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Bitcoin on the Balance Sheet: Why Companies Are Turning to Crypto as a Treasury Strategy
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Earlier this year, a littleknown British
web design firm called Smarter Web
Company saw its market value explode
from £4 million to over a billion pounds
in just 2 months. The reason? Well, they
announced that they would start buying
Bitcoin. Now, I know what you're
thinking. 4 million to a billion,
Bitcoin hasn't gone up that much, has
it? Well, that's not how this works.
Smarter Web is not alone. All around the
world, a growing number of companies,
many with no prior connection to
cryptocurrencies, have started
transforming themselves into what people
are calling Bitcoin treasury companies.
Some are issuing debt and others hybrid
securities to fund their crypto
purchases. What began as a crazy
experiment by Micro Strategy, a US
software firm, has now gone global as
businesses seem to hope that buying
Bitcoin will spike their stock prices
like it did for Micro Strategy, whose
core software business generates tiny
revenues and operates at a loss. But its
aggressive Bitcoin purchases have turned
it into a $100 billion company. Micro
Strategy, I should note, recently
changed its name from Micro Strategy to
Strategy. I guess the initial name
suggested that they had a very small
strategy and getting rid of the micro in
the company name possibly implies a new
confidence in what they're doing.
Strategy is in the business of running
an unprofitable software company and
owning a big pile of bitcoins. Because a
lot of investors are not very good at
math, strategy worked out that they
could sell their stock at a large
premium to the value of the bitcoins
that they own and then use that money
that they raised by selling stock to buy
even more bitcoins, pushing the bitcoin
price higher and their stock price
higher, too. an infinite money glitch.
If anyone ever tries to lecture you on
the efficient markets hypothesis, do ask
them to explain this dynamic to you. And
if they have a really good explanation,
tell me because I'm struggling a bit
with this one. Before discovering that
stock investors will pay roughly $2 for
a dollar's worth of Bitcoin, Micro
Strategy described itself as a business
intelligence and software company,
specializing in data analytics. It went
public in 1998 during the dotcom boom
and the company's stock price initially
soared. In March 2000, just as the
dotcom bubble was bursting, Micro
Strategy was forced to restate its
financial results for the previous two
years or its entire history as a public
company due to accounting irregularities.
irregularities.
This triggered a stock price collapse
and marked one of the first major
corporate scandals of the dot crash. The
SEC accused the company founder along
with two other company officials of
committing fraud by reporting profits
when the company was actually losing
money, which you're not supposed to do.
That was 25 years ago, though, and not
everyone is great at accounting. Other
than his recent $40 million settlement
for committing what the DC Attorney
General described as the largest income
tax fraud in Washington history, the
CEO, Michael Sailor, has mostly kept out
of trouble. As Matt Lavine has pointed
out, the breakthrough that stock
investors will pay $2 for a dollar's
worth of Bitcoin is a financial
perpetual motion machine. And once it's
been discovered, other people start to
notice. And because you probably can't
patent it, other companies are
guaranteed to copy the idea. They pivot
from being web design companies,
Japanese hotel chains, or whatever
nonsense they've been wasting their time
on to accumulating piles of Bitcoin and
selling stock at a premium to the value
of that pile so that they can buy even
more Bitcoin. In the past year alone,
the number of listed companies holding
Bitcoin has surged by nearly 170% with
more than 130 firms now collectively
owning over 800,000 bitcoins. This is
more than 3% of the total supply. These
companies span industries as diverse as
web design, mining, healthcare, video
game retail, and media. and they're
united by a common belief that Bitcoin
is not just a digital asset, but a
strategic reserve capable of unlocking
investor enthusiasm, capital market
access, and exponential share price
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description to get one right now. The
recent excitement around
cryptocurrencies isn't just a corporate
trend. It seems to be a cultural and
political moment, too, especially in the
United States where the president and
his wife have both launched extremely
successful meme coins. successful for
them, at least not the people who bought
them. Obviously, the Trump
administration appears to have embraced
crypto as a pillar of its economic
agenda, with Vice President J. D. Vance
declaring at a recent Las Vegas
conference that we want our fellow
Americans to know that crypto and
digital assets and particularly Bitcoin
are part of the mainstream economy and
are here to stay. President Trump has
already overseen a loosening of the
federal government's approach to
regulation of cryptocurrencies.
The SEC has dropped, paused, or reached
agreements in more than a dozen cases
and investigations, and the Department
of Justice disbanded its crypto
enforcement team. The FT reported back
in May that the legal and political
changes that caused Bitcoin prices to
spike also sparked a rush to list crypto
treasury companies who offered to sell
shares and debt in order to finance the
accumulation of large crypto reserves.
That month, the media company run by
President Trump's family confirmed plans
to raise $2.5 billion to buy up crypto.
21 Capital, a business run by Jack Mers,
who was influential in making Bitcoin
legal tender in El Salvador, struck a
deal with Caner Equity Partners, headed
up by Brandon Lutnik, the son of
Commerce Secretary Howard Lutnik, and
backed by Soft Bank and the stable coin
operator Tether to buy billions of
dollars of Bitcoin. These are some of
the most respected names in the crypto
industry. the US politician and the
first person to have been laid off by
Doge, Vivec Ramaswarmi's asset
management firm Strive and American
Bitcoin, a crypto miner part owned by
President Trump's sons announced a
merger giving their Bitcoin acquisition
vehicles access to a stock market
listing and with it the opportunity to
raise further funds. Strive announced
that it planned to raise as much as $1.5
billion dollars to support a first wave
of Bitcoin acquisitions.
A spa Yeah. Um, spaxs are back too
called Nakamoto Holdings merged with an
opioid healthc care group called Kindly
MD to set up a corporate Bitcoin
treasury. The CEO of the firm said that
it was packaging Bitcoin into various
forms to attract buyers from other
markets. A Japanese hotel developer
called Metaplanet saw its share price
rocket after announcing plans to raise
about $5.4 billion to add to its
stockpile of Bitcoin. Tesla, who first
bought $1.5 billion worth of Bitcoin in
2021 when it claimed that it would soon
accept payments in the cryptocurrency,
then sold 75% of the position a year
later. But the robo taxi manufacturer
has once again become a significant
Bitcoin holder. Tesla reported a $600
million boost in its earnings last year
due to a change in accounting rules
where it recognized the rise in the
price of its crypto holdings. In the
following quarter, Tesla decided to
exclude a $97 million cryptoreated loss
and a much larger expense tied to
stock-based compensation. I guess it's
always hard to know if you should
include or exclude items like this.
Block, a company co-founded by former
Twitter CEO and beard enthusiast Jack
Dorsey, first started buying Bitcoin 5
years ago and last year set out to
invest 10% of its monthly gross profits
from its Bitcoin products back into
Bitcoin as an investment. A Chinese AI
software company called Next Technology
Holding, which was once known as We
Trade Group, great name, was about to be
delisted by NASDAQ because its stock
price had declined so much. It managed
to use the Micro Strategy Infinite Money
Glitch to boost its stock price and
remain listed after it issued shares and
warrants to buy Bitcoin.
Even GameStop, the video games retailer,
announced that it had started buying
Bitcoin, which surprisingly caused the
stock price to fall 10%. I think this is
because GameStop investors feel that the
company's focus should stay on the
extremely profitable business of selling
video games, Pokemon cards, and NFTTS at
mall-based locations across the United
States and not get distracted by other
business lines. I'm reliably told that
these are great businesses to be in.
Now, even London, long seen as a
cautious observer of the cryptocurrency
boom, has piled in and joined the fry as
a wave of small cap British firms have
become Bitcoin treasury companies,
hoping to ride the same wave that has
lifted their American and Asian
counterparts. According to the FT, at
least nine UK listed companies in the
final week of June alone announced that
they have either bought Bitcoin to add
to their corporate treasuries or that
they plan to do so. The firms ranging
from AI startups to gold miners are
embracing the cryptocurrency not for its
technological promise, but for its
potential to ignite investor interest
and turbocharge share prices. Now, you
might think that Michael Sailor, who
first came up with the Bitcoin perpetual
money machine company idea, would be
upset that other people are copying his
strategy or micro strategy. But he
doesn't appear to be. In fact, he's
pitching that big companies like
Microsoft should buy Bitcoin instead of
buying back their own shares, which he
describes as legacy capital strategy.
The thing is, Michael Sailor owns
bitcoins and he probably doesn't own
Microsoft stock. It's of no benefit to
him if they pay a dividend or reduce
their share count, but it would help him
out quite a bit if other companies were
to buy up the illquid asset that he owns
as that would push the price higher and
higher. According to the FT, most of the
UK listed businesses that are buying up
Bitcoin to boost their stock prices are
small loss-making companies that have
tiny trading volumes and see Bitcoin as
the solution to trigger explosive share
price growth. Many are listed on the
Micro Cap Aquis exchange, although a few
are listed on London's main stock
exchange. Now, before you start making
fun of these companies, I should let you
know that many of their stocks are up
400% since making these announcements.
Metaplanet, the Japanese hotel company
whose CEO converted from hotel year to
hodler, is up almost 600% over the last
year. Why would you waste your time
cleaning bedrooms and hauling people's
suitcases up a stairs when you could
just buy some crypto? In a year when
most businesses are worried about being
hit by tariffs, it possibly makes sense
to drop all other business activities
and just buy crypto. All of the other
stuff, as Michael Sailor would point
out, is unnecessary. These are legacy
business activities. For many of the
firms that have made this discovery,
Bitcoin is not just a treasury asset.
It's a lifeline. Bluebird Mining
Ventures, which had been struggling with
project delays and financial losses,
credited Bitcoin strategy with reviving
shareholder interest and securing new
funding. Similarly, Binance, a former
mining operation, is rebranding as the
London BTC company, positioning itself
as a regulated gateway to Bitcoin
exposure rather than whatever it was
before. It may be somewhat
understandable that British investors
are buying these stocks as the British
financial regulators have banned retail
investors from buying exchangeraded
products linked to cryptocurrencies and
other types of madeup money. Bitcoin
treasury companies allow British equity
investors to get exposure to an asset
class that many see as being complex and
difficult to hold. It's not obvious to
me why they would pay a huge premium to
do this, but they will, and they do.
It's much more confusing that American
investors will pay up to own a company
that owns Bitcoin when Bitcoin ETFs
already exist. Convertible bonds have
been another way for Micro Strategy to
raise money. Convertible bonds usually
pay a fixed interest rate, which is a
bit lower than regular bonds pay, but
they can be converted into shares at an
agreed price, allowing investors to
benefit from equities unlimited upside
while providing the perceived downside
protection of owning bonds. The fact
that Micro Strategy stock is extremely
volatile, in fact, it's more volatile
than the underlying Bitcoin means that
the company can issue bonds with a
higher conversion premium than usual and
even offer zero interest on the debt.
Investors in these bonds have been
attracted by the huge potential upside
of the company's stock price and the
perceived downside protection of owning
bonds. Matt Lavine at Bloomberg points
out that one group of investors, the
convertible bond holders, is benefiting
from this volatility and another group
is being harmed by it as there are a
large number of investors buying levered
strategy ETFs which are to a certain
extent a bet against volatility. This is
because the more volatile the underlying
stock is, the worse a leveraged ETF does
at tracking its returns. The fact that
convertible bond investors typically
hedge their equity exposure through a
dynamic hedging strategy where they buy
low and sell high would mean that the
more convertibles that are outstanding,
the more that this hedging activity
would be expected to mute the volatility
of the stock. The fact that leveraged
ETF buyers do the opposite means that
they're amping up the volatility. So the
levered ETF buyers are offsetting the
volatility damping effects of the
convertible bond arbitrage investors.
The rise of Bitcoin treasury companies
marks a shift in how some companies
think about capital risk and investor
engagement. As what began as a slightly
mad experiment by a single US software
firm now appears to have gone global
with more than 130 listed companies
holding over 3% of the world's Bitcoin
supply. From Tokyo to London, businesses
are leveraging into cryptocurrency not
just as a hedge or an investment, but as
a strategic tool to access capital
markets, revive flagging share prices,
and rebrand themselves for a new
financial era. This strategy is not
without its perils. Bitcoin treasuries
are yet to be tested by a prolonged
downturn in cryptocurrency prices, which
could leave them struggling to repay
debt that they've taken on to build up
their stock piles. For those who believe
in the future of Bitcoin, all of this
makes sense. Companies that leverage up
to buy crypto will earn higher returns
as we drift towards the point where
Bitcoin replaces the dollar as the
global reserve currency. Most investors
possibly still prefer to own real assets
that generate cash flows and see this as
a risky bet on an asset of questionable
future value. The governance dimension
of this corporate strategy can't be
ignored either. Obviously, not all
shareholders are aligned with the vision
of turning operating companies into
crypto funds. The fact that it's boosted
stock prices so far means that these
investors can just sell their shares and
walk away with a profit. But as more
firms adopt this strategy, boards will
face growing pressure to justify the
risks and will possibly have to explain
themselves when the strategy blows up.
It's always somewhat entertaining to see
how crypto reshapes itself over time.
Bitcoin was originally created in
response to the global financial crisis
of 2008 and the loss of trust in
traditional centralized financial
systems that occurred at that time. It
was seen as a response to the perceived
flaws of centralized finance offering a
decentralized transparent and user
controlled alternative for financial
transactions. When the price started
running up, it was no longer a currency.
You wouldn't use it to buy things. It
was now an appreciating asset. Later, it
was pitched as digital gold, but it
failed on that front as it fell in value
when inflation kicked in after the
pandemic. Now, Bitcoin investors are
trying to encourage central banks and
companies to buy Bitcoin, which seems
like the opposite of the original
intention. This new idea of crypto is
something that an investor gets exposure
through by buying a locally listed stock
at a huge premium to NAV which is
conveniently denominated in their local
currency is more than a little bit
confusing. Like I said, if it makes
sense to you, feel free to explain it to
me in the comment section below. If you
enjoyed this video, you should watch my
video on Argentina's memecoin disaster
next. Don't forget to check out our
sponsor, Plot Node, using the link in
the description. See you in the next
video. Bye. [Music]
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