The Unsustainability of Bitcoin Treasury Companies Without Operational Alpha

The trend of publicly traded companies transforming into bitcoin treasury vehicles by acquiring and holding bitcoin on their balance sheets may seem appealing, given the growing perception of bitcoin as a potential global reserve asset and its increasing institutional adoption. However, most of these companies lack a comprehensive business strategy beyond mere acquisition. The question arises: why should investors purchase bitcoin at a premium through a listed company when they can buy it directly? The rationale for investing in such companies at a premium to their net asset value (NAV) is flawed unless they have a clear plan to utilize their bitcoin holdings in a manner that investors cannot easily replicate. Simply holding bitcoin must serve an operational purpose; otherwise, companies should return capital to shareholders, allowing them to purchase bitcoin on their own terms. The concept of "bitcoin yield" does not, by itself, justify a premium to NAV. If a company's goal is to increase its bitcoin exposure per share, it can do so by issuing equity at a premium and buying more bitcoin. Nonetheless, for investors seeking maximum bitcoin exposure per dollar invested, buying bitcoin directly is the more logical choice. Many treasury companies expedite their acquisitions by raising capital through convertible debt, resulting in a leveraged long position in bitcoin with full downside exposure and limited upside. This structure benefits creditors, who can underwrite such instruments and capture upside while mitigating their risk. As an investor, choosing between buying into a leveraged bitcoin equity company or taking on leverage against personal bitcoin holdings necessitates evaluating whether the reduced upside is worth the convenience. If the company trades at a substantial premium to its underlying bitcoin and lacks an operational plan beyond buying and holding, the answer is likely negative. Introducing risk through strategies like lending out bitcoin for interest does little to justify the premium. A business strategy, not merely a bitcoin accumulation plan, is essential for justifying a premium valuation. A robust bitcoin balance sheet can be a powerful foundation for an operational business, enabling activities such as lending, trading, and structuring. Operational models like brokerage, liquidity provision, collateralized lending, and structured products can scale, generate revenue, and support premium valuations. Conversely, merely raising funds to chase "bitcoin yield" is not a viable business plan. If a pure-play treasury company fails to develop an operational strategy, its premium will likely collapse, making it vulnerable to acquisition by a company that knows how to effectively utilize bitcoin. The benchmark for success has shifted; to outperform bitcoin, companies must build a business around it, rather than just buying and holding it.