Every bull run, new market trends emerge that capture the majority of speculator attention. For the past decade, “altcoin” cryptocurrencies have seen all of the action – people looking for the “next bitcoin” or a “better bitcoin”. In the 2017 bull run, initial coin offerings (ICOs) were all the rave. In 2021, NFTs and metaverse altcoins were the delusion of choice.
What’s catching many altcoin investors off guard this bull run, however, is the capital flight out of the general crypto space and back into TradFi via “Bitcoin treasury companies”.
What Are Bitcoin Treasury Companies?
Bitcoin treasury companies are public or private firms that hold Bitcoin as their primary reserve asset on their balance sheets. While they may offer various products or services, their core strategic objective is to increase investors’ Bitcoin per share (BTC/share) over time.
These companies aim to function as investable vehicles designed to outperform Bitcoin itself by leveraging capital markets—through debt issuance, convertible notes, equity raises, or other methods—to accumulate more Bitcoin over time.
These companies are inspired by the “MicroStrategy playbook”, which is essentially Bitcoin debt arbitrage: issuing capital when stock trades at a premium to net asset value, and deploying it into BTC to grow treasury holdings and boost BTC/share. Strategy (formerly MicroStrategy) pioneered this playbook after initially converting all of its $250 million cash reserves into Bitcoin in August 2020. The company quickly set out to devise a method to continuously acquire more Bitcoin without relying on operating income—instead tapping capital markets to fund its treasury expansion. By issuing convertible debt, preferred equity, and common shares, Strategy created a self-reinforcing model: raise capital when stock trades at a premium, convert proceeds into Bitcoin, and increase BTC/share, which in turn can elevate the stock price and enable further capital raises.
This model positioned Strategy less like a traditional software company and more like a publicly traded Bitcoin accumulation vehicle.
Today, Strategy claims to hold ~600,000 BTC (although the company has refused to publish Proof of Reserves, which has spurred other outlets to track their Bitcoin purchases).
Bitcoin Treasury Company Mechanics
Bitcoin treasury companies operate with four core components:
- Primary reserve strategy: Allocating a large portion or virtually all of its cash reserves into Bitcoin.
- Leverage via capital markets: Firms like Strategy issue debt, convertible bonds, or equity (like Strategy’s preferred shares STRK, STRD, and STRF) to buy more Bitcoin when their stock trades above net asset value (NAV).
- The flywheel effect: When stock trades at a premium to NAV, they raise funds, convert into BTC, increasing BTC/share, which boosts investor demand, creating a virtuous cycle.
- Volatility exposure: “Volatility is vitality”. Bitcoin treasury companies increase sensitivity to Bitcoin’s price swings, amplifying volatility in both directions—ideally mostly to the upside.
Approach With Caution
There’s no doubt that Bitcoin treasury companies are today’s hot topic in the Bitcoin space, but if we’re to respect history, the hype should first set off warning signs in your head rather than money signs…
There’s no proven longevity with any of these companies. Many Bitcoin treasury companies generate little or no revenue outside of BTC accumulation. If market conditions turn or capital dries up, these firms will have a hard time justifying their valuations. It shouldn’t come as a surprise that nearly every Bitcoin treasury company we see popping up today could end up failing in the coming years.
If you are going to buy shares in them, understand the volatility you’re exposing your money to. Because these companies often hold the majority of their balance sheet in Bitcoin, and they take on leverage to acquire more, volatility is amplified. You have to treat these investments as high-beta derivatives of Bitcoin, otherwise you’re in for a rude awakening.
Using debt and equity issuance to acquire Bitcoin introduces leverage risk. If Bitcoin experiences another historic 70-80% crash, these companies may find themselves underwater on their purchases. They may have to liquidate BTC holdings in order to stay afloat.
As more companies explore this model, the NAV premium flywheel may weaken. If too many firms chase the same strategy or if general demand wanes for these companies, share prices may trade closer and closer to NAV, limiting the ability to raise capital at a premium and undermine the core engine of the Bitcoin treasury model.
You’re playing with fire here. While there could be money to be made, you can very easily get burned. “Treasury season” is the new “altcoin season”, so don’t forget that’s exactly what you’re getting involved with.
The Big Picture: Redefining The Hurdle Rate
As Adam Back highlights, the Bitcoin treasury company phenomenon is inevitable if Bitcoin is hyperbitcoinizing to become the money the world runs on.
In the fiat world today, zombie companies can afford to stay afloat through bailouts and money printing. That world comes to a screeching halt with Bitcoin as the base layer money, however. If your company isn’t producing more value than the money itself, why would anyone take on excess risk to invest money with your company?
To remain competitive in the future economy, you have to treat Bitcoin as the hurdle rate: how is your performance trending relative to money that appreciates over time, rather than the depreciating fiat currencies of the past?
There’s a lot of pain to be experienced for any company that’s slow to this realization. Today’s Bitcoin treasury companies could merely be a glimpse into the capital strategies that all future companies will need to participate in. There’s no guarantee that any of these companies have devised a sustainable blueprint to remain competitive, but with time, these companies’ efforts could pave the way for true value-producing companies to remain investable in a deflationary economy.
Bitcoin Treasury Companies vs. Companies With Bitcoin Treasuries
It’s critical to recognize the difference between a “Bitcoin treasury company” and “companies with a Bitcoin treasury”. While Bitcoin treasury companies represent all that’s been discussed here, there are plenty of companies out there that create Bitcoin treasuries for themselves without making Bitcoin accumulation the core focus of their business model. These companies simply produce value in the real world, and hold Bitcoin on the balance sheet to maintain resilience.
Tesla is an obvious example. While the company holds billions of dollars’ worth of Bitcoin, they don’t raise equity and issue debt to acquire more. Tesla produces EVs and other robots to sell to customers.
Thousands of small businesses simply buy and hold Bitcoin on their balance sheets to counter inflation while they focus on their crafts. These are the companies that, as bitcoiners, we should actively seek out and support.
Stick With Bitcoin
Instead of hopping on the hype train to outperform Bitcoin, the wisest strategy is to learn from the mistakes of countless altcoiners out there who tried to do the same thing buying other cryptocurrencies. Focus on your own Bitcoin treasury before buying companies that promise to grow theirs. Especially if you don’t hold a substantial portion of Bitcoin already—instead of feeding into greed and taking on risk, focus on your craft, improve your skills, and save diligently in Bitcoin first. Adding value to the world is a surefire way to maintain your own competitiveness, instead of trying to hoard value and keep it to yourself.
Owning shares in a company doesn’t provide you the self-sovereignty and financial freedom that pure Bitcoin provides.
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