At the BTC Prague conference this week, Strategy (formerly MicroStrategy) co-founder Michael Saylor stated that Bitcoin treasury companies can grow as quickly as they can issue equity and credit to purchase Bitcoin.
Delving into the business model of Bitcoin treasury companies like Strategy, Saylor explained how corporate investment in BTC can far outpace individual investments.
Business model of Bitcoin treasury companies
Several major companies have announced plans or are mulling the launch of a Bitcoin treasury. For instance, earlier this week, Brian Armstrong, CEO of Coinbase, the largest U.S. crypto exchange, hinted at launching a BTC treasury. The $2.3 billion Trump Media, which is majority owned by President Donald Trump, raised to buy BTC was effectively approved by the U.S. Securities and Exchange Commission (SEC) earlier this month.
Saylor explained that BTC treasury companies, which have been growing in popularity over the past few months, have a very simple yet ‘elegant’ business model.
Saylor explains this with an example. Let’s say a dentist buys about $200,000 worth of BTC every year. In 20 years, the dentist would have bought about $2 million worth of BTC.
However, a public corporation can buy BTC at a much faster rate. A company can issue credit in the form of anything from convertible bonds, junk bonds, to preferred stocks, and buy $2 million worth of BTC in a month.
According to Saylor, companies buying BTC can become immediately profitable, allowing them to issue securities and buy large amounts of BTC every month. He said:
“…the simplicity in the business model is I’m just going to issue billions and billions and billions of dollars of securities and buy billions and billions and billions of dollars of Bitcoin.”
This model, Saylor believes, will transform the equity and capital markets from being cash-based to Bitcoin-based.
“…that’s I think, what we see right now in the market, that we are going into a BTC-denominated world.”
BTC Treasury companies can grow as fast as they can issue equity
Saylor noted that the “rate at which a company can issue equity or credit,” and use it to buy BTC, is “exponential.” A Bitcoin treasury company’s growth rate is, therefore, significantly faster than traditional business cycles. Saylor said:
“You can grow literally as fast as you can issue the security and buy the Bitcoin. And that is an investment cycle which is 1,000 times faster than a physical real estate cycle or a business cycle. So it’s faster, it’s homogeneous.”
According to Saylor, credit or equity is valued based on expected future cash flows—investors buy security and lend money to the company based on how much the firm can earn in the future. In the long term, the value of the cash can also decline. This means that there is a long “heterogeneous equity risk,” Saylor said.
But Bitcoin treasury companies are valued based on their ability to buy Bitcoin rather than via operations, which calls for special metrics to value Bitcoin-backed equity.
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