy, yield mechanism, or broader purpose.

In many cases, management teams have little to no experience with digital assets. That raises questions about custody, accounting treatment, audit, and even legal risks. A misstep in any of these areas could be catastrophic.

The SEC’s scrutiny of crypto and the growing global regulatory clampdown pose real threats. A change in accounting rules, taxation treatment, or custody standards could wipe out perceived advantages overnight.

Ultimately, the market is rewarding announcement, not execution. That is the hallmark of speculative bubbles. Investors are buying exposure to bitcoin through equities that themselves add no intrinsic value, simply because they’re listed and liquid.

This kind of reflexive enthusiasm almost always ends the same way.

We’ve been here before. In the late 1990s, companies added “.com” to their names and saw their share prices double overnight. In 2017, iced tea companies became blockchain ventures. In 2021, SPACs raised billions on promises of “disruptive” future businesses, many of which are now trading well below issue price.

What’s happening now is another mutation of that same speculative virus, this time powered by digital gold.

While MicroStrategy might survive the downturns thanks to deep capital markets access and a cult-like following, many of the microcaps mimicking it will not. When the music stops, and bitcoin inevitably faces another correction, the leverage will work both ways. And shareholders chasing bitcoin alpha via thinly traded stocks could be left holding the bag.

In the end, turning your company into a bitcoin ETF without the oversight, security, or diversification of a real fund is not a business model. It’s a trade. And trades, no matter how euphoric, rarely build enduring value.

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