Bitcoin Treasury Companies
Bitcoin treasury companies like MicroStrategy use leverage and equity issuance to increase their Bitcoin per share, creating a recursive flywheel that can unravel quickly when sentiment changes
MNAV (Market Value of Bitcoin compared to Enterprise Value) is a key metric for arbitrage, with extreme values indicating potential for shorting, but its correct value depends on tax arbitrage and leveraging strategies
The MNAV premium exists because companies can harvest more Bitcoin by selling shares at a premium to NAV, generating returns for new holders of common stock, which resembles a Ponzi scheme for old holders.
Financial Strategies and Risks
Term leverage through long-term ETF calls can provide the same leverage as MNAV without paying the premium, allowing companies to hold Bitcoin for 5-10 years as part of their asset mix.
MicroStrategy’s marketing slides comparing its PE ratio to other companies are deceptive and fraudulent, as they are based on gap earnings that may not be sustainable long-term.
The failure mechanism for Bitcoin treasury companies is related to preferred dividend payments, which may become unsustainable if the company cannot access financial markets, leading to negative MNAV and capital losses.
Stablecoins and Dollar Demand
Stablecoins can increase the surface area of FX trades, making it easier for people in countries with limited dollar access to buy stablecoins with local currency, potentially increasing total dollar demand.
The growth of stablecoins will come from existing dollar usage, such as bank deposits, physical bank notes, money markets, and foreign dollar-denominated bank deposits.
The stablecoin market cap is expected to grow dramatically, with a tripling of existing market size by 2030, according to City Bank’s research division (base case: $1.6 trillion, bull case: $3.7 trillion).
Impact on Financial Systems
Stablecoins can disintermediate physical dollars and bank deposits, potentially causing banking pressures and monetary policy changes.
In countries like Egypt, stablecoins can reduce the gray market premium for physical dollars, increasing demand for dollars by making digital purchases easier.
The lightning network is a potential future income source for Bitcoin treasury companies, allowing them to provide liquidity and facilitate payments while retaining custody of their Bitcoin assets.
Market Dynamics and Opportunities
Bitcoin treasury companies can provide a competitive advantage for operating companies by allowing them to hold Bitcoin for 5-10 years as part of their asset mix, competing with equities in returns.
The growth of stablecoins will be driven by venture capital and remittance market opportunities, with companies building products and services that use stablecoins.
The key to determining whether a Bitcoin treasury company is a Ponzi scheme is its ability to generate income from Bitcoin assets without relying on new capital issuance.
The addressable market for stablecoins is large, particularly outside the US, where people may want to hold dollars as a savings vehicle, providing a new payment rail for transactions