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Bitcoin Magazine
Bitcoin Treasury Companies Are Bubbles
Half a 12 months has handed since the publishing of my preliminary report on the firm then-named MicroStrategy, now merely Strategy. Other than a identify change, the firm has since then broadened the arsenal of its monetary merchandise, collected more bitcoin, and fueled a big selection of corporations copying Michael Saylor’s playbook. There appear to be bitcoin treasury corporations in all places.
Due for an replace, we will now examine whether or not these bitcoin treasury corporations’ operations are in line with the predictions made in the preliminary report, and yet again try to conclude where all this is finally going.
A Cause for Alarm
In December last 12 months, the firm appeared close to invincible: With its bitcoin yield KPI accumulating at a mind-boggling annual price of above 60%, optimism reigned. It was no surprise then that most of the arguments rigorously laid out in the report launched at that time had been either ridiculed, ignored, or met with snarling challenges to promote the shares quick. The share worth, denominated either in greenback or bitcoin, is at time of writing flat in contrast to these days and so far affords little in phrases of vindication.
Tragically few understood or even reached the most vital conclusion of my December report, which issues the supply of the bitcoin yield. We will therefore iterate what’s flawed with the firm’s metric, and why this should be a cause of alarm for any critical investor.
The bitcoin yield — the enhance in bitcoin per share — reaching previous shareholders comes from the pockets of new shareholders. The new shareholders, many of them shopping for shares in the hope of getting a excessive bitcoin yield themselves, present the bitcoin yield either immediately by shopping for Strategy frequent shares created in the firm’s world-record sized ATM (“at the market”) choices or not directly by shopping for the shares borrowed (and then bought) by delta impartial hedge funds that concurrently maintain the firm’s convertible bonds. This is the Ponzi half of firm operations — publicly boasting a bitcoin yield far increased than any typical yield, while obfuscating the reality that the yield stems, not from the sale of firm items or companies, but from the new buyers themselves. They are the yield, and the harvesting of their hard-earned cash will proceed as lengthy as they willingly present it. The dimension of the harvest is in proportion to the dimension of the confusion, here measured as the premium of frequent shares over firm internet belongings. This premium is nurtured by sophisticated but inviting firm narratives, guarantees, and monetary merchandise.
Because the phrase “Ponzi” has been thrown Bitcoiners’ manner for over a decade, they have become accustomed — and rightly so — to merely disregard such critiques altogether. But just because a firm within the Bitcoin sector deliberately or inadvertently has constructed a Ponzi scheme, that does not clearly imply that bitcoin itself is a Ponzi. The two belongings are separate. During metallic financial requirements of the previous, Ponzi schemes existed, but that does not imply the treasured metals themselves ever had been, or are, such schemes. When I make this declare of Strategy in its present kind, I imply it from the level of definition, not from tiresome hyperbole.
The Accumulation Continues
Before drawing any further conclusions, it is first time to decide up where we left off in the preliminary report, and map related firm selections made over the last six months. Strategy introduced on December 9 that roughly 21,550 bitcoin had been acquired for about $2.1 billion (common worth: roughly $98,783 per bitcoin). This buy was carried out with proceeds from the ATM outlined in the well-known 21/21 Plan initiated earlier the same 12 months. Just a few days later, over 15,000 more bitcoin had been bought, also through the ATM providing, and a few days after that announcement, about 5,000 more had been bought.
The finish of 2024 noticed the firm requesting from its shareholders an modification to enhance the quantity of approved shares of class A typical inventory from 330,000,000 shares to 10,330,000,000 shares — in other phrases, a 30x. The quantity of approved shares of most well-liked inventory was to be elevated from 5,000,000 shares to 1,005,000,000 shares — a 200x. All this, though not the same as stating the full quantity to really be issued, was finished to give the firm more liberty in future monetary operations as the 21/21 Plan rapidly ran its course. By also focusing on most well-liked inventory, another variant of funding could now be pursued. The full 12 months ended with about 446,000 bitcoin owned by Strategy, and with a firm bitcoin yield of 74.3%.
Perpetual Strike Preferred Stock
The new 12 months began with an 8-Ok submitting stating that Strategy was now prepared to search the new funding through most well-liked inventory. The new instrument, as the identify implies, was to be senior to the firm’s frequent shares, that means the homeowners of the most well-liked shares had a stronger declare on any future money flows. Initially, a $2 billion increase was the said aim. While the new instrument was being ready, 450,000 bitcoin had been collected by January 12. At the finish of the month, all 2027 convertible bonds had been referred to as on to be redeemed for newly issued shares, as the conversion worth was now beneath the market worth of the shares. Any Strategy convertible bond far “in the money” becomes unappealing to the largest patrons of such devices — the gamma-trading, delta impartial hedge funds — who choose early conversion adopted by new convertible bond issuance over holding the previous bonds until maturity.
On January 25, 2025, the firm lastly filed its prospectus for Strike perpetual most well-liked inventory ($STRK), and about a week later, 7.3 million Strike shares had been issued with 8% cumulative dividends on the liquidation desire of $100 per share. In follow, this meant a $2 per share quarterly dividend in perpetuity, or until the shares are transformed to Strategy shares in case the worth of the latter reaches $1,000. Conversion was outlined at the ratio 10:1, that means 10 Strike shares must be transformed for every new Strategy share. In other phrases, the instrument is akin to a dividend-paying perpetual name possibility on Strategy frequent shares. If deemed needed, Strategy can pay the dividends in the kind of its own frequent shares. On February 10, about 7,600 bitcoin had been bought with the proceeds from the Strike issuance as properly as from typical ATM providing of frequent shares.
On February 21, Strategy issued $2 billion value of convertible bonds maturing March 1, 2030, with a conversion worth of about $433 per share, representing a conversion premium of about 35%. About 20,000 bitcoin could rapidly be bought with the proceeds. Shortly thereafter, a new prospectus was revealed, enabling the firm to situation up to $21 billion value of Strike perpetual most well-liked inventory, that means the already bold 21/21 Plan of last 12 months now appeared to morph into something even more large.
Perpetual Strife and Stride Preferred Stock
As quickly as the firm had publicly introduced its bold growth of its funding plan, yet another instrument was introduced; Strife ($STRF), a perpetual most well-liked inventory comparable to Strike, was to go stay with 5 million shares. It was to provide 10% annual dividends in money — paid quarterly — instead of 8% in money or frequent shares. Strife, unlike Strike, had no fairness conversion characteristic, but was senior to both frequent shares and Strike. Any dividend delay was to be compensated by increased future dividends, with a most of 18% complete annual dividend price. At time of issuance, the preliminary plan of issuing 5 million shares seems to have been elevated to 8.5 million shares, elevating over $700 million. With ATM exercise for the frequent shares as properly as for Strike, Strategy could lastly announce in March that the firm held over 500,000 bitcoin. April noticed largely common frequent share ATM actions, until that sort of funding was all but depleted. Strike ATM exercise continued as properly, but due to what was doubtless low liquidity, the greenback quantity raised was negligible. With the proceeds, Strategy’s complete bitcoin place climbed above 550,000 bitcoin.
On May 1, Strategy introduced the intention of launching another $21 billion frequent share ATM providing. This announcement got here very shortly after the ATM arm of the preliminary 21/21 Plan had been exhausted, and totally vindicated the logic outlined in the earlier report as properly as on X. As any premium to internet belongings creates an arbitrage for the firm, administration is certain to proceed to print new shares overvalued relative to underlying bitcoin belongings in order to seize it. Issuance began nearly instantly, and more bitcoin could be collected.
As the mounted revenue arm of the preliminary 21/21 Plan already had been prolonged with the new most well-liked inventory in thoughts, buyers now confronted a large 42/42 Plan, that means a most of $42 billion in frequent share issuance and $42 billion in mounted revenue safety issuance. May also noticed the SEC submitting of a new $2.1 billion ATM providing for the Strife perpetual most well-liked inventory instrument. At the finish of the month, all three ATM choices had been printing shares for the acquisition of new bitcoin. In the starting of June, yet another instrument was introduced: Stride ($STRD), a perpetual most well-liked inventory asset comparable to Strike and Strife, was quickly to launch. It was to provide 10% non-compulsory, noncumulative dividends in money, had no fairness conversion characteristic, and was junior to every other instrument except the frequent shares. Just a little less than 12 million shares value about $1 billion had been initially issued, paving the manner for about 10,000 more bitcoin for the firm coffers.
A Dazzling Mosaic of Bitcoin Treasury Companies
With the STRK, STRD, and STRF merchandise launched, and Strategy’s 21/21 Plan in full swing, the full image of what has been going on in the last six months should be clearer. I pointed out in the preliminary report that the foremost rationale behind the convertible bonds was not, despite the claims of the firm, to provide bitcoin publicity to a part of the market in want and need of such. The patrons of the bonds had been nearly all of them delta impartial hedge funds, and, being concurrently quick Strategy shares, they never had any precise bitcoin publicity. It was all a ruse. The true motive that Strategy provided these securities to lenders was that it gave retail buyers an impression of monetary innovation concentrating on a multitrillion-dollar trade, as properly as facilitating further bitcoin accumulation with out fairness dilution. And as the buyers bid on the frequent shares, so did the worth discrepancy to internet belongings and the alternative of risk-free bitcoin yield develop in proportion. The larger the financial confusion, coupled with Michael Saylor’s manner with phrases and vivid analogies, the bigger the firm’s arbitrage alternative.
By issuing three completely different perpetual most well-liked inventory securities over the last six months, in addition to the numerous convertible bonds already in place, these sophisticated monetary merchandise could now create an look of monetary innovation, thus spurring further bidding on the frequent shares.
At the time of writing, the frequent shares commerce close to double that of internet belongings, which is a nice feat by firm administration, given the massive dimension and exercise of the frequent share ATM choices. It means Strategy can proceed to purchase about two bitcoin for the worth of one in a risk-free trend.
In 2024, the firm could get pleasure from tailwinds originating from the in style “reflexivity flywheel” concept, where it was argued that the more bitcoin the firm bought, the more its shares would enhance in worth, ensuing in the alternative to purchase even more bitcoin. In 2025, this self-referential stupidity morphed barely to a “torque” narrative, manifesting itself as official firm depictions of mounted revenue cogwheels rotating the core that is the frequent shares, with bitcoin yield produced from the equipment as a end result. Exactly from where, or how, the yield was created, few buyers appeared to be asking themselves, and instead the made-up dynamic was mindlessly celebrated.
Preferred shares are monetary belongings, and not topic to the legal guidelines of physics. Being an engineer, it is not stunning that Saylor should come up with all these fallacious analogies so that bitcoin yield would seem to stem from what can only be considered as monetary alchemy. But since there are no precise firm revenues to converse of, no precise banking (the firm borrows, but does not lend), the bitcoin yield must in the finish stem from the earlier outlined Ponzi aspect of the firm’s enterprise mannequin; retail buyers are dazzled by rigorously curated narratives, inflicting them to bid up the worth of frequent shares enough for the bitcoin yield alternative to materialize. Whatever bitcoin yield originating from the numerous debt devices can not yet be thought of settled as debt must finally be paid off. Only the bitcoin yield stemming from frequent share ATM choices is speedy and ultimate — a true revenue.
A Bubble of Bitcoin Treasury Companies
Oblivious or not to the reality that narratives can’t affect actuality endlessly, the massively profitable bitcoin yield idea of Strategy has unfold like a wildfire among administration groups of smaller corporations all over the world. CEOs have seen how Strategy insiders, by repeatedly dumping shares on the retail buyers presently chasing the shares, have become immensely wealthy, and so have began copying the playbook. The fixed Strategy insider promoting can be verified by wanting at the quite a few Form 144 filings.
Many of these corporations have efficiently pulled this off, already enriching administration and previous shareholders at the expense of new ones. But it must all finish at one level, and many of these corporations, greedy in desperation at the daring, new technique of changing into bitcoin treasury corporations (due to the typical foremost enterprise struggling or even failing) will be the first that are compelled to promote their bitcoin belongings to pay collectors when issues take a flip for the worse. Michael Saylor himself once admitted that he was determined before stumbling over bitcoin.
The checklist could go on and on, but I assume the level is made; it is not Microsoft, Apple, or Nvidia that are changing into bitcoin treasury corporations, but failing corporations with nothing to lose. Jesse Myers, a Strategy supporter and a direct affect on Michael Saylor’s bitcoin valuation modeling, admitted that,
“[…] with MicroStrategy, Metaplanet and Gamestop, they are all zombie companies. They all had […] a reason to take a serious look in the mirror and say, we can’t keep doing the strategy that we’ve… the path we’ve been on. We have to radically reinvent our approach to delivering shareholder value.”
All these determined corporations have seemed at Michael Saylor and Strategy and imagine they have discovered a clear path to riches. By copying the monetary alchemy themselves, they are now all concerned in a nice switch of wealth as the bitcoin treasury firm bubble runs its course.
When the Mosaic Breaks
Though half of the spectacular firm mosaic, Strike, Strife, and Stride are all senior to fairness. The same is true for the convertible bonds, not all of them are presently “in the money.” Future free money move will always have to attain holders of these devices before whatever is left can go to homeowners of the frequent shares. In good occasions, this is clearly not a downside due to the rather low debt ratio of the firm; in unhealthy occasions, the worth of all firm belongings decline significantly while debt obligations stay — like tall, looming threats to any new creditor. Due to a phenomenon sometimes referred to as debt overhang, any new creditor will be hesitant to lend for the goal of paying off other debt obligations. What began as an enchanting assortment of narratives and exaggerations morphs into something turning on its creator.
This is all exacerbated by the reality that a extended bitcoin bear market will cause further promote strain on the asset by the many bitcoin treasury corporations then in misery. The more in style Strategy’s playbook becomes, in other phrases, the deeper the future bitcoin crash, doubtless wiping out much of the fairness of most corporations having pursued such a technique to the bitter finish.
In abstract: Michael Saylor likes bitcoin. He, like all of us, prefers more bitcoin to less bitcoin. It is then extraordinarily naive to assume that he will let firm administration move on what is by definition an arbitrage. When frequent shares commerce at a premium to internet belongings, the firm can create risk-free earnings for its previous shareholders by transferring wealth from the patrons of newly issued shares. This will proceed in the kind of ever-larger frequent share ATM choices alongside new, obfuscating ”progressive merchandise”, despite protests and mutterings about fairness dilution. Evidence of this declare is my prediction made in March, coming true in the kind of a new $21 billion ATM providing barely one and a half months later. If Strategy does not act on this arbitrage, all the copy-cats will seize it instead as they try to enhance their bitcoin treasury in an equally risk-free method. In the frantic scramble to create and broaden all these arbitrage alternatives, corporations will take on debt in numerous types, and hazard abounds.
During the next bitcoin bear market, the Strategy share worth will attain — and then break beneath — internet belongings per share, inflicting massive bitcoin-denominated losses on anyone shopping for at at this time’s premium. The greatest motion a Strategy investor can take at this time is doing precisely what the firm and its insiders are all doing: Sell the shares!
Bitcoin is no longer the foremost technique of this firm, nor of any of the now multiplying bitcoin treasury corporations; you are.
This is an edited model of the article posted on the creator’s Medium web page. A fuller evaluation is featured in the next Bitcoin Magazine Print situation — be certain to get your subscription now.
BM Big Reads are weekly, in-depth articles on some present matter related to Bitcoin and Bitcoiners. If you have a submission you assume matches the mannequin, be at liberty to attain out at editor[at]bitcoinmagazine.com.
This submit Bitcoin Treasury Companies Are Bubbles first appeared on Bitcoin Magazine and is written by Emil Sandstedt.
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