Buying shares in whoever buys bitcoin isn’t buying bitcoin

What do they actually do?

The stated thesis is simple. Instead of holding cash that inflation eats into, or government bonds that return almost nothing after tax, they put everything into an asset with a known maximum supply. Put like that, it’s a treasury decision, and treasury decisions are judged by how they’re funded.

That’s what separates them from a listed fund. A fund just tracks the price. These companies accumulate aggressively, and to do it they issue shares or debt. Buying their shares means taking on the asset together with the way it gets bought. In the week I’m writing about they added 390 bitcoin for $43.4 million, at an average of $111,053, just under that day’s market price of $114,108.

How do they pay for what they buy?

The second is debt convertible into shares at a price fixed in advance, at interest close to zero, because whoever buys it is betting the stock will rise. That’s synthetic leverage. If the coin rises, the debt more or less pays for itself. If it falls below certain thresholds, at some point something has to be covered, and covering means selling.

The third is the cash from the old business, which by now barely matters next to the scale of the purchases. And that says everything about the model, because the company that was there before has become an accounting detail inside a vehicle for accumulation.

The purchases are financed from three sources: continuous issuance of shares into the market, which dilutes whoever was already there straight away; convertible bonds at almost zero interest, which are synthetic leverage and can force a cover if the price falls; the cash flow of the historical business, by now marginal against the scale of the purchases.

The metric they invented for themselves

The measure is honest, and it asks the right question. Publishing it every week is more transparency than almost any listed company offers. It’s still a measure of process more than of results, though: it tells you the accumulation is beating the dilution, and it says nothing about tomorrow’s price.

Then there’s the other company, the one doing the same thing on Ethereum, which has said publicly it wants to control 5 percent of the supply. A target like that, if it gets there, changes the market it’s buying into. Its demand becomes part of the price, and whoever creates it can no longer leave without taking apart the price they built.

Where does it break?

The third is concentration, with zero diversification by definition, since diversification is exactly what they gave up. The fourth is the forced sale. If the price falls far enough for long enough, the debt that paid for itself becomes a debt to repay, and the only asset you have to do it with is the one you bought.

So in the end there’s only one practical question: why buy the share instead of the coin? The honest answer is that it makes sense if you believe whoever accumulates can buy better than you can, net of dilution, or if your own constraints stop you holding the coin directly. Otherwise you’re paying a premium for a service you can do yourself.

The model’s risks: volatility amplified against the underlying asset; continuous dilution of existing shareholders; total concentration on a single asset; forced sale of the asset to cover the debt if the price stays low for long.