The Dilemma of Bitcoin Holders in an Era of Speculation

Written by: Joakim Book

Translated by: AididiaoJP, Foresight News

As Wall Street embarks on the hype of Bitcoin treasury companies, new "Saylor competitors" emerge weekly. How should Bitcoin holders respond? In this waning era of fiat currency, the mNAV (market value to net asset value ratio) game and regulatory arbitrage are either a recipe for disaster or an incredible wealth blueprint.

Michael Saylor and MicroStrategy have already taken the lead, but suited corporate executives and companies have entered the fray on a large scale: Bitcoin held in the form of treasury companies has a captivating allure that has attracted everyone's attention to varying degrees.

What should a rational, normal, ordinary Bitcoin holder do?

The simplest way to deal with Bitcoin treasury companies and the financialization of Bitcoin is to completely ignore them. Only time will tell whether these Bitcoin treasury companies and financial instruments will succeed or spectacularly collapse.

However, in the realms of money and finance (and broader economics), there is usually no neutral choice, nor is there "inaction"; my money and savings must flow somewhere, and my attention and labor must focus on something. New Bitcoin treasury companies are being established weekly; radical financing or purchase announcements are made daily. Being in this field, holding an opinion is inevitable; and holding a wise, well-informed opinion seems almost a moral obligation.

For years, I have delved into monetary economics, financial history, and the wild financial frontier of Bitcoin today, where the path of reason is quite narrow. On one side, there is a promise of rapidly achieving the "hyper-Bitcoinization" future we all envision, while the corporate structure amplifies my Bitcoin holdings in the process; on the other side lies a quagmire of financial engineering and a breeding ground for speculation, quickly repackaging the fiat contributions of Bitcoin holders into Bitcoin gains.

Why do Bitcoin holders participate in these companies?

Leverage is one reason. As a typical millennial, I do not own a house, and thus cannot easily access cheap debt (which is basically the only reason to own a house). I can collateralize my Bitcoin through platforms like Firefish (with annual interest rates of 6-9%) or borrow using credit cards (with rates of 11% and 19% respectively). These terms are not ideal; they are costly, have limited funding pools, and are not cheap. Even if Bitcoin's compound annual growth rate (CAGR) is 30-60%, that is a performance over a long period, not monthly or annually, while the repayment cycles of these debts are precisely measured in months or years.

In contrast, MicroStrategy (MSTR) and Marathon Digital (MARA) issue convertible bonds at 0% interest. These debts mature in a few years and can amount to hundreds of millions of dollars. As Pierre Rochard said in last month's debate with Jim Chanos:

"The terms that Saylor can obtain… are unattainable for holders who keep Bitcoin in cold storage."

For most Bitcoin holders, participating in this game is too tempting, even if it requires relinquishing control and ownership and paying a hefty premium for owning shares in these companies.

As a form of leverage, Saylor's shift to preferred stock seems costlier, with interest payments of 8-10% approaching my own borrowing capacity, but they are safer. Preferred stock protects the company itself, as it eliminates the risk of margin calls or debt-driven bankruptcy and grants the company unprecedented flexibility. Preferred stock provides a release valve, as MicroStrategy can choose not to pay dividends on certain preferred shares (e.g., STRD); for STRF, the "cost" of not paying dividends is merely a future increase of 1% in penalty interest. In emergencies, MicroStrategy can even suspend dividend payments on other preferred shares.

This is a paradox: while this is financial leverage for MicroStrategy (it can use other people's money to buy more Bitcoin), it is not leverage for new shareholders of MSTR. As Jim Chanos responded to Rochard in that debate: the meaning of leverage is to gain exposure greater than $1. If I buy MSTR shares at an mNAV of 1.5, while MicroStrategy itself has a leverage ratio of about 20%, then I am not amplifying leverage! (1/1.5 x 1.2 = 0.8). Therefore, for every $1 invested in MSTR, I actually only gain about 80 cents of Bitcoin exposure. And the company (of which these stocks are a part) still needs to pay costs similar to my borrowing to enjoy the privilege of using other people's funds.

For most other Bitcoin treasury companies, the calculations are even worse, primarily due to their excessively high mNAV. Investors have become the source of returns that Bitcoin treasury companies chase. When we invest in these companies, we are playing a fiat game. The extent to which we play these games is directly proportional to the height of the mNAV. I have often asked:

"Why does a Bitcoin, once packaged in a corporate structure, suddenly become worth two, three, or even ten times its globally most liquid, transparent, and indisputable price?"

Or more bluntly:

"When you place our 'tokens' under the wings of financial leverage and commit to issuing debt, preferred stock, and equity based on it, what extreme appreciation transformation does it undergo? It seems we can hear the ghost of Satoshi whispering: 'A wave after wave of credit bubbles.'"

MicroStrategy's great discovery is now being frantically imitated by everyone. Simply put, it is about packaging Bitcoin within a corporate structure, adding some leverage, and then selling it on Wall Street, thereby doubling the value of the same Bitcoin. Most discussions stop here, with traditional financial journalists busy viewing it as a trend or bubble; according to the efficient market hypothesis or common sense, the trading price of anything should not exceed the price of its only held asset.

But that is not enough. Let us list some reasonable reasons explaining why a company's stock that only holds Bitcoin should be worth more than the Bitcoin it holds:

Storage: Self-custody is easier than you think, but many still shy away from it. Another strange reason is the high-profile "ransom attacks" against Bitcoin holders globally; paying a premium for someone else to custody your Bitcoin is reasonable. No one can steal my MSTR stock. Saylor seems to know what he is doing, so let’s store Bitcoin in his company, premium: 10%.

Future Growth: Future Bitcoin is worth more than current Bitcoin. At any given time, there are undisclosed treasury company purchases accumulating value for shareholders, but not yet public. Every time you buy stock, you can only see undisclosed transactions or acquisitions… but we all know and can predict that the trading price of the stock should be slightly higher than now: you are always trading stocks based on existing information while clearly knowing that more is happening behind the scenes. This warrants some premium, like MicroStrategy: 5%; for smaller and more aggressive treasury companies, the premium may be higher.

Regulatory Arbitrage: There is so much money outside eager to buy Bitcoin, but they are not allowed. I am skeptical about this: there are not that many individuals or institutions interested in Bitcoin, and even if they are, the premium brought by taxes, authorizations, 401(k) plans, or regulatory barriers will diminish over time and with adoption. The financial incentives and gravity that provide value to Bitcoin treasury companies will similarly weaken the regulatory barriers that initially granted them value. Premium: 20%. For certain companies, like Japan's Metaplanet, Bitcoin investors face high capital gains taxes, and this arbitrage premium may be even higher.

Other Factors: I may have overlooked some other reasons, such as these companies retaining some actual business, to explain why a bag of Bitcoin should be worth more than the Bitcoin in the bag, so let’s add another 20%.

Total: 10+5+20+20=55… Coincidentally, this is about the trading level of MSTR when I first roughly calculated these premiums. When the price of Bitcoin was $122,500, the 628,791 Bitcoins on MicroStrategy's balance sheet were worth about $77 billion, but the company's market value was $110 billion (a premium of about 45%).

MicroStrategy is a Bank: Economic Vision

It is not the kind of bank that accepts Bitcoin deposits and issues Bitcoin-backed loans, but rather a deeper economic entity.

You can view banking as a risk-sharing mechanism in society. Society provides loans for some high-risk projects, while the capital market banking system is part of the distribution of the risks these projects bring. Essentially, it is the financial version of "who gets what, and why."

From an economic perspective, banks are institutions that take on risk, possessing non-public information about relevant entities; they allocate a small, secured return to lenders while profiting from any successful projects, albeit not as much as equity owners. If a bank successfully does this, averaging out successful projects and earning interest from creditworthy loans that exceeds what it pays to depositors, it creates profit for itself.

This is what MicroStrategy is doing, leveraging the undiscovered realms between the Bitcoin world and the fiat world.

Traditional financial institutions, pension funds, or retirees are the banking financing part of this structure. They "deposit" money into MicroStrategy, with returns and terms determined by the specific tier they choose (STRK, STRD, STRF, STRC, or the residual claim of common stock MSTR).

The bank invests these funds in assets: MicroStrategy is in the middle, ensuring payments to these economic entities by predicting that asset performance will exceed the established interest of "bank deposits." Unlike banks issuing mortgage loans, credit card loans, and small business loans, MicroStrategy's "loan" target is singular: the best-performing asset globally. MicroStrategy is making a (very wise) bet: that the dollar value of Bitcoin will grow faster than the 8-10% interest it must pay to traditional fiat institutions.

Any middle school student with a calculator can figure out that if you borrow at an annual interest rate of 10% to hold an asset that appreciates 40% annually, infinite wealth is at hand.

Of course, Bitcoin does not grow steadily at 40% every year. If it did, in Michael Saylor's own words, Warren Buffett would have long since snatched up all the Bitcoin:

"If Bitcoin had no volatility, those richer and more powerful than you would bid higher than you and take the Bitcoin; you would never get it… When it becomes completely predictable, Warren Buffett would say, 'Oh, yes; we understand; we just bought all the Bitcoin'… and your chance would be gone."

MicroStrategy just needs to ensure that financing does not lead to its bankruptcy; the issued debt is entirely within its control and discretion; dividend payments are conservative enough compared to its net capital (i.e., Bitcoin); and most importantly, the debt does not force the company to sell Bitcoin at an unfavorable time.

Basically, Saylor has created a tool that is very well-suited for survival during extreme downturns. Even if Bitcoin were to drop 80%, which is the worst-case scenario, considering the scale and transparency of Bitcoin, whether this situation would even occur is questionable; even if it did, it would not put the company in jeopardy. The key to a successful Ponzi scheme is that funds must continuously flow in. More accurately, MicroStrategy's financing method is a conservative Ponzi style (unlike classic fraudulent Ponzi schemes, Saylor is not committing fraud; it’s just a visual overlap, and no one is being deceived… at least not involuntarily).

Neither traditional financial journalists nor Bitcoin enthusiasts skeptical of Bitcoin treasury companies have adequately described how these plans might collapse. Economist Josh Hendrickson precisely points out the relevant obstacles in "Economic Forces":

"If the market is segmented and people expect prices to continue rising rapidly, then the present value of future liquidations may exceed the current liquidation value. If stocks are trading at their current liquidation value, they are undervalued." He also states:

"What MicroStrategy is doing is turning itself into a Bitcoin bank by issuing dollar-denominated debt and purchasing Bitcoin. The company is explicitly engaged in financial engineering to exploit regulatory arbitrage."

MicroStrategy's model (especially among other imitators, considering their respective legal barriers) could collapse under the following circumstances:

Investors misjudge the future trajectory of Bitcoin; current authorizations, tax rules, and legal barriers preventing investors from directly purchasing Bitcoin are relaxed; the ability of the Bitcoin world’s Twitter users to leverage regulatory arbitrage relies on "investors maintaining expectations that Bitcoin's future value will increase significantly."

If dividends fail to be paid, preferred shareholders and buyers will be unhappy. If MSTR shareholders are diluted merely to satisfy bondholders, they will be unhappy. But so what? This will not destroy MicroStrategy.

What would truly destroy this model is the disappearance of these traditional financial barriers to holding Bitcoin. It is these regulatory barriers that have driven the development of so many companies; they serve as a financial bridge between the old and new worlds; they absorb inefficient, low-yield capital from around the globe and inject it into Bitcoin.

If fund managers, treasuries, or family offices begin hoarding Bitcoin directly instead of purchasing MicroStrategy's products, the primary reason for the existence of Bitcoin treasury companies would vanish.

In short, the existence of Bitcoin treasury companies relies on the inertia of the current system. It critically depends on whether family funds, pension funds, sovereign wealth funds, and traditional investors are willing to go through the effort to figure out the actual Bitcoin exposure (plus some safe, conservative leverage). If they do not, and would rather pay a 50% premium, then yes, the business model of Bitcoin treasury companies will be sustainable forever.

What else could go wrong?

MicroStrategy does face custody risks, as its Bitcoin is spread across multiple custodians, and the solutions are deliberately kept opaque. What would happen to MicroStrategy's business if Coinbase went bankrupt? Or worse, if a new political climate brought radical tax policies? These are tail risks, but they are still risks.

If Bitcoin fails, MicroStrategy would obviously fail as well. If Bitcoin were to remain in a stable state at $118,000 forever, MicroStrategy's opportunistic use of abundant financial capital would lose almost all meaning; it would be, as most journalists and analysts believe, merely a pile of Bitcoin, with its extraordinary growth (for the most part) vanished.

I think this is where many journalists and analysts get confused when looking at this treasury company phenomenon: if you cannot see why Bitcoin would have value or utility, let alone its position in future currency and finance, then a company dedicated to acquiring as much Bitcoin as possible seems utterly meaningless.

If you do see the utility and future of Bitcoin, with its price continuously rising relative to depreciating fiat currency, then a company that acquires more Bitcoin by leveraging capital market funds is an entirely different matter.

Hedging and FOMO: What if I'm wrong?

Rational humility makes us realize that maybe, just maybe, we have misunderstood something.

"Diamond hands" are constantly forged… while my hands remain quite fragile. When Bitcoin prices plummet sharply, I often feel very uneasy. (I think this sudden extreme situation is a big problem; even in hindsight, I find it hard to explain.) I act recklessly, impulsively putting in rent money or other spare cash that shouldn't have gone into Bitcoin.

In a bull market, this behavior usually benefits me, but one day it will backfire. The more I learn about MicroStrategy, the more I appreciate its many specially designed products. For me, holding STRC (for short-term cash) and STRK (for moderate Bitcoin exposure and cash flow) makes some sense. Financially, STRK is like a dual distance from Bitcoin; short-term price fluctuations are much milder, and it provides me with some extra fiat income.

Given that my net worth and professional activities are largely tied to Bitcoin and Bitcoin prices, concentrating a smaller portion of my net worth in this single area makes sense.

Why not just put cash into a high-yield savings account?

Two reasons: their yields are not high; according to my "high-yield" dollar account, the interest rate is 4.05%. The target rate for Saylor's equivalent product STRC is several hundred basis points higher; while STRK (which approximates Bitcoin itself in the medium to long term, discounted or amplified based on MicroStrategy's mNAV changes) currently yields over 7%. Secondly, I know myself; I am likely to put cash from my bank account into Bitcoin when its price drops significantly; holding STRC or STRK in a brokerage account at least sets some barriers to this irrational behavior.

Ubiquitous Hedging

Since I have structurally shorted fiat currency, based on the initial "speculative attack," I hold debt and Bitcoin, so it makes sense to slightly diversify my investments!

I have maximized the pension contributions that the local gang (government) forces me to pay. These funds are invested in stocks and bonds (approximately a 75:25 ratio); compared to any Bitcoin, their performance is certainly poor, but in case I somehow get the entire currency printing and central bank era wrong for some unimaginable reason, at least I won't starve in my old age.

Secondly, pension contributions come with significant tax benefits: maximizing contributions allows me to immediately receive about 1.5 times the funds. While Bitcoin's regular 40% CAGR would exceed these additional funds in less than two years, they also come with tax-free mortgage benefits; if one day I want to buy a house in the real world of "shitcoins," I can use this money.

The opportunity cost of Bitcoin is real and will become quite severe over time, but it is not a matter of belief. The practicality of the real world dominates: whether hyper-Bitcoinization happens in a week or a hundred years will make a world of difference to your lifestyle.

What does all this have to do with Bitcoin treasury companies?

Because the hedging mindset of "what if I am wrong" applies here as well.

Despite all the fancy terms, new metrics, and futuristic moon dreams, I still cannot understand why a Bitcoin should be worth more once it is packaged within a corporate structure than Bitcoin itself. Yes, future growth net present value, earnings, capital arbitrage, speculative attacks, and bets on hyper-Bitcoinization banks, but… really?

Well, what if I'm wrong? Many people in the Bitcoin space whom I trust are endorsing these things, and it feels like more people are joining every minute, and they do have some logic. Cheap leverage, speculative attacks, leveraging (or "deceiving") fiat capital pools flowing into Bitcoin.

So I recently FOMO-invested in two Bitcoin treasury companies: two of MicroStrategy's products (MSTR and STRK), and a new emerging small company in Sweden, H100.

Holding stocks again feels good

Ten years ago or earlier, I used to hold a large amount of stocks: a massive, diversified portfolio. For obvious reasons, I have not held any stocks for many years.

I chose MicroStrategy's products because they are the least crazy financially in this field; I chose the second company because I can easily access it through my Nordic bank account, and I didn't want to bother finding a convenient broker, signing documents, and transferring funds for a Bitcoin treasury fund that might only play with a few hundred dollars. There is already too much absurd paperwork in this world.

In case these things really have value, MicroStrategy will be the star: as their marketing states, MSTR is "amplified Bitcoin." Since most of my savings are in tokens, and my career is deeply rooted in Bitcoin, this diversification makes sense. (Additionally, MSTR's mNAV is rapidly approaching 1… it was 1.42 when I wrote this.)

Emil Sandstedt's words echo in my ears; I understand that I am the Bitcoin yield they are chasing, but under 25% Bitcoin yield and 20% (safe) preferred stock and convertible bond leverage, around this time next year, my exposure will return to balance: my MSTR stock, worth about $150, currently provides about $120 of Bitcoin exposure; I am happy to pay an extra $30 to participate in the financial empire that Mr. Saylor is building.

The second company is H100. For a small, agile company that dominates in a specific jurisdiction, its mNAV is also reasonably acceptable at 2.73.

After purchasing, my first realization was: I forgot how fun this is!

Suddenly, I am tracking several different asset prices, not just one. Suddenly, I have a financial connection with a company that is actually doing real things, not just the most portable, globalized, and accessible currency. Psychologically, I feel like I have become part of some cause, immersed in this project of speculative attacks and constructing the Bitcoin yield curve, namely treasury companies. How exciting!

The second realization: Bitcoin has changed the meaning of ownership.

These tools are not mine; they are wrapped in layers of licensed custody. I can press a button to sell them between 9 AM and 5 PM on weekdays, but I can only see any value if:

The broker cooperates; The bank receiving payments cooperates; The government does not block transactions.

This is worse than what Knut Svanholm elegantly pointed out in "Bitcoin: The Other Side of the Clown World":

"Banks are like a 2-of-3 multi-signature wallet, where you, the bank, and the government each hold a key. In other words, the money in the bank does not really belong to you. It is not even real money."

Or that holding stocks is not so great

I quickly reminded myself how opaque, absurd, and bureaucratic stock "ownership" is. Last month, when I transferred funds into my brokerage account, found STRK, and clicked "buy," I received an error message: "This security is not available to you."

It turns out I am not qualified to purchase U.S. securities through that broker.

Traditional financial assets are so opaque and require permission. Reminders of these outdated value technologies come one after another. Clearly, my "investment" dropped 11% within a day or two, reminding me that I still know nothing about fair valuation or market timing. (However, Bitcoin also dropped 5% from its two-week stable mode at $118,000 at that time, so the opportunity cost was somewhat mitigated.)

As I delved deeper into the murky waters of Bitcoin treasury companies, things got worse: two Swedish low-priced stocks (H100 and K33; I had to use the money I originally intended to buy STRK to purchase them) immediately dropped 10% and 20% respectively after I bought in.

Stocks are custodial and intangible; they exist in the broker's database, which in turn exists in some company's ledger somewhere. They are not physical… not even truly mine; I cannot spend them, transfer them, back them up, or restore them to a different wallet. They are stuck in place, echoing Adam Smith's famous saying about money: "dead stock."

So I set aside some other fiat funds in my regular banking app and impulsively bought MARA (MSTR was available there, but no other MicroStrategy tools); while MARA, like another treasury company, issues stocks and convertible bonds to hoard Bitcoin, at least it has a foundational operating business (mining), and its mNAV is about 1, so I wasn't paying a premium for their financial market and capital cost arbitrage games.

How exactly could Bitcoin treasury companies fail?

"We are likely to experience a boom and bust cycle similar to the internet bubble in the public stock market."

—Danny Knowles, May 28, "What Bitcoin Did"

MicroStrategy is bulletproof.

As Lyn Alden pointed out during the MicroStrategy Q2 earnings call, even in the event of an 80% drop in Bitcoin, MicroStrategy would be just fine. During the bear market of 2022, the company's situation was much worse, as its Bitcoin was directly tied to collateral for margin loans and bank debt. And in 2025, under a preferred stock-dominated scenario, it won't be the same.

Setting aside the occasional obsession of traditional financial analysts or journalists with mNAV, or why a company's value should be higher than the Bitcoin it holds, and the shock both inside and outside the Bitcoin community regarding the use of debt to purchase Bitcoin, MicroStrategy's financing method is incredibly conservative. The value of Bitcoin held by the company is about $77 billion; the size of the convertible bonds is about $5 billion (actually $8 billion, but some of it is deeply in the money, trading more like equity than debt). The total amount of preferred stocks STRK, STRD, STRF, and STRC is slightly over $6 billion. (This gives the company a leverage ratio of about 15%, meaning Bitcoin would have to drop over 85% for the company to face any solvency issues.)

Another potential problem could arise from the depletion of traditional financial money market capital. MicroStrategy's ability to surpass Bitcoin through lower/safe capital costs (or better debt terms) or by leveraging an mNAV above 1 (immediate appreciation, as it allows Saylor to buy Bitcoin at a discount) depends on these conditions. If these conditions disappear, such as no one buying the treasury company's issuance products, financial capital flowing elsewhere; money printing stopping; interest rates on government securities soaring, etc., I don't see how MicroStrategy's mNAV wouldn't directly drop back to 1.

Finally, MicroStrategy faces custody risks. As the largest participant, holding about 3% of the total supply, the honeypot risk is significant. (This may not be an issue for small companies distributed across very different jurisdictions.) MicroStrategy deliberately keeps its massive Bitcoin holdings in Coinbase custody solutions opaque.

What would happen to MicroStrategy's business if Coinbase went bankrupt? Or worse, if a new political climate brought confiscation or radical tax policies? These are good questions, but they are also very distant tail risks. Do we really need to worry about them that much?

Whether Bitcoin treasury companies are meant to bring Bitcoin into the center of global capital markets or whether it all ends in disaster, we will have to wait and see.

Conclusion: Selling Your Soul? Has the Ponzi Scheme Clouded Your Judgment?

Choose your Bitcoin treasury company wisely: H100 and Sander Andersen seem very focused on hoarding Bitcoin, and the company is rapidly climbing the Bitcoin treasury rankings. Currently, the financial markets are rewarding these companies' efforts. In contrast, the K33 team's actions have been much slower; since they first launched Bitcoin a few months ago, their stock price has experienced a classic short-term rise before gradually returning to the starting point. MARA and MicroStrategy's prices hover around levels seen in recent months.

I might soon grow tired of this latest wave of fiat financial engineering. Holding these custodial, broker-restricted traditional assets offers limited enjoyment.

Store Bitcoin in cold storage instead of fussing with these Bitcoin securities.

The treasury frenzy is spreading among Wall Street and excited Bitcoin enthusiasts. Perhaps the financialization of Bitcoin has arrived, but honestly, I think I will mostly just sit on the sidelines.

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