WTF Are Bitcoin Treasury Reserve Model Strategies?!

A Quick Guide to the Bitcoin Treasury Model

Echoing the bullishness in stock markets, the crypto industry is expanding like never before under President Trump.

Here are some recent exciting developments:

• US Congress passed the Genius Act (short for Guiding and Establishing National Innovation for U.S. Stablecoins Act, see summary here) in July to regulate Stablecoins. This framework affirms and guides the expanding sector
• Crypto lending is growing and pulling mainstream financial institutions into the area. The latest bank to consider lending based on crypto is JP Morgan (JPM).
• Bitcoin Treasury Model adopted by more listed companies around the world

The last point is most relevant for Main Street, as this strategy is adopted by an increasing number of listed companies globally. Everyone saw how effective Strategy (formerly Microstrategy) employs the Bitcoin Treasury Model to create a 3,300% increase in its share price. Excess profits naturally create imitators.

Wild swings in share prices are created when companies pivot to the Bitcoin Treasury Model. These crazy price movements provide good trading opportunities for astute investors. But what should investors look for when companies tell the market they are buying Bitcoins? Scroll on.

Which Entities Are Holding Bitcoins These Days?

The following chart summarises which groups are employing the Bitcoin treasury model.

The largest holder are ETFs (7.1%), following by Public Companies (4.3%) and Countries (2.5%). ETFs are favourite instruments because of their accessibility.

Source: https://bitbo.io/treasuries/

What is rationale for the Bitcoin Treasury Model?

Basically, the central idea is that companies should buy and hold Bitcoins for their corporate treasuries. Why? According to Michael Saylor, the CEO of Strategy (MSTR), companies (and all of us) should hold as many Bitcoin as possible because:

1. Bitcoin is limited in quantities (21M Hardcap) and therefore an excellent asset to hedge inflation
2. Bitcoin is new technology
3. Bitcoin delivers better long-term price performance
4. Bitcoin has excellent liquidity

For readers new to the discussion whether Bitcoin is better than gold, I direct readers to this fantastic video (YouTube link) where Peter Schiff challenges Saylor’s thesis on Bitcoin.

While the crypto industry has progressed substantially since Saylor’s early days (around 2020), the basic argument remains the same.

What are the Pros and Cons of Bitcoin Treasury Model?

The strong rebound in Bitcoin prices during 2024-25 has renewed keen interest in this model.  But what are the advantages and disadvantages of this Bitcoin Treasury Model?

Pros

• Rides the bullish and fast-expanding crypto asset class
• Boosts asset prices, such as stock prices
• A new profit avenue when Bitcoin appreciates

Cons

• Exposure to volatile Bitcoin prices (forced liquidation is another risk)
• Core assets and operations may be overlooked
• Share prices may not correlate to Bitcoin prices

Which Companies are Holding Bitcoins on Their Balance Sheets?

The top 100 public listed entities holding Bitcoin are showed below:

By far the largest number of Bitcoin holders is Strategy (MSTR). The company has been raising capital in excess of $70 billion to buy bitcoin. Its treasury hoard of 607K bitcoins seems to be far more valuable to investors than its underlying software business.

The second highest holder is MARA (MARA), a bitcoin miner. The company has been raising money via equity market to buy Bitcoins. Perhaps its mining business has been dragging the stock down since that industry requires continual investments.

Source: https://bitcointreasuries.net/

Five Things to Look For When Companies Pivot to Bitcoin Treasury Model

1. Scale – How much is the company raising to invest in Bitcoins? Scale matters, since investors look for significant exposure to Bitcoins.
2. Equity or debt? Obviously debt-based financing is riskier since there is repayment at some point. Equity is preferred, but increasing share count may depress share price. A favourite method to buy BTC are zero-coupon convertible bonds. These bonds pays no interest and can be converted into shares at some point in the future (see explanation here).
3. One off or Continual purchase? Is the company looking to buy Bitcoin at regular intervals, or just one off?
4. Holding period – Can the company weather a ‘crypto winter’ and not forced into a BTC liquidation? This depends on the firms’ cash flow and business requirements. Does it have other assets? Strategy, for example, uses its bullish share price to raise capital repeatedly.
5. Bitcoin purchase price – Did the company buy Bitcoin during a price spike, thus making it vulnerable to a Bitcoin price correction? Of course, the lower the BTC entry price, the better.

How to Trade Shares That Employ Bitcoin Treasury Model

During a Bitcoin bull market, obviously investors are more eager to subscribe to company that buys significant Bitcoins.  But the crypto industry often swings from red hot to deep freeze in a matter of months. So investors should have a good trading plan to profit from the bull market.

First, is Bitcoin’s upside already priced in on the company shares? In other words, if a company’s share is so overpriced relative to its Bitcoin holdings, it pays to exit the stock.

Second, is the company’s shares movement in line with Bitcoin? If a firm’s shares only follow Bitcoin price down and not up, obviously it is not a good stock to own.

Third, did the stock have a huge rally already? If it did and you’re not in it, you probably late to the party. The probability of another massive run up is low. Look for another stock.

Example: Microstrategy (2021)

To give an example, look at Microstrategy in the previous crypto bubble in 2021. The stock jumped from $12 in the summer of 2020 and peaked 1,000% higher just seven months later. Meanwhile, Bitcoin only peaked months later. Those who bought above $100 during those parabolic rallies only saw trading losses on their account for years.

 

Two lessons here: One, the stock and Bitcoin may not peak at the same time. Two, when a Bitcoin stock surges hundreds of percent, it pays to exit – no matter what your views are on Bitcoin. A parabolic rally is a classic sell signal. Stops must be set and respected since you’ll never know what happens next.