The Impacts of Bitcoin Holding on Company Profitability

K33’s Torbjørn Bull Jenssen argues that merely accumulating Bitcoin without a clear strategy jeopardizes the financial viability of treasury companies.

Listed companies are quickly becoming Bitcoin treasury entities, collecting funds to acquire BTC and keep it on their balance sheets. Given the increasing recognition of Bitcoin as a prospective global reserve asset, this trend appears beneficial. However, a significant issue persists: many of these companies develop acquisition strategies lacking a robust business model.

Why pay a premium when Bitcoin can be purchased directly?

Investors can easily acquire Bitcoin directly, either through conventional purchases or ETFs. So, why would anyone choose to invest via publicly traded companies that sell at a notable premium to the underlying net asset value of their Bitcoin?

Bitcoin Treasury

The unfortunate truth is: unless a company has a definitive approach to utilize its Bitcoin in ways ordinary investors cannot replicate, buying through such firms may not be wise. The retention of BTC should fulfill a practical purpose. If not, companies should return the raised funds to shareholders, allowing them to purchase Bitcoin independently.

Bitcoin Yield ≠ Business Model

Some analysts suggest using the concept of Bitcoin yield, indicating the percentage increase in BTC value per share over a period, as a potential justification for premiums charged. While interesting, this metric alone does not vindicate paying a premium to the net asset value.

A business plan, not just a BTC plan

Although not all Bitcoin treasury entities should trade below or at NAV, a premium must involve more than mere acquisition funding; it necessitates a comprehensive operational strategy. Strong Bitcoin assets can serve as the backbone for generating revenue and fueling business operations.

In essence, raising funds solely to pursue Bitcoin yield is inadequate as a business strategy. If a treasury firm fails to establish its operational plan, its premium is bound to diminish, possibly resulting in an acquisition by a more strategically capable entity.

Bitcoin now represents the new benchmark. To surpass BTC, businesses must progress beyond the approach of merely acquiring and holding it; they need to devise an operational framework on how to harness Bitcoin effectively.