Smarter Web Sells Bitcoin to Repay Debt, Diluting Shares

Smarter Web recently sold 177.89 BTC to settle an 11.7 million dollar convertible debt obligation. The company executed the sale at an average price of 65,762 dollars per coin, effectively removing the risk of creating 7.72 million new shares that were tied to the debt. While this move simplifies the company capital structure, the math reveals a clear downside for investors.

The sale caused a notable drop in the amount of Bitcoin backing each share. Gross Bitcoin exposure fell by 6.18 percent per legally issued share. Even when using the company management internal metrics for fully diluted shares, the exposure still dropped by 4.17 percent. Because the Bitcoin sale was proportionally larger than the reduction in potential shares, the end result is a net decrease in Bitcoin per share.

Management opted to settle the debt in cash rather than issuing stock or handing over Bitcoin directly. CEO Andrew Webley noted that the company viewed the instrument as debt rather than equity and sought to clean up the balance sheet. By removing this near term claim, the firm avoids the potential for future share dilution.

This situation highlights the balancing act treasury companies face. Investors often buy these stocks to gain direct exposure to Bitcoin held on a balance sheet. When a firm sells its primary asset to satisfy creditors, it creates a trade off between simplifying debt and maintaining the underlying value for shareholders.