Bitcoin digital asset treasuries (BTC DATs) have made their choice. They will be evaluated mainly by one measure: “Bitcoin per share.”
This public market iteration of “whoever possesses the most Bitcoin prevails” symbolizes a fresh phase of Bitcoin acceptance and activation.
Looking ahead, there exists a distinct fork in the road. How will BTC DATs effectively enhance Bitcoin per share?
Whether via dilutive financial strategies or non-dilutive yield and operations, the chosen route may dictate whether DATs evolve into a zero-sum, winner-takes-all competition or a positive-sum expansion of Bitcoin usability.
The Brilliance of BTC DATs
When Bitcoin is incorporated into a DAT, the holder gains more functionality than if it resided in a cold wallet.
Specifically, public markets unveil two significant toolsets for BTC DATS:
- Income generation: Operations designed to produce income to earn or acquire more BTC.
- Financial engineering: Debt, leverage, and various tools for restructuring balance sheets.
Although the majority of public companies are recognized primarily for their income generation, BTC DATs have predominantly concentrated on financial engineering thus far.
Strategy (MSTR) stands out as the first and most evident instance of a BTC DAT utilizing financial instruments to increase Bitcoin per share. Saylor has developed numerous synthetic Bitcoin financial products for Wall Street. STRK, STRF, STRD, and STRC are all innovations borne from its Bitcoin holdings.
Wall Street appreciates these products as they allow speculative investments in Bitcoin in previously unavailable fashions. In return, they have rewarded MicroStrategy with affordable financing, which MicroStrategy has redirected towards acquiring more BTC.
Saylor’s successful strategy has inspired several Bitcoin entrepreneurs who recognized that placing their BTC in a DAT can be likened to equipping Tony Stark with the Iron Man suit.
Concurrently, it’s crucial to understand that encapsulating Bitcoin in a stock does not guarantee a quick route to the ultimate goal. It signifies merely the onset of a journey fraught with potential challenges.
The Dilution Trap
While financial engineering can yield substantial value for DATs, it also presents a significant challenge: dilution.
Relying on a DAT for financial engineering raises an essential question: How can BTC be acquired today with minimal dilution tomorrow?
Strategy addresses this dilemma by providing financial products to Wall Street in exchange for minimally dilutive financing.
However, in the absence of Strategy’s scale, cost base, and suite of financial products, newer BTC DATs face considerable difficulty in enhancing BTC per share through financial engineering.
Often, acquiring BTC today necessitates issuing stock tomorrow. This translates into short-term growth in BPS followed by a regression to equilibrium. This method is hardly a sustainable way to enhance Bitcoin per share.
BTC DATs can vie for minimally dilutive financing by emulating Strategy’s approach, but this inevitably raises the issue of competitive differentiation.
If DATs merely seek to split the Bitcoin financial product landscape, the scope for distinction or growth remains limited.
Fortunately, DATs can transcend pie-slicing by enlarging the pie itself.
How to Grow the Pie
The sustained success of BTC DATs hinges less on financial engineering and more on income generation.
Though a standard practice in equities, BTC DATs established with hefty balance sheets and minimal operations may struggle to uncover scalable non-dilutive income correlating with their BTC valuation.
Operating profitable cash-flow generating businesses could work for select DATs, yet managing operations can be excessively costly and may not scale alongside an expanding BTC balance sheet.
Alternatively, lending or collateralizing underlying assets could adapt to the BTC balance sheet but might introduce new risks that could compromise BTC security.
The Search for Non-Dilutive Yield
For various non-BTC DATs, the mechanism for non-dilutive yield generation is inherently integrated. Native staking of the underlying token establishes an income foundational layer that scales with the treasury’s growth while posing relatively low risk.
As Bitcoin has traditionally lacked this option as a Proof of Work chain, the advent of Bitcoin staking protocols could present a source of non-dilutive income that these DATs necessitate.
As seen in non-BTC DATs, a foundational staking yield also facilitates additional financial products for Wall Street’s utilization. Thus, Bitcoin staking could enable scalable, non-dilutive income generation and also pave avenues for financial engineering.
A newfound dimension of income generation and financial engineering can nurture a fresh wave of BTC DATs founded on optimized Bitcoin yield services and the creation of derivatives. If Strategy achieved substantial growth with idle BTC on its balance sheet, envision the financial product giants that could emerge on the framework of yield-bearing BTC.
Bitcoin staking protocols additionally unlock potential for the growth of BTC scaling products. Leading operational DATs could also broaden their offerings, developing more advanced financial products and even establishing new Bitcoin-focused businesses such as neobanks, custody solutions, and protocol infrastructure tailored for Bitcoin scaling.
The Rising Tide
Embracing non-dilutive yield is how the BTC DAT sector can progress beyond clever balance-sheet tactics into an age of genuine Bitcoin value creation. If BTC DATs spearhead the adoption of new Bitcoin applications, products, and services, they can enhance Bitcoin’s utility and generate a flywheel effect of compounding Bitcoin per share growth.
This represents the pathway toward the Bitcoinification of finance as opposed to the financialization of Bitcoin. It is a means for BTC DATs to evolve from balance-sheet strategies into authentic Bitcoin operating enterprises, subsequently expanding Bitcoin’s role as a productive financial asset.
