Bitcoin Treasury Companies Are Bubbles

Half a year has passed since the publishing of my initial report on the company then-named MicroStrategy, now simply Strategy. Other than a name change, the company has since then broadened the arsenal of its financial products, accumulated more bitcoin, and fueled a wide array of companies copying Michael Saylor’s playbook. There seem to be bitcoin treasury companies everywhere.

Due for an update, we will now investigate whether or not these bitcoin treasury companies’ operations are in line with the predictions made in the initial report, and yet again attempt to conclude where all this is eventually going.

A Cause for Alarm

In December last year, the company seemed near invincible: With its bitcoin yield KPI accumulating at a mind-boggling annual rate of above 60%, optimism reigned. It was no wonder then that most of the arguments carefully laid out in the report released at that time were either ridiculed, ignored, or met with snarling challenges to sell the shares short. The share price, denominated either in dollar or bitcoin, is at time of writing flat compared to those days and so far offers little in terms of vindication.

Tragically few understood or even reached the most important conclusion of my December report, which concerns the source of the bitcoin yield. We will therefore iterate what’s wrong with the company’s metric, and why this should be a cause of alarm for any serious investor.

The bitcoin yield — the increase in bitcoin per share — reaching old shareholders comes from the pockets of new shareholders. The new shareholders, many of them buying shares in the hope of getting a high bitcoin yield themselves, provide the bitcoin yield either directly by buying Strategy common shares created in the company’s world-record sized ATM (“at the market”) offerings or indirectly by buying the shares borrowed (and then sold) by delta neutral hedge funds that simultaneously hold the company’s convertible bonds. This is the Ponzi part of company operations — publicly boasting a bitcoin yield far higher than any conventional yield, while obfuscating the fact that the yield stems, not from the sale of company goods or services, but from the new investors themselves. They are the yield, and the harvesting of their hard-earned money will continue as long as they willingly provide it. The size of the harvest is in proportion to the size of the confusion, here measured as the premium of common shares over company net assets. This premium is nurtured by complicated but inviting company narratives, promises, and financial products.

Because the word “Ponzi” has been thrown Bitcoiners’ way for over a decade, they have become accustomed — and rightly so — to simply disregard such critiques altogether. But just because a company within the Bitcoin sector intentionally or inadvertently has constructed a Ponzi scheme, that does not obviously mean that bitcoin itself is a Ponzi. The two assets are separate. During metallic monetary standards of the past, Ponzi schemes existed, but that does not mean the precious metals themselves ever were, or are, such schemes. When I make this claim of Strategy in its current form, I mean it from the point of definition, not from tiresome hyperbole.

The Accumulation Continues

Before drawing any further conclusions, it is first time to pick up where we left off in the initial report, and map relevant company decisions made over the last six months. Strategy announced on December 9 that approximately 21,550 bitcoin had been acquired for about $2.1 billion (average price: approximately $98,783 per bitcoin). This purchase was conducted with proceeds from the ATM outlined in the famous 21/21 Plan initiated earlier the same year. Just a few days later, over 15,000 more bitcoin were purchased, also through the ATM offering, and a few days after that announcement, about 5,000 more were purchased.

The end of 2024 saw the company requesting from its shareholders an amendment to increase the number of authorized shares of class A common stock from 330,000,000 shares to 10,330,000,000 shares — in other words, a 30x. The number of authorized shares of preferred stock was to be increased from 5,000,000 shares to 1,005,000,000 shares — a 200x. All this, though not the same as stating the full amount to actually be issued, was done to give the company more liberty in future financial operations as the 21/21 Plan quickly ran its course. By also focusing on preferred stock, another variant of funding could now be pursued. The full year ended with about 446,000 bitcoin owned by Strategy, and with a company bitcoin yield of 74.3%.

Perpetual Strike Preferred Stock

The new year started with an 8-K filing stating that Strategy was now ready to seek the new funding through preferred stock. The new instrument, as the name implies, was to be senior to the company’s common shares, meaning the owners of the preferred shares had a stronger claim on any future cash flows. Initially, a $2 billion raise was the stated goal. While the new instrument was being prepared, 450,000 bitcoin had been accumulated by January 12. At the end of the month, all 2027 convertible bonds were called on to be redeemed for newly issued shares, as the conversion price was now below the market price of the shares. Any Strategy convertible bond far “in the money” becomes unappealing to the largest buyers of such instruments — the gamma-trading, delta neutral hedge funds — who prefer early conversion followed by new convertible bond issuance over holding the old bonds until maturity.

On January 25, 2025, the company finally filed its prospectus for Strike perpetual preferred stock ($STRK), and about a week later, 7.3 million Strike shares were issued with 8% cumulative dividends on the liquidation preference of $100 per share. In practice, this meant a $2 per share quarterly dividend in perpetuity, or until the shares are converted to Strategy shares in case the price of the latter reaches $1,000. Conversion was defined at the ratio 10:1, meaning 10 Strike shares must be converted for every new Strategy share. In other words, the instrument is akin to a dividend-paying perpetual call option on Strategy common shares. If deemed necessary, Strategy can pay the dividends in the form of its own common shares. On February 10, about 7,600 bitcoin were purchased with the proceeds from the Strike issuance as well as from conventional ATM offering of common shares.

On February 21, Strategy issued $2 billion worth of convertible bonds maturing March 1, 2030, with a conversion price of about $433 per share, representing a conversion premium of about 35%. About 20,000 bitcoin could quickly be purchased with the proceeds. Shortly thereafter, a new prospectus was published, enabling the company to issue up to $21 billion worth of Strike perpetual preferred stock, meaning the already ambitious 21/21 Plan of last year now seemed to morph into something even more massive.

Perpetual Strife and Stride Preferred Stock

As soon as the company had publicly announced its ambitious expansion of its funding plan, yet another instrument was announced; Strife ($STRF), a perpetual preferred stock similar to Strike, was to go live with 5 million shares. It was to offer 10% annual dividends in cash — paid quarterly — instead of 8% in cash or common shares. Strife, unlike Strike, had no equity conversion feature, but was senior to both common shares and Strike. Any dividend delay was to be compensated by higher future dividends, with a maximum of 18% total annual dividend rate. At time of issuance, the initial plan of issuing 5 million shares seems to have been increased to 8.5 million shares, raising over $700 million. With ATM activity for the common shares as well as for Strike, Strategy could finally announce in March that the company held over 500,000 bitcoin. April saw mostly regular common share ATM activities, until that type of funding was all but depleted. Strike ATM activity continued as well, but due to what was likely low liquidity, the dollar amount raised was negligible. With the proceeds, Strategy’s total bitcoin position climbed above 550,000 bitcoin.

On May 1, Strategy announced the intention of launching another $21 billion common share ATM offering. This announcement came very shortly after the ATM arm of the initial 21/21 Plan had been exhausted, and fully vindicated the logic outlined in the previous report as well as on X. As any premium to net assets creates an arbitrage for the company, management is bound to continue to print new shares overvalued relative to underlying bitcoin assets in order to capture it. Issuance started almost immediately, and more bitcoin could be accumulated.

As the fixed income arm of the initial 21/21 Plan already had been extended with the new preferred stock in mind, investors now faced a massive 42/42 Plan, meaning a maximum of $42 billion in common share issuance and $42 billion in fixed income security issuance. May also saw the SEC filing of a new $2.1 billion ATM offering for the Strife perpetual preferred stock instrument. At the end of the month, all three ATM offerings were printing shares for the acquisition of new bitcoin. In the beginning of June, yet another instrument was announced: Stride ($STRD), a perpetual preferred stock asset similar to Strike and Strife, was soon to launch. It was to offer 10% optional, noncumulative dividends in cash, had no equity conversion feature, and was junior to every other instrument except the common shares. A little less than 12 million shares worth about $1 billion were initially issued, paving the way for about 10,000 more bitcoin for the company coffers.

A Dazzling Mosaic of Bitcoin Treasury Companies

With the STRK, STRD, and STRF products launched, and Strategy’s 21/21 Plan in full swing, the full picture of what has been going on in the last six months should be clearer. I pointed out in the initial report that the main rationale behind the convertible bonds was not, despite the claims of the company, to offer bitcoin exposure to a section of the market in need and want of such. The buyers of the bonds were almost all of them delta neutral hedge funds, and, being simultaneously short Strategy shares, they never had any actual bitcoin exposure. It was all a ruse. The true reason that Strategy offered these securities to lenders was that it gave retail investors an impression of financial innovation targeting a multitrillion-dollar industry, as well as facilitating further bitcoin accumulation without equity dilution. And as the investors bid on the common shares, so did the price discrepancy to net assets and the opportunity of risk-free bitcoin yield grow in proportion. The greater the economic confusion, coupled with Michael Saylor’s way with words and vivid analogies, the larger the company’s arbitrage opportunity.

By issuing three different perpetual preferred stock securities over the last six months, in addition to the various convertible bonds already in place, these complicated financial products could now create an appearance of financial innovation, thus spurring further bidding on the common shares.

At the time of writing, the common shares trade near double that of net assets, which is a great feat by company management, given the large size and activity of the common share ATM offerings. It means Strategy can continue to buy about two bitcoin for the price of one in a risk-free fashion.

In 2024, the company could enjoy tailwinds originating from the popular “reflexivity flywheel” theory, where it was argued that the more bitcoin the company purchased, the more its shares would increase in value, resulting in the opportunity to buy even more bitcoin. In 2025, this self-referential stupidity morphed slightly to a “torque” narrative, manifesting itself as official company depictions of fixed income cogwheels rotating the core that is the common shares, with bitcoin yield produced from the machinery as a result. Exactly from where, or how, the yield was created, few investors seemed to be asking themselves, and instead the made-up dynamic was mindlessly celebrated.

Preferred shares are financial assets, and not subject to the laws of physics. Being an engineer, it is not surprising that Saylor should come up with all these fallacious analogies so that bitcoin yield would appear to stem from what can only be viewed as financial alchemy. But since there are no actual company revenues to speak of, no actual banking (the company borrows, but does not lend), the bitcoin yield must in the end stem from the earlier outlined Ponzi element of the company’s business model; retail investors are dazzled by carefully curated narratives, causing them to bid up the price of common shares enough for the bitcoin yield opportunity to materialize. Whatever bitcoin yield originating from the various debt instruments cannot yet be considered settled as debt must eventually be paid off. Only the bitcoin yield stemming from common share ATM offerings is immediate and final — a true profit.

A Bubble of Bitcoin Treasury Companies

Oblivious or not to the fact that narratives can’t influence reality forever, the massively successful bitcoin yield concept of Strategy has spread like a wildfire among management teams of smaller companies all over the world. CEOs have seen how Strategy insiders, by continuously dumping shares on the retail investors currently chasing the shares, have become immensely rich, and so have started copying the playbook. The constant Strategy insider selling can be verified by looking at the numerous Form 144 filings.

Many of these companies have successfully pulled this off, already enriching management and old shareholders at the expense of new ones. But it must all end at one point, and many of these companies, grasping in desperation at the bold, new strategy of becoming bitcoin treasury companies (due to the conventional main business struggling or even failing) will be the first that are compelled to sell their bitcoin assets to pay creditors when things take a turn for the worse. Michael Saylor himself once admitted that he was desperate before stumbling over bitcoin.

• Metaplanet was once known as Red Planet Japan and struggled mightily to be profitable in Japan’s budget hotel sector.
• Before Méliuz SA desperately adopted a bitcoin acquisition strategy, it had undergone a 100:1 reverse split.
• Vanadi Coffee SA drifted ever closer to bankruptcy, managing five cafes and a bakery in Spain’s Alicante region, but its pivot to a bitcoin strategy now seems to have performed miracles for its share price.
• The notorious meme stock company Trump Media & Technology, with no revenue to speak of, is now pursuing billions of dollars in funding for the purpose of creating a bitcoin treasury company in order to rescue a share price trading at all-time lows.
• Bluebird Mining Ventures Ltd, also in desperation, I would imagine — at least if the share price is any indicator — just recently decided to sell any gold it managed to mine in order to fund bitcoin purchases for its treasury; the shares are at time of writing up almost 500% in a month.
• H100 Group, a small and until recently struggling Swedish biotech company, has, at the time of writing returned, to its investors about 1,500% in a month on news that Adam Back, CEO of Blockstream, is funding the company through some type of convertible bonds, for the pursuit of a bitcoin treasury strategy.

The list could go on and on, but I think the point is made; it is not Microsoft, Apple, or Nvidia that are becoming bitcoin treasury companies, but failing companies with nothing to lose. Jesse Myers, a Strategy supporter and a direct influence on Michael Saylor’s bitcoin valuation modeling.

All these desperate companies have looked at Michael Saylor and Strategy and believe they have found a clear path to riches. By copying the financial alchemy themselves, they are now all involved in a great transfer of wealth as the bitcoin treasury company bubble runs its course.

When the Mosaic Breaks

Though part of the impressive company mosaic, Strike, Strife, and Stride are all senior to equity. The same is true for the convertible bonds, not all of them are currently “in the money.” Future free cash flow will always have to reach holders of these instruments before whatever is left can go to owners of the common shares. In good times, this is obviously not a problem due to the rather low debt ratio of the company; in bad times, the value of all company assets decline considerably while debt obligations remain — like tall, looming threats to any new creditor. Due to a phenomenon sometimes referred to as debt overhang, any new creditor will be hesitant to lend for the purpose of paying off other debt obligations. What started as an enchanting collection of narratives and exaggerations morphs into something turning on its creator.

This is all exacerbated by the fact that a prolonged bitcoin bear market will cause further sell pressure on the asset by the many bitcoin treasury companies then in distress. The more popular Strategy’s playbook becomes, in other words, the deeper the future bitcoin crash, likely wiping out much of the equity of most companies having pursued such a strategy to the bitter end.

In summary: Michael Saylor likes bitcoin. He, like all of us, prefers more bitcoin to less bitcoin. It is then extremely naive to think that he will let company management pass on what is by definition an arbitrage. When common shares trade at a premium to net assets, the company can create risk-free profits for its old shareholders by transferring wealth from the buyers of newly issued shares. This will continue in the form of ever-larger common share ATM offerings alongside new, obfuscating ”innovative products”, despite protests and mutterings about equity dilution. Evidence of this claim is my prediction made in March, coming true in the form of a new $21 billion ATM offering barely one and a half months later. If Strategy does not act on this arbitrage, all the copy-cats will capture it instead as they attempt to increase their bitcoin treasury in an equally risk-free manner. In the frantic scramble to create and expand all these arbitrage opportunities, companies will take on debt in various forms, and danger abounds.

During the next bitcoin bear market, the Strategy share price will reach — and then break below — net assets per share, inflicting large bitcoin-denominated losses on anyone buying at today’s premium. The best action a Strategy investor can take today is doing exactly what the company and its insiders are all doing: Sell the shares!

Bitcoin is no longer the main strategy of this company, nor of any of the now multiplying bitcoin treasury companies; you are.