The Alchemy of Turning Bitcoin Into Stock Market Gold
Richard Coffin of The Plain Bagel examines one of the stranger financial phenomena of recent years: the rise of Bitcoin treasury companies, firms whose primary value proposition is simply holding Bitcoin on their balance sheets. At the center of this trend sits Strategy (formerly MicroStrategy), a once-declining business intelligence firm that has transformed itself into a $75 billion Bitcoin holding vehicle, delivering a 2,600% stock return over five years. The question Coffin methodically unpacks is whether this represents genuine financial innovation or an elaborate exercise in circular logic.
Paying Two Dollars for One Dollar of Bitcoin
The core paradox of Strategy's model is that investors routinely pay a premium of two to three times the actual value of the Bitcoin the company holds. On its face, this makes no sense. Anyone with a brokerage account can buy Bitcoin directly. So what exactly are investors paying extra for?
It's been argued online that the stock's premium represents investor enthusiasm for the space, confidence in Sailor Strategy here, as well as the view that the stock's premium will actually continue to expand in the future.
The explanations offered range from the plausible to the hand-wavy. There is a legitimate argument around regulatory access: some institutional investors face restrictions on holding cryptocurrency directly, and a publicly traded stock provides a compliant wrapper. The leverage argument carries some weight too. Strategy has issued roughly $9 billion in convertible notes, often at 0% interest rates, because the extreme volatility of its stock makes the conversion option valuable to lenders. An individual investor cannot replicate this kind of financing.
But these structural advantages only partially explain a 2x-3x premium. The rest appears to rest on momentum and belief, a conviction that the premium itself will persist or expand, which is the kind of reasoning that tends to age poorly in financial markets.
The Convertible Note Magic Trick
Coffin gives Strategy credit where it is due: the company has been clever about how it structures its leverage. By relying heavily on convertible notes and preferred shares rather than traditional debt, Strategy has built a balance sheet that is more resilient to Bitcoin drawdowns than a simple margin position would be.
It's been argued that focusing on convertible notes and preferred shares rather than typical debt gives a company a better ability to navigate volatile Bitcoin prices without being forced to liquidate its Bitcoin when it's in a pinch. Whereas an individual investor, for example, might get margin called if they find that their investment has fallen.
This is a genuine structural advantage. A margin call forces liquidation at the worst possible time. Strategy's convertible notes, by contrast, give the company breathing room. If Bitcoin drops 40%, Strategy does not face immediate forced selling. The convertible note holders simply hold debt that pays them back at maturity if the stock stays below the conversion price.
However, the resilience of this structure has limits. Strategy currently operates with a current ratio below one, meaning it has more liabilities due in the next twelve months than it has current assets to cover them. The preferred shares carry dividend obligations. Missing those payments would not technically constitute a default, but it would devastate investor confidence and make future capital raises far more expensive, potentially triggering the very downward spiral the structure was designed to prevent.
Bitcoin Yield: A Metric That Flatters
One of the more dubious concepts in the Bitcoin treasury playbook is "Bitcoin yield," a metric Strategy uses to argue it has increased the amount of Bitcoin per share for investors. The company reported a Bitcoin yield of 74% for 2024.
Now, of course, the company isn't just magically generating Bitcoin. There is someone along the line who's paying for this extra Bitcoin for shareholders here. So, it is fairly misrepresentative to take a company's number of bitcoins and divide by the number of shares without accounting for growing liabilities.
This is a critical point that often gets lost in the enthusiasm. Bitcoin yield sounds like a return metric, but it obscures the fact that the company has tripled its diluted share count since 2020 and taken on billions in convertible debt and preferred equity. The "yield" exists only as long as new investors keep arriving and paying premiums. Strip away the incoming capital, and the metric collapses. It is, in essence, measuring the company's ability to attract new money rather than any intrinsic return on the underlying asset.
The Copycat Problem
Perhaps the most telling sign that the Bitcoin treasury trend has moved beyond rational investment into speculative frenzy is the flood of imitators. Over 166 publicly traded companies now hold Bitcoin, more than triple the number from the previous year. Many of the new entrants are small, loss-making companies with thin trading volumes.
The strategy has seemingly become that if your stock doesn't have a good business, if you're losing money, you just announce that you're buying Bitcoin and investors will forgive you for not being good at your job, at least for a little bit.
Coffin draws a pointed parallel to the dot-com era, when companies could boost their stock price simply by adding ".com" to their name, and to the blockchain rebranding wave of 2017. The pattern is familiar: companies with no competitive advantage in the underlying asset announce exposure to it and see share prices jump 100% or more, even when Bitcoin itself has not moved. This is not a sign of value creation. It is a sign of speculative excess.
The proliferation also creates a practical problem for Strategy itself. With 166 companies competing for investor capital to buy Bitcoin, the terms will inevitably deteriorate. Higher interest rates, lower conversion premiums, more dilution. Strategy's own premium has already compressed from 2-3x down to roughly 1.5x, and the company has issued guidance that it will not sell shares below a 2.5x premium except to service existing obligations.
Meaning the company will only accept new investors to help pay off the old ones. Now, I know you're thinking this is starting to sound a little bit triangular, but that just means you're thinking too hard about it.
That dry observation may be the most important line in the entire analysis. When a company's primary use of new investor capital is servicing obligations to existing investors, the geometric resemblance to a certain class of financial scheme becomes difficult to ignore, regardless of whether the underlying asset has genuine value.
The Ideological Irony
Coffin saves one of his sharpest observations for the end. Bitcoin was born from a libertarian impulse to create a financial system outside of Wall Street's control. "Not your keys, not your coins" was the rallying cry. Now the Bitcoin community celebrates when major financial institutions accumulate the asset and cheerleads publicly traded holding companies that exist primarily to issue securities on Wall Street.
Michael Saylor, the movement's most visible champion, embodies this tension. His public persona mixes genuine conviction about Bitcoin as a store of value with the kind of aggressive promotion that would make a late-night infomercial host blush. As Coffin notes, Saylor has declared that people who hold fiat currency "we call them poor," a statement that reveals more about the culture surrounding Bitcoin treasuries than any balance sheet analysis could.
Bottom Line
The Bitcoin treasury model is not an "infinite money glitch." It is a leveraged bet on Bitcoin wrapped in the legitimacy of public equity markets, sustained by investor willingness to pay persistent premiums for indirect exposure. Strategy has executed this model more skillfully than anyone else, using clever debt structuring to manage downside risk. But the model's continued success depends entirely on new capital flowing in at favorable terms, a dependency that becomes more fragile as imitators flood the space and premiums compress. Coffin is careful not to predict a collapse, and that restraint is warranted. Bubbles can persist far longer than skeptics expect. But the structural similarities to previous cycles of speculative excess, the copycats, the made-up metrics, the companies pivoting overnight from failed business models, suggest that investors paying two dollars for one dollar of Bitcoin should understand exactly what that extra dollar is buying: hope that someone else will eventually pay three.