Summary/TL;DR
Bitcoin Treasury Companies are corporations which have adopted Bitcoin as their company’s primary reserve asset. The “oldest”, largest, and most Bitcoin Treasury Company is Strategy (MSTR), headed up by Michael Saylor. Saylor’s strategy has made his company the best performing stock in America since going on a “Bitcoin Standard”, and dozens of other companies have followed suit. Investors would be wise to approach these companies with caution, however, as the high amounts of leverage they employ to enact their Bitcoin accumulation strategy renders their stock highly volatile and their business models questionable. Nevertheless, with a Bitcoin-friendly administration in power, this is a trend that is likely to grow over the coming years.
Introduction
Over the past few years, a small company has made headlines with its Bitcoin accumulation strategy that propelled it to unbelievable heights. Its success has sparked interest amongst other companies who have started to aggressively acquire Bitcoin for their shareholders. They call themselves Bitcoin Treasury Companies.
In today’s post, we’ll discuss what these companies are and how investors can think about them.
Bitcoin Treasury Companies
Bitcoin Treasury Companies are a relatively novel classification of corporate entities who have chosen to adopt Bitcoin as their company’s primary reserve asset. To understand why a company would do this, and whether or not it is a rational policy, we must first explain the problems they are presented with and seeking to solve.
Anytime a company has a profit, it is faced with a few decisions, the least attractive of which is to keep that profit as cash or Treasuries on their balance sheet and slowly have its value eroded away by inflation. More often, they opt to invest their earnings into growth-oriented projects, but this carries substantial risk. Other options include distributing the cash to shareholders as dividends (which are taxed as such), or repurchasing shares of their stock in the publicly traded markets. Now, and for the first time ever, they also have the ability to purchase an immutable digital asset that is fixed in nature and can’t be diluted by a third party, arguably making it the perfect treasury asset.
Herin lies the key – Bitcoin is property in the purest sense – an asset in which one enjoys the exclusive right of possession and dispossession. All other assets, in one form or another, are deficient as property because they deny their owners the totality of their rights, which exist only on paper and are subject to a myriad of threats from governments, the legal system, bad actors, and even nature itself. Consequently, owners are faced with the choice of incurring these risks outright or insuring against them, both of which are extremely costly avenues. Unlike a building, Bitcoin cannot be destroyed by hurricanes, fires, vandals, or a local or state government and doesn’t need to incur the cost of insuring against these hazards. It doesn’t erode physically over time and require maintenance, upkeep, or updating. Unlike a company, it is not subject to miles of red tape which require millions of dollars to navigate, contest, or adapt to. It doesn’t face competition from ruthless competitors and need to incur massive amounts of liabilities and risks to keep up with them. Finally, and most importantly, unlike cash, it cannot be inflated away by government fiat and counterfeit. It is the same today as it was yesterday, and it will be the same tomorrow as it is today. This is not to say that Bitcoin does not have risks of its own, but its characteristics are certainly unique and are unlike anything else in existence.
Bitcoin Treasury Companies have recognized these unique properties of Bitcoin and believe they will create a capital magnet that will take Wall Street by storm. As long as others, be they individuals, governments, or other corporations and institutional investors, recognize the value in Bitcoin’s fundamental characteristics, they believe it will “demonetize” other store-of-value assets and preserve shareholder value indefinitely into the future.
Strategy, Bitcoin Yield, And The Bitcoin “Flywheel”
The first company to adopt a Bitcoin Treasury strategy is Strategy (MSTR), formerly known as Microstrategy, a legacy software company led by Michael Saylor. In addition to putting his company on a “Bitcoin Standard”, Saylor and his executive team have formulated a strategy in which they can aggressively accumulate more Bitcoin for their shareholders by issuing debt and equity instruments to fund the purchases. Currently, they have three “products” on the market – convertible bonds and two share classes of preferred stock, Strike (STRK) and Strife (STRK) - the mechanics of which are fascinating but beyond the scope of this piece.
Their strategy relies on their stock selling at a multiple to the company’s NAV (Net Asset Value) which allows them to under-collateralize their capital raises to buy more Bitcoin, an action which is accretive to shareholders. For example, if MSTR has a NAV of $200/share but is trading at $500/share (an mNAV of 2.5), then Strategy can issue, say, 1,000,000 shares of common stock for $500,000,000 that’s backed by only $200,000,000 on its balance sheet (which is mostly Bitcoin). They can then immediately purchase $500,000,000 in Bitcoin, adding $300,000,000 to their balance sheet and increasing shareholder’s Bitcoin per share. Saylor explains this process briefly in this interview with CNBC below:
In 2024, Strategy introduced a KPI (key performance indicator) for shareholders to judge the success of their treasury management and called it BTC Yield. It measures the change in BTC/share over time and was 74.3% in 2024, meaning that each share of MSTR (including all outstanding convertible shares) represented ownership in 74.3% more Bitcoin than it did at the beginning of the year.
Through this “Bitcoin Flywheel”, as it’s come to be known, Strategy has accumulated an unthinkable amount of Bitcoin in a relatively short amount of time. Despite having “only” $100-150M in annual free cash flows, Strategy now holds over $60B worth of BTC (well over 500,000 coins), making them by far the largest corporate holder of Bitcoin. To say that Saylor’s strategy has been successful would be an understatement. Since the beginning of their “Bitcoin Standard Era” (BSE) in August 2020, MSTR has been the best performing publicly traded stock in America by a large margin, returning over 3,150% over that almost-five year time horizon.
Inspired by the precedent set by Strategy, dozens of other companies have followed suit and are actively acquiring Bitcoin for their corporate treasury.
What Are The Risks?
While these companies are engaging in novel and creative strategies with high conviction, there still exist many risks that are important to be aware of. First, the stock of these companies are very, very volatile. When they go up, they go up a lot, and when they go down, they go down a lot. It’s not uncommon for them to experience volatility of 10-20% in a single day. Second, almost all of them have gone far beyond simply adopting a “Bitcoin Standard” and are issuing tremendous amounts of debt and equity to purchase more Bitcoin. While this is technically sustainable (and profitable) as long as Bitcoin’s price continues to increase, it’s still very risky. If more companies adopt this strategy, mNAVs will compress (I think) and make it more difficult for these companies to raise additional funds in a non-dilutive fashion. Third, many of these companies don’t appear to have much of a purpose besides buying Bitcoin. Until someone can tell me what their “end game” is or what problem they’re going to solve, I have a hard time understanding how their strategy is going to be sustainable or serve any economic purpose in the long run. Strategy could be onto something with their preferred shares and convertible debt offerings, but they’re also adrift in the middle of untested waters.
With all of this being said, there are some creative ways that these companies could be invested in as a sort of “Bitcoin proxy” to generate Bitcoin-like returns and take on less risk. In this post, I made the case for including 2-5% of one’s portfolio in Bitcoin due to its highly asymmetric risk-return profile. A similar case could be made for shares of these companies, but an allocation of 1-2% could likely make the same difference as a 5% allocation in Bitcoin while only taking half of the risk. At the end of the day – you should talk to your financial advisor before making any changes to your portfolio.
It bears emphasis that no part of today’s post should be considered a recommendation or endorsement of any particular company discussed. I personally own a very, very small amount of MSTR in my Roth IRA and have stuck to my strategy of “all equity index funds and 5% Bitcoin” everywhere else.
What’s Next For Bitcoin Treasury Companies?
I write about this topic today because I believe the theme of using Bitcoin as a treasury asset will become more and more popular throughout Trump’s second term. These companies are likely only a glimpse of what could be coming in the years ahead in terms of institutional adoption of Bitcoin, and being at least slightly familiar with “what’s going on” will likely serve you well in the future.
