Bitmax, which used to be a corporation in augmented reality (AR) technology, has suddenly transformed into a cryptocurrency investment company, showcasing a 'TREASURE' strategy by purchasing and holding Bitcoin in large quantities, attracting significant interest from investors. However, a look into Bitmax's financial structure reveals that it is incurring losses by aggressively buying Bitcoin.
According to the Korea Exchange on the 9th, Bitmax's stock price rose by 420% in the first half of this year, recording the second-highest stock price increase in the KOSDAQ market. Bitmax's market capitalization tripled from 65.8 billion won in March when it began purchasing Bitcoin to 191 billion won this month, earning it the nickname 'Korean Strategy.' The U.S. company Strategy holds the highest number of Bitcoin among publicly listed companies globally, with 597,000 Bitcoins, and its stock price has increased by over 210% in the past year.
Bitmax used the proceeds from issuing convertible bonds (CB) amounting to 40 billion won to purchase Bitcoin. The bond's coupon interest rate is 4.9% to 5% per annum, with an annual interest burden for Bitmax amounting to 2 billion won. Including the 50 billion won of the 4th CB (interest rate 5%) issued for the purpose of Bitcoin acquisition last month, the annual interest increases to 4.5 billion won. This is higher than Bitmax's cash assets of 3.1 billion won at the end of last year.
In contrast, Bitmax's Bitcoin yield is less than half of the interest. Bitmax purchased 349.19 Bitcoins at 140.39 million won each. As of 4:30 p.m. on the 8th, the price of Bitcoin is 148.01 million won per unit. Even if Bitmax sold all its Bitcoins, the capital gain would only amount to about 2.7 billion won. It borrowed money to buy Bitcoin but has generated only revenue insufficient to cover the annual CB interest.
The valuation of Bitcoin purchased by Bitmax does not assist on the financial statements at all. This is because virtual assets held by a publicly traded company are classified as intangible assets, like patents. Even if the price of Bitcoin rises, since Bitmax does not sell and continues to hold it, it will not be reflected in the income statement. Conversely, if the price of Bitcoin drops, it must be subjected to impairment.
Unlike Korea, in the United States, the valuation of Bitcoin relates to the company's performance. Although the U.S. classifies virtual assets as intangible assets, it has improved regulations so that if the price rises, the increases are reflected as profits on the income statement.
This has led to suggestions that Bitmax's purchases of Bitcoin at a loss are aimed at turning the company into a 'Bitcoin theme stock' to bolster its share price. The TREASURE strategy signifies converting company assets to Bitcoin to preserve real value and avoid inflation concerns. However, buying Bitcoin at a loss using borrowed money is hard to define as a TREASURE strategy.
The originator of the TREASURE strategy, Strategy, has also purchased Bitcoin using the proceeds from issuing convertible bonds. However, most of these bonds are zero-interest. Mara Holdings, which holds the second-most Bitcoins (49,940), also issued zero-interest convertible bonds worth $1 billion last November to purchase Bitcoin.
Ironically, those benefiting from Bitmax's excessive CB issuance include former Chairman Won Young-sik of Green Snake Group, who has been indicted for stock manipulation of domestic cryptocurrency exchange Bithumb. The side of former Chairman Won invested in Bitmax's CB through the Largos Brick No. 2 and 3 investment associations. The special relations linked to the convertible bonds include Areumduri Corporation (5.29 million shares), Ocean In W, a subsidiary of Areumduri Corporation (8.24 million shares), and USC (5.68 million shares), and Won's son, Won Sung-jun (8.14 million shares).
The side of former Chairman Won expects to generate substantial revenue from this investment. The conversion prices of the CB he invested in are 1,415 won for the 2nd round (17.66 million shares), 1,442 won for the 3rd round (10.4 million shares), and 2,456 won for the 4th round (20.35 million shares). If Bitmax's stock price maintains around the previous day's closing price of 5,130 won and there is no adjustment (refixing) of the conversion price, it is theoretically possible to recoup the investment principal (90 billion won) and acquire a stake in Bitmax. However, if this happens, a huge selling pressure could lead to a sharp drop in stock prices.
The side of former Chairman Won can choose not to convert the CB into shares if Bitmax's stock price falls, keeping them until maturity (March to June 2028) to receive annual interest of 4.5 billion won. In the worst-case scenario, he can exercise early redemption (put option) to recover the investment. In any case, it is difficult for former Chairman Won's side to incur losses.
Bitmax stated, 'The value of Bitcoin will skyrocket, significantly increasing the company's value,' and added, 'Numerically, it may be interpreted as a loss at the moment, but from a long-term perspective considering the value of Bitcoin, the loss will quickly recover and turn into profit.' Regarding former Chairman Won, they noted, 'Former Chairman Won's side is a strategic investor (FI) whose past history has nothing to do with the company.'