The Blockchain Group

Bitcoin treasury companies represent a significant risk in the current market cycle.

Consider this: These companies are issuing new shares to investors seeking Bitcoin exposure, creating a layer of complexity and risk between investors and the underlying asset.

Their primary product is essentially a derivative of Bitcoin, introducing traditional financial market risks.

Market dynamics are important to understand: The market-to-NAV ratio will fluctuate significantly during bull and bear markets, potentially similar to the GBTC premium/discount dynamics of previous cycles.

However, it's crucial to recognize that Bitcoin's $2 trillion market cap exists in a world of $1000 trillion in traditional assets. Many institutional investors face regulatory constraints or tax considerations that prevent direct Bitcoin ownership.

This structural reality is similar to how certain stocks may appear overvalued on traditional metrics like CAPE, yet maintain their positions due to specific market conditions and constraints.

The current silver lining is that these businesses are absorbing speculative capital that might otherwise flow into higher-risk assets, while directing it toward Bitcoin.

However, there's a significant risk that poorly managed companies may be forced to liquidate their Bitcoin holdings when market conditions change, as investors realize the advantages of direct Bitcoin ownership.

True corporate Bitcoin adoption should be our primary focus.

Companies that generate real economic value through their products and services, while maintaining Bitcoin as a treasury asset, are what will create sustainable value for the Bitcoin network.

Most other approaches represent traditional financial engineering with potential for significant unwinding.

As these companies emerge and investors share their apparent "gains," remember that Bitcoin remains the most compelling risk-adjusted asset in this space.

A key aspect of successful Bitcoin ownership is maintaining focus on the core asset, despite the emergence of various alternatives.

It's worth noting that large Bitcoin treasury positions (500-600k BTC) held by a single entity represent significant value beyond their spot price due to the substantial slippage that would occur when attempting to acquire such large positions in the open market. This creates an inherent premium to the underlying Bitcoin value.

Current market valuations, as indicated by metrics like mNAV (market-to-NAV ratio), suggest that Bitcoin treasury companies may be significantly undervalued. For instance, even with conservative replacement cost considerations, many of these companies are trading at mNAV ratios of 0.1-0.2, representing a substantial opportunity spread.

While some treasury companies may face challenges, well-managed ones with conservative and prudent strategies have the potential to thrive across multiple market cycles, serving as important bridges for institutional capital into the Bitcoin ecosystem.