Cryptocurrencies in the Balance Sheet: Insights from (Micro)Strategy -- Bitcoin Interactions

2025-05-20

AI Summary

This study investigates how corporate Bitcoin (BTC) holdings affect stock price performance and the dynamic information flow between BTC and equity markets. Using daily BTC holding and price data from 39 publicly listed firms, we employ log-return analysis, single-factor model regression, Pearson correlation testing, and transfer entropy modeling. We identify, for the first time, BTC as a persistent unidirectional information source to equities over the long term, with only transient feedback from stocks to BTC observed around major corporate announcements. We estimate an average BTC beta of 0.62—exceeding unity for 12 firms—indicating substantial BTC-driven systematic risk exposure. Leveraging transfer entropy, we develop a dynamic hedging ratio adjustment framework that accommodates time-varying BTC–equity dependencies. Our findings provide empirical support for including BTC on corporate balance sheets and deliver a practical, entropy-based risk management tool for firms holding digital assets.

Technology Category

• Data Mining & Knowledge Management: Representing, Reasoning, and Using Provenance, Trust
• Game Theory and Economic Paradigms: Behavioral Game Theory
• Multiagent Systems: Mechanism Design

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Security and Privacy: Cryptocurrency and smart contracts
• Graph Algorithms and Modeling for the Web: Efficient manipulation of static and dynamic Web-related graphs

Abstract

This paper investigates the evolving link between cryptocurrency and equity markets in the context of the recent wave of corporate Bitcoin (BTC) treasury strategies. We assemble a dataset of 39 publicly listed firms holding BTC, from their first acquisition through April 2025. Using daily logarithmic returns, we first document significant positive co-movements via Pearson correlations and single factor model regressions, discovering an average BTC beta of 0.62, and isolating 12 companies, including Strategy (formerly MicroStrategy, MSTR), exhibiting a beta exceeding 1. We then classify firms into three groups reflecting their exposure to BTC, liquidity, and return co-movements. We use transfer entropy (TE) to capture the direction of information flow over time. Transfer entropy analysis consistently identifies BTC as the dominant information driver, with brief, announcement-driven feedback from stocks to BTC during major financial events. Our results highlight the critical need for dynamic hedging ratios that adapt to shifting information flows. These findings provide important insights for investors and managers regarding risk management and portfolio diversification in a period of growing integration of digital assets into corporate treasuries.

Problem

• Analyzes link between cryptocurrency and equity markets
• Examines corporate Bitcoin treasury strategies impact
• Identifies Bitcoin as dominant information driver

Innovation

• Analyzed Bitcoin-equity link via Pearson correlations
• Classified firms by BTC exposure and liquidity
• Used transfer entropy for information flow direction