With the prices of major virtual assets, including Bitcoin, falling nearly 10% in a day, a claim is drawing attention that "a death spiral" could accelerate the downturn as corporations that incorporate virtual assets into corporate financial assets (DAT, Digital Asset Treasury) fail to withstand the decline and carry out large-scale selling. Some see the current situation as entering stage 3 of the five-stage death spiral.
As of 2:30 p.m. on the 6th, on CoinMarketCap, a global coin market tracking site, Bitcoin was trading at $65,400, down about 7% from 24 hours earlier. Compared with a week ago, it fell more than 21%. It is the lowest in 15 months. Prices of Ethereum, XRP (Ripple), and Solana also fell around 10%. For now, there is a short-term rebound after a sharp drop.
Meanwhile, Michael Burry, a well-known U.S. short seller, recently said, "If the plunge in virtual assets continues, DAT corporations could fall into a 'death spiral.'" A death spiral is a vicious cycle that can occur if the plunge in virtual asset prices is prolonged. It is broadly divided into five stages: ▲ a plunge in virtual asset prices ▲ a sharp drop in DAT's net worth ▲ failure to issue new shares or bonds ▲ pressure to sell held virtual assets ▲ large-scale selling of virtual assets. After large-scale selling of virtual assets, prices can fall again and this structure may repeat.
Strategy, a representative DAT corporation, holds more than 713,000 Bitcoins, the most among corporations worldwide. The average purchase price is about $76,000, but the current Bitcoin price is more than 15% lower than that. The mNAV value, which is the market capitalization divided by the value of virtual assets held by the corporation, once exceeded 3.0 but has now fallen to 0.9. Most of the company's assets are in Bitcoin, and as the price of Bitcoin fell, its net worth also fell.
Due to the drop in Bitcoin prices, Strategy has been unable to present plans for new share issuance or liability financing. DATs grew by buying additional virtual assets through issuing new shares or bonds based on rising net worth when virtual asset prices went up.
After stage 3 of the death spiral, DAT corporations could face pressure to sell virtual assets. An industry official said, "Most DAT corporations took out loans using virtual assets as collateral, and in a crash like now, the value of collateral falls, leading to margin calls for additional collateral," and added, "To meet those calls, they have to sell the virtual assets they hold to raise cash, and if large-scale selling occurs in the process, virtual asset prices could fall further."
There is also a view that warns against excessive pessimism. Kim Min-seung, head of the Korbit research center, said, "If the institutions that lent to Strategy or bought its bonds all demand cash repayment at once, a death spiral could occur, but that is theoretical, and I see the likelihood of it materializing as not large."