Is the infinite money glitch in cryptocurrencies sustainable?

Cryptocurrency companies are fueling growth through the “infinite money glitch,” raising funds to buy Bitcoin and increase its value.

There are a lot of cryptocurrency finance companies out there right now. However, if economic trends worsen in the future, there may be problems with their financing methods.

Financial engineering is a field that creates new investment products and solves problems. Getting as much profit as possible from investments, debt and equity is the path that banks and financial institutions have followed for a long time. However, a major financial crisis occurred in 2008, causing major problems. So, will the “infinite money glitch” led by crypto companies turn into a disaster, or will it remain the same?

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Infinite money glitch concept

As of September 25th, the Bitcoin price chart shows the price has fallen slightly to the $111,655 level. This follows a similar trend set on Monday, when the cryptocurrency market lost $87.8 billion over the weekend. Last week, the market saw significant growth, especially in the altcoin space.

Binance noted that the Fed’s 25bps rate cut brought the crypto market cap back to USD 4.1 trillion, with BTC exceeding USD 117,000 and BNB breaking above USD 1,000 for the first time. Altcoins generally outperformed, demonstrating new risk appetite.

This continued rise in the prices of Bitcoin and virtual currencies is contributing to a situation known as the “infinite money glitch.” This is when a company sells stock and uses other methods to raise capital, such as convertible bonds. This is used to buy Bitcoin and other cryptocurrencies. As those prices go up, so does the value of the company. This increased equity value can then be used to drive further funding rounds, etc.

The concept was pioneered by Strategy, a software company formerly named Microstrategy. The architect is Michael Thaler. In August 2020, the company began purchasing Bitcoin as a store of wealth. Since then, they have continued to use acquisition as their primary business model rather than software development. As the price of Bitcoin rose, so did the value of companies. In fact, its value has increased by 2,810% in three years. They currently hold 2.25% of all Bitcoins in existence.

They’re not the only ones finding success with this idea. Metaplanet is a Japanese Bitcoin finance company that was previously a struggling hotel chain. By underwriting Bitcoin, the company rode the wave of growth and its stock price rose. Now, companies ranging from Spanish coffee chains to game retailers are jumping on board with crypto financial strategies, repeating the infinite funds glitch.

Can it be used with altcoins?

Bitcoin has become less popular in the market and its price has become more static as companies have eaten up the supply. Therefore, many companies have considered applying this concept to altcoins and have had great success. Part of this may be due to a switch to popular altcoins in the broader market.

Last week, Binance noted that altcoins like BNB have surged more than 10%, overtaking ETH to become the second-best performing large-cap market year-to-date. Growth in BNB chain activity, token burn, and exchange-driven demand strengthen its fundamentals, while inflows of treasury funds highlight growing institutional interest beyond BTC.

Therefore, you can get more value from altcoins in the current situation. Altcoins offer businesses a long way and perhaps more growth opportunities. Many have not gone through as many cycles as Bitcoin and are not as institutionally accepted. Companies like Nano Labs, SharpLink Gaming, and Upexi all benefit from the altcoin treasury.

Is the infinite money glitch sustainable?

The real question is whether this is sustainable. This technique is not new and has been used in the past. While it didn’t contribute to the 2008 financial crisis, it certainly didn’t help. But the big difference here is that cryptocurrencies, a completely different investment tool, weren’t on the table at the time.

The main problem is that while MicroStrategy makes headlines with its stock price, it’s also saddled with a huge amount of debt. Inventories were depleted and debt doubled to $4.2 billion in less than a year. They now plan to take further risks by issuing perpetual preferred stock. These offer fixed dividends with no expiry date.

Selling stock in this way also depletes the company’s net assets (NAV). This is the difference between a company’s assets and liabilities. This is calculated by subtracting the debt from the market value of the stock and dividing that number by the existing stock. Due to the increased stake, a quarter of companies holding Bitcoin government bonds are trading below their NAV level, with the average NAV dropping to 2.8 from 3.76 in April. This is not a big problem, but it greatly limits the possibility of purchasing more capital and stops the endless money glitch cycle.

It would take a major crypto market crash to derail this approach at this point. Companies need to be careful not to abuse their strategies and deplete their value and hedge against a decline in the crypto market. If you can do this, the problem of infinite money increasing will likely be resolved.

read more: Strategy buys 220 BTC as Bitcoin defends $114,000 level