Source: Bitcoin Treasury
Written by: Andrej Antonijevic
Translated by: Shaw Golden Finance
Introduction
Banks have existed in various forms for hundreds of years. Their business model is typically based on a simple economic mechanism: they absorb deposits and use this funding base to provide financial products such as mortgages, corporate loans, payment services, and credit facilities. The difference between asset returns and liability costs forms the basis of their profitability.
Due to the widespread, regulated, and measurable nature of this business model, capital markets have developed clear methods for bank valuation. One of the most widely used methods is the Price-to-Book (P/B) ratio framework, which directly links a bank's valuation to its long-term return on equity, cost of capital, and sustainable growth rate.
Entering the 21st century, a new type of balance sheet entity has emerged: Bitcoin treasury reserve companies. These institutions issue capital denominated in fiat currency (debt, preferred stock, or equity) to acquire and hold Bitcoin as part of a long-term capital management strategy, viewing Bitcoin as a capital asset. Although the underlying assets differ, the economic logic is quite similar: both banks and Bitcoin treasury companies engage in capital transformation and can therefore be analyzed using the same valuation principles.
This article demonstrates how the P/B ratio framework used by banks can be directly applied to Bitcoin treasury companies, allowing investors to use a relevant and coherent analytical method to assess their value.
Bank Valuation Framework
The bank's P/B ratio valuation framework can be expressed as:
Where:
ROE is the bank's return on equity,
r is the cost of equity (the return required by investors),
g is the long-term growth rate of book value per share and dividends.
If a bank's return on equity is exactly equal to its cost of equity (ROE=r), then its trading price is equal to its book value. If ROE is higher than the cost of equity, then its trading price is at a premium. If ROE is lower than the cost of equity, then its trading price is at a discount.
This logic forms the basis of the P/B ratio framework and constitutes a conceptual bridge to Bitcoin treasury companies.
Applying the P/B Ratio Framework to Bitcoin Treasury Companies
Bitcoin treasury companies can be analyzed using the same valuation logic. Their book value is their net asset value (NAV), which is the value of the Bitcoin equity and cash they hold.
The return on equity of a Bitcoin treasury company consists of three components:
The increase in the price of Bitcoin denominated in fiat currency.
The appreciation of Bitcoin per share (BTC yield) when new funds are raised at a price above NAV, or when financing enables the company to increase its per-share Bitcoin holdings faster than passive investors.
Leverage, which amplifies the effect.
Thus, the relevant return on equity metric is:
Where:
g_BTC = the price growth of Bitcoin in fiat currency,
a = appreciation of Bitcoin per share (BTC yield),
L = leverage (the percentage of debt in total assets),
f = cost of debt.
This expression is similar to the bank's return on equity (ROE) equation: operating income minus financing costs, appropriately adjusted based on the balance sheet structure.
Framework Illustration
To demonstrate how this framework operates in practice (not based on specific estimated values, but for illustrative purposes), consider the following parameters:
Bitcoin price increase: 15%
Appreciation of Bitcoin per share (BTC yield): 5%
Leverage: 30%
Cost of debt: 8%
The compound return rate of Bitcoin appreciation and per-share earnings growth:
Repaying debt will reduce this ratio:
Resulting in:
The cost of equity can be estimated using the Capital Asset Pricing Model (CAPM), where the risk-free rate is 4% and the market risk premium is 4%. Based on the beta coefficient of the Bitcoin treasury company (for example, between 2.0 and 3.0, adjusted for leverage), the cost of equity will range from 12% to 16%.
Under these exemplary parameters:
Assuming a long-term currency depreciation rate (i.e., inflation rate) of g = 4%, the result roughly falls between 1.2 times and 1.8 times the net asset value.
This is not a prediction but a demonstration of the method: valuation directly reflects the relationship between ROE, cost of equity, and long-term growth, entirely consistent with banks.
Why This Analogy Holds
The analytical symmetry between banks and Bitcoin treasury companies is not coincidental. Both rely on capital transformation:
Banks transform low-yield deposits into high-yield loans and financial assets.
Bitcoin treasury companies transform fiat funds into Bitcoin exposure, using balance sheet management to enhance the long-term accumulation of Bitcoin per share.
In either case, value creation depends on the institution's ability to maintain a return on equity (ROE) that is above its cost of equity. This spread arises from the following structural advantages:
Funding advantage (access to low-cost funds)
Risk management and optionality advantage (timing and structure of issuance),
Franchise and trust advantage (the ability to effectively attract long-term capital).
These drivers determine the magnitude and duration of the gap between return on equity and interest rates, thereby determining whether the valuation multiple is above or below net asset value.
Conclusion
The P/B ratio model has long been a cornerstone of bank valuation because it directly links valuation to the underlying economics of capital markets. The same structure naturally applies to Bitcoin treasury companies:
The profitability of both types of institutions relies on the spread between their capital return and capital cost. By adopting a mature banking framework, investors can analyze Bitcoin treasury companies from a coherent and transparent perspective, understanding how balance sheet structure, issuance discipline, and Bitcoin appreciation collectively shape their long-term value creation.
If this framework applies to banks, it equally applies to Bitcoin treasury companies, as in both cases, valuation ultimately reflects the economic benefits of capital transformation.
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