The tragic fate of Bitcoin Treasury Companies (BTC-TCs)

Assume the end state: ETF consolidation + 1–2 flagship BTC-TCs as spectacle, not a herd.

Photo by Sylvain Gllm on Unsplash

Bitcoin Treasury Companies (BTC-TCs): Organized, Expanded, Actionable

A) Controllers’ Objective Function

• Containment over eradication. Keep Bitcoin as a supervised SoV wrapper (ETFs, qualified custodians), not a retail MoE that competes with CBDC/stablecoin rails.

• Paperization & herding. Route flows into vehicles with AUPs/off-switches (bank rails, app stores, custodians).

• Collateral stability. Block a scalable corporate carry trade (borrow cheap → buy Bitcoin) that competes with Treasuries.

• Few honeypots > many. A couple of big wrappers absorb attention and demand. A herd creates rates/policy headaches.

Revealed-preference levers (already used):
index committee discretion; accounting pacing; Prime Brokerage (PB) margin & haircuts; custodian concentration caps; disclosure burdens; “investment company” box if needed.

B) How BTC-TCs Fit or Clash with that Objective

Aligned (why the model is tolerated)

• Honeypots by design. Equity wrappers feel like Bitcoin but live inside listing rules, auditors, bank rails, and can be hedged/papered by MMs (Market Makers).

• Shock absorbers. Draw-downs socialize into equity and PB lines, not the banking core.

• Tax/admin perfect. W-2 buyers in brokerages, clean 1099s.

Misaligned (where suppression kicks in)

• Shadow reserve buyer risk. If scale × premium × leverage grows, reflexive “equity mining” can crowd safe-collateral demand.

• Moral hazard. Boards “mint the premium” (ATM/PIPE/convert treadmill). Retail gets diluted; regulators get twitchy.

• Funding contagion. Crash + correlated margin calls + basis trades → PB risk. Knobs tighten pre-emptively.

C) Typology: Risk Tiers (with Controller stance)

Tier A — Operating companies with BTC reserves

• Pros: EBITDA, diversified financing, less reflexive.

• Cons: Optics/auditors/rating agencies cap BTC weight.

• Controller stance: Tolerate modest allocations; jawbone if outsized.

Tier B — Pure BTC holding companies (MSTR-like)

• Pros: Clean exposure, equity-premium mining possible.

• Cons: Reflexivity; convert overhang; premium mean-reversion risk.

• Controller stance: Allow 1–2 flagships; starve the rest (index veto, margin frictions).

Tier C — Microcap BTC-TCs / PIPE (Private Investment in Public Equity) farms

• Pros (insiders): ATM against hype; fees.

• Cons (holders): SG&A drag, governance risk, opsec risk; 20–95% draw-downs routine.

• Controller stance: Useful cautionary tales; let the market cleanse.

Tier D — Miners drifting into BTC-asset companies

• Pros: Double beta (hash-price + BTC); easy story.

• Cons: Power markets, CAPEX cycles, dilution treadmill; policy-sensitive.

• Controller stance: Risk theater is fine; controlled via energy policy/hosting choke-points.

D) 3–5 Year Arc (probabilities)

• 60% — Consolidated paperization. ETFs + 1–2 BTC-TC flagships dominate; indices exclude most BTC-TCs; microcaps bleed/delist; BTC ≈ SoV corridor; MoE flows migrate to stablecoins/tokenized deposits.

• 25% — Investment-company box. Serial diluters nudged into ’40-Act-like constraints (leverage caps, fee-like disclosure); equity premia compress; ETFs eat share.

• 15% — Shock + hygiene. Custody/accounting failure → de-facto PoR-like (Proof-of-Reserves) attestations; 1–2 zeros; survivors cleaner; paperization remains.

• <5% — True ban. Unnecessary; existing knobs work.

E) Reflexivity Math & Why mNAV < 1 Matters

Let:

• NAV = (BTC held × BTC price − net debt − fees) / shares

• Premium (P%) = (Price / NAV) − 1

Equity-mining loop (good for holders only if P% high):
When P% > +10–15% and issuance costs low → sell ATM/convert → buy BTC → NAV/share can rise even with dilution.

Regime shift (ETFs mature):
Arbitrage saturates, P% mean-reverts. When P% ≤ +5% or negative, every new share destroys value (NAV/share down), SG&A and coupon drag make BTC-TC worse than ETFs on fee load. Result: long-term destroyers, cyclical trades at best.

F) Controller Toolkit: Concrete Knobs (and your trading tells)

• Index committee veto. Exclusion from S&P/FTSE/MSCI → no passive bid → premia capped. Tell: committee rhetoric about “business purpose”.

• Accounting pacing. Favorable FV with heavier disclosure/opsec → small BTC-TCs struggle.

• Prime Broker (PB) margin/haircuts. House margins up → leverage down → equity-mining stalls. Tell: PB margin letters leak to clients.

• Custody choke-points. Quiet custodian caps; Acceptable Use Policy (AUP) triggers; delayed large UTXOs.

• Disclosure burdens. MD&A granularity, risk factor expansion, near-PoR (Proof-of-Reserves) attestations.

• ’40-Act nudge. “You look like an investment company” → leverage caps, board independence.

G) Quality Scoring (10-point rubric you can apply in 5 minutes)

Score 0–2 each (max 10):

1. Premium health: 12-mo avg P% > +10% and rising (2); flat (1); ≤ +5% or negative (0).

2. Issuance discipline: Published rules; caps on ATM/convert usage tied to P% bands (2); ad-hoc (0).

3. Debt ladder quality: No near-term converts; fixed rate; low covenant risk (2); messy (0).

4. Custody/opsec: Top-tier custodian + independent attestation/PoR-like proof (2); opaque (0).

5. All-in cost vs ETF: (SG&A + coupons + custody) ≤ ETF fee + 50–75 bps (2); worse (0).

Interpretation:

• 8–10: tactical candidate only if P% strong and issuance rules credible.

• 5–7: avoid unless trading a specific catalyst; watch for dilution creep.

• ≤4: short/avoid; long BTC via ETF or self-custody instead.

H) Monitoring: Three Dials That Call the Regime

1. Paperization Ratio: (ETF + centralized custodian balances) / free float.

   • PR ↑ → volatility down, premia mean-revert, equity-mining harder. Trade carry, not moonshots.

2. Controller Pressure Index (CPI*) (your CPI, not inflation)

   • Composite of: index vetoes, Prime Brokerage (PB) margin hikes, custody Acceptable Use Policy (AUP) updates, disclosure burdens.

   • High CPI* → avoid BTC-TC premia; add to ETFs/self-custody on dips; expect managed cyclicality.

3. mNAV Spread Heatmap: Real-time P% by ticker + issuance activity.

   • Green bands signal short windows for accretive issuance; red bands = dilution traps.

I) Non-obvious Risks (worth pre-mortem)

• App-store/AUP perimeter push: Wallets/exchanges tightened → ETF share ↑, BTC-TC premia ↓.

• Custodian incident: Market punishes small BTC-TCs disproportionately; ETFs recover faster.

• Proof-of-reserves mandate: Good for survivors; lethal for the sloppy.

• Tax asymmetry: Differential treatment pushes retail to ETFs; BTC-TCs lose flow even if “cheaper” on paper.

J) Bottom Line (what to actually do)

1. Assume the end state: ETF consolidation + 1–2 flagship BTC-TCs as spectacle, not a herd.

2. Treat most BTC-TCs as cyclical premium trades (if that), not investments.

3. Own Bitcoin exposure as a barbell: ETF for carry/liquidity + self-custody for tail events. Self-custody = Regime-break convexity; Not seizure-prone; no wrapper risk.

Always on lens: incentives > ideals; control > fairness; stability > truth. Follow revealed preference, not marketing.

Bitcoin Treasury Companies are great if you’re a Bitcoin influencer, a PIPE investor (one who purchases shares of a public company through a Private Investment in Public Equity (PIPE) transaction, typically at a price below the current market value), or someone on the board of a Treasury Company.

Bitcoin Treasury Companies are not great, if you are a regular, pleb investor - you are most likely going to be used as exit liquidity.

None of this should be considered investment advice.

Other articles I’ve written on Bitcoin:

• What most Bitcoiners are wrong about

• Controlled Opposition Assets (to Bitcoin as MoE)

• How governments and institutions are domesticating Bitcoin

• How the Bitcoin cycle changes in the post-ETF era

• Why governments won’t attempt to ban Bitcoin

• My Bitcoin 5-Year Price Model (Containment Regime)

• Permissionless technology ≠ permissionless adoption (implications for Bitcoin)

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