76report

cc70594ae6

May 9, 2025
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76report

May 9, 2025

Rise of the Bitcoin Treasury Company

Investing is all about turning one dollar into two. Compound interest is the not-so-secret magic formula (or at least it used to be).


At a 10% annual rate of return, which approximately matches the performance of the S&P 500 over the past 20 years, it takes a little more than seven years to double your money.


But what if you could double (or triple, or pick your own multiple) your money in a matter of days?


There is a rapidly growing list of entrepreneurs out there now using Bitcoin for that exact purpose.


Welcome to the era of the Bitcoin Treasury Company.


Bitcoin Treasury Companies are publicly traded companies that have as their core asset a certain quantity of Bitcoin on their balance sheets.


Strategy (MSTR), founded by Michael Saylor and formerly known as MicroStrategy, is the pioneer, but there have been some high profile newcomers in recent weeks.


These include Twenty One Capital, which investors can currently access through a listed Special Purpose Acquisition Company (SPAC) called Cantor Equity Partners (CEP).


The Twenty One deal brings together Tether, the largest issuer of stablecoins; Bitfinex, a major crypto platform; and Softbank, the deep-pocketed Japanese technology investor.


The energetic and widely followed Bitcoin advocate Jack Mallers will be CEO of the new company.


Shares of CEP have skyrocketed since the transaction was made public. They were trading just above $10 per share before the announcement on April 23, got very close to $60 a few days later, and since seem to have settled in the $30s.


Then, on May 7, Strive Asset Management, the asset management firm founded by Vivek Ramaswamy, announced a deal with a listed company called Asset Entities (ASST) to form the “first publicly traded asset management Bitcoin Treasury Company.”


Whereas the parties involved in Twenty One are accessing public markets through a SPAC, the Strive deal is structured as a “reverse merger.”


The interesting twist with this one is that it contemplates the formation of a new company that will be capitalized with contributions of Bitcoin from outside investors.


Bitcoin owners will have the opportunity to transfer their Bitcoin holdings into the company and in return receive shares on a tax-free basis.


Shares of ASST were trading below $1 before the deal announcement and in the days that followed got close to $9.


It’s worth noting for future reference—investors in CEP and ASST were able to achieve enormous returns even after the announcements were made. If you were attentive enough to buy these stocks just after the deals were announced, you could have generated returns well above 100%.


Bitcoin Treasury Companies are now commanding valuations that represent, in some cases, very large premiums to underlying Bitcoin ownership.


With regard to CEP and ASST, the transactions required to form these companies are not even completed.


2008 all over again?


This may all sound like “irrational exuberance,” or even a scam—too good to be true.


How can someone just take a pile of money (whether crypto or fiat), hire some lawyers to build a company around it, and then it instantly becomes worth a lot more money?


It makes sense to approach all of these stocks with healthy skepticism.


Investors who were around in 2008 might recall the Collateralized Mortgage Obligation (CMO).


Financial engineers used leverage to buy up a bunch of mortgages, slice and dice them into various new securities, and “create value” out of thin air.


The global economy practically collapsed as a result of these activities. The mortgages that Wall Street CMO managers were buying were far riskier than they claimed.


Investors who then bought the securities that they manufactured typically had little understanding of what they owned. This is largely because ratings agencies were slapping the “investment grade” label on these instruments, even though many ultimately proved to be totally worthless.


So skepticism is warranted. But let’s not be too skeptical.


After all, the entire financial services sector—really all businesses—are built on the principle of taking a dollar of capital and, by adding value somehow, transforming it into many more.


It is therefore possible that these Bitcoin Treasury Companies are genuinely onto something. Investors in these companies are certainly encountering a very high level of success.


What is mNAV?


In the emerging world of Bitcoin Treasury Companies, the go-to metric is mNAV. This concept is a good starting point for anyone who wants to understand these business models.


mNAV refers to the enterprise value of the stock (market capitalization plus debt) divided by Bitcoin NAV (the total market value of all Bitcoin owned).


A hypothetical company with a market capitalization of $100 million, debt of $20 million, and Bitcoin on the balance sheet worth $60 million has an enterprise value of $120 million ($100 million + $20 million) and an mNAV of 2.0 ($120 million/$60 million).


mNav reflects how much more the company is worth than the Bitcoin that it holds. But it is really just a modification of the traditional valuation metric known as Price to Book (P/B).


The Price to Book ratio measures the share price in relation to the book value of the assets that the company owns (which sometimes reflects what a company actually paid for those assets and sometimes reflects their market value).


Companies that generate high returns on assets are rewarded with high P/B ratios, because they are putting their assets to good use.


Financial services stocks in the U.S. currently trade at just over two times Price to Book. Within financial services, banks tend to have somewhat lower ratios, while asset managers and service providers have much higher P/B ratios.


One could argue that banks are somewhat comparable to Bitcoin Treasury Companies in that their primary asset is financial capital.


Successful banks can have relatively high P/B ratios. JPMorgan Chase (JPM), for example, is the most valuable bank in the U.S. with a market cap around $700 billion.


JPM trades at approximately 2.2x its price to tangible book value (the net value of all the financial instruments it holds). JPM is valued in the stock market at a lot more than the financial assets it owns.


When a premium is warranted


If a company can legitimately create value off of its assets, it deserves to trade at a premium to asset value. The average stock in the NASDAQ 100, which is loaded with technology companies, trades at about 7.5x book value.


It is easy to understand how tech stocks can trade at big premiums to book value. The key assets are intangible and often never get reflected in any way on the balance sheet.


While Bitcoin Treasury Companies can be compared to banks, it may not be unfair to compare them to tech companies as well. Bitcoin represents a sort of intersection between money and technology.


But for a Bitcoin Treasury Company to deserve a premium, one needs to be able to make the case that it can create value above and beyond appreciation of the Bitcoin that it owns.


Saylor’s story


Any discussion of Bitcoin Treasury Companies has to begin with Michael Saylor and MSTR.


In 2020, Saylor persuaded his Board of Directors to move the software company that he founded and ran for decades in a new direction. The business had a nice cash hoard, about half a billion dollars, but was struggling to grow in the context of Covid lockdowns.


Meanwhile, the Fed had knocked interest rates effectively to zero and was printing money with reckless abandon, depriving the company of the opportunity to earn a decent return on its cash balance, which was also getting debased in real terms.


As Saylor has pointed out many times in interviews, including his conversation with Trish in October 2024, he was desperate. Bitcoin was the solution.  

Trish Interviews Michael Saylor

Beginning in summer 2020, MSTR started using its cash to purchase Bitcoin.


The company also began engaging in capital markets strategies, such as selling shares of its own stock as well as debt instruments like convertible bonds, to raise money that would be used to buy more Bitcoin.


MSTR effectively became the first Bitcoin Treasury Company, a phrase that Saylor first officially used in February 2025 when MicroStrategy rebranded as Strategy.


While the software operation still exists, it is now small in comparison. The principal business of MSTR is to build shareholder value through the accumulation of Bitcoin.


The results of this transformation, by the way, have been extraordinary. MSTR has completely outperformed every stock in the S&P 500 since embarking on this journey in mid-2020… as well as Bitcoin itself.


Whereas NVIDIA (NVDA) and Bitcoin have “merely” delivered 1,152% and 953% total returns respectively between 6/30/2020 and 5/8/2025, MSTR has returned 3,417%. The S&P 500 produced a 95% total return over the same time frame.

MSTR, NVDA, Bitcoin, and S&P 500

Total Return (6/30/2020 - 5/8/2025)

Why MSTR has been so successful


MSTR today has a market capitalization well in excess of $100 billion. The company reports that it owns more than 550,000 Bitcoin.


MSTR’s Bitcoin stockpile represents about 2.8% of the 19.9 million current supply of Bitcoin in the world and 2.6% of the 21 million that will ever be mined.


The value of MSTR’s Bitcoin holdings have shot up in recent weeks, as Bitcoin has surged after having declined substantially along with stocks following Liberation Day.


Bitcoin as we write is back above $100,000. Bitcoin, up 8%, is now outperforming stocks on a year to date basis, while MSTR is up approximately 43%. The S&P 500 and the NASDAQ Composite are down 4% and 7% respectively.

Bitcoin, MSTR, NASDAQ, S&P 500

Total Return (12/31/2024 - 5/9/2025)

Strategy has created a very handy dashboard on its corporate website with updated valuation metrics and other information, which can be accessed here.


MSTR reports total Bitcoin NAV as of May 9 of $57 billion and an mNAV around 2.2.


Bitcoin accretion


The price of Bitcoin has risen approximately 10-fold since MSTR began its journey in mid-2020. But MSTR share price appreciation has been much greater—more than 30-fold.


What is fascinating, however, is that the average price that MSTR has paid for Bitcoin over the past five years is just about $68,500.


So even though Bitcoin has appreciated by close to 1,000% since MSTR started buying it, Bitcoin is now only around 50% higher than the average price MSTR paid. Yet MSTR has more than tripled the performance of Bitcoin.


The arithmetic is a little complicated, but there are two main components to understanding MSTR’s success, which are inter-related.


(1) MSTR issued a lot of stock and debt securities along the way.


From year end 2020 through May 4, 2025, the company’s basic shares outstanding grew from approximately 96,000 to 273,000. The company has raised a fair amount of debt as well, largely in the form of convertible bonds.


These bonds can be issued with very low interest rates, in some cases 0%, because they offer investors the opportunity to convert the bonds into stock if MSTR shares reach a certain price.


More recently, MSTR has issued convertible (STRK) and non-convertible (STRF) preferred stock and intends to issue much more of these instruments going forward.


Most of the capital MSTR has raised, however, has been equity. All forms of debt, including preferred stock, are still less than 10% of the market cap of the company.


(2) MSTR started trading at a premium to its underlying Bitcoin value.


The other key factor behind MSTR’s superior performance is that the shares started to get valued at a lot more than the Bitcoin on the balance sheet.


In other words, its mNAV started to exceed 1.0.


This is actually a more recent phenomenon. In fact, it was not until early 2024 that MSTR shares began to outperform Bitcoin and consistently trade at a premium to underlying Bitcoin value.

MSTR vs. Bitcoin

Total Return (Last 5 Years)

Prior to 2024, MSTR was largely seen as a way for investors to get access to Bitcoin through the stock market. Bitcoin ETFs were not approved by the SEC until January 2024.


Back then, investors who were uncomfortable with or prohibited from using crypto exchanges had limited options to get Bitcoin exposure. Even today, many financial advisors are restricted from using Bitcoin ETFs in client accounts.


MSTR was a solution to this problem.


An investor could effectively own Bitcoin indirectly by buying MSTR shares. MSTR was basically valued on a one-to-one basis with its Bitcoin holdings.


MSTR’s superior investment performance only got turbocharged once investors started to reward the shares with a premium valuation. This premium is really the key to MSTR’s success and the foundation of the entire Bitcoin Treasury Company business model.


Not only did MSTR shares rise because the premium was now being applied, it now had an expanded ability to accumulate Bitcoin in an accretive way (in other words, grow its Bitcoin holdings per share).


Once it started trading at a premium to its Bitcoin NAV, MSTR had the ability to sell shares to the public at a valuation that far exceeds its Bitcoin value. It could then use that cash to buy more Bitcoin.


The additional Bitcoin it then acquires will, to the extent the premium holds, be valued in the stock market at a multiple of the price paid.


MSTR’s wild success in 2024 and 2025, dramatically exceeding the performance of Bitcoin, therefore represents the combination of two factors:


(1) the premium to Bitcoin forming;


(2) the company taking advantage of the premium to sell highly valued securities to the public and then using the proceeds to buy even more Bitcoin.


Is it deserved? Is it sustainable?


Banks trade at premiums to tangible book value when the market believes they can earn attractive and sustainable returns on their capital base—turning a dollar of customer deposits, for example, into something worth more than a dollar.


The ability to generate excess returns is the key to Bitcoin Treasury Companies as well.


There is definitely a circular element to this. In order to issue securities in an accretive way, the shares need to trade at a premium. And the shares will likely only trade at a premium so long as investors believe the shares can grow in value faster than Bitcoin itself.


On Strategy’s May 1, 2025 first quarter earnings call, Saylor addressed this central issue—why MSTR, or any Bitcoin Treasury Company, should trade at a premium—directly and at great length.

(Source: MSTR Q1 2025 Earnings Presentation)

At the core of Saylor’s explanation is that MSTR represents a superior way to obtain Bitcoin exposure versus alternatives, including direct Bitcoin ownership.


Saylor also described how MSTR can access various forms of leverage to provide MSTR investors with, not just Bitcoin exposure, but growing Bitcoin exposure.


This is what the company refers to as Bitcoin Yield (“the percentage change in the ratio between our Bitcoin Count and our Assumed Diluted Shares Outstanding”).


The full investor presentation (only two hours long!) can be accessed here.


At one point in the presentation, Saylor presented the argument that MSTR’s current mNAV should even expand further (beyond its current level just above 2.0).

I tend to think that a very reasonable way to calculate the right BTC premium for the company would be to take the expected BTC yield and multiply it by a multiple of 10% to 20%. So, if we can generate 25% BTC yield, then 10 times that would be a 250% premium to NAV and mNAV of 3.5x, if you will. And if we can – if you put a 20 multiple on it, you could find your way to a 500% premium to NAV. - Michael Saylor (5/1/2025)

If MSTR’s mNAV were to expand, this would not only directly translate into a higher share price (e.g., going from 2.0 to 3.0 equals 50% appreciation). It would give MSTR the flexibility to acquire Bitcoin even more accretively.


If the market starts to reward MSTR with an even larger mNAV, MSTR could conceivably join the ranks of the Magnificent Seven and become a trillion dollar market cap company.


Of course, a decline in the mNAV is a key risk for investors in MSTR, along with any potential decline in Bitcoin itself.


Here come the copycats


Success always invites imitation. A number of smaller companies have joined MSTR and put themselves on the “Bitcoin standard.”


These are generally operating businesses that store capital on the balance sheet in the form of Bitcoin rather than in bank accounts or Treasuries.


Strategy in fact encourages the proliferation of these companies. Saylor himself has lobbied major corporations like Microsoft (MSFT) to add Bitcoin to their own balance sheets.


The goal is to accelerate broad-based Bitcoin adoption and, of course, drive up the price of Bitcoin. (He continues to stand by his $13 million 2045 price target for Bitcoin, by the way.)


Meanwhile, we would not at all be surprised to see more entrepreneurial activity like we recently witnessed with CEP and ASST.


People are making billions of dollars from this phenomenon. This trend may just be getting started.


To be continued…


Bitcoin Treasury Company business models are rather complicated—but when you consider the success of MSTR in just the past two years (1,400% total return)—they are arguably worth understanding to some degree.


We intend to return to the topic in follow-up reports.


Building on our initial report on STRK (High Yield with Bitcoin Upside), we intend to focus next on the various options investors have within Strategy (MSTR, STRK and STRF) in relation to more direct investment in Bitcoin.


We will break down how we think these different securities may perform across a wide range of scenarios.


In subsequent installments of Rise of the Bitcoin Treasury Company, we will share our views on CEP, ASST and potentially other plays.


Stay tuned!

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