This episode unpacks the rapidly expanding "MicroStrategy playbook," exploring how companies are leveraging public markets to build Bitcoin treasuries and what this financial engineering means for crypto investors and researchers.
The Genesis: MicroStrategy's Pioneering Capital Markets Play
- Tyler Evans outlines how Michael Saylor and MicroStrategy innovatively pioneered the corporate Bitcoin treasury strategy. Saylor's early conviction, moving before Bitcoin was a consensus trade, was crucial.
- MicroStrategy, a company that experienced the dot-com boom and bust, found a new way to reinvent itself by embracing Bitcoin.
- A key insight from Tyler is that Saylor identified a significant gap in the U.S. market: “prior to the Bitcoin ETFs when there was no real way for institutional allocators to express Bitcoin view bitcoin exposure.” MicroStrategy, by accumulating significant Bitcoin, effectively became a proxy for a Bitcoin ETF.
- The strategy evolved beyond simple Bitcoin holding. Saylor capitalized on securitizing Bitcoin into various financial instruments like convertible bonds, appealing to diverse institutional capital pools (fixed income, pensions, insurance funds) that might otherwise have no mandate to hold Bitcoin directly. A convertible bond is a type of debt security that the holder can convert into a specified number of shares of common stock in the issuing company.
Why Corporate Treasury Strategies Excite Investors Like ParaFi
- Josh Solesbury from ParaFi (the transcript mentions "Parfy," likely a transcription error for the well-known firm ParaFi Capital) views these treasury strategies as part of a "Cambrian explosion" in public markets, termed "reverse tokenization." This refers to crypto assets entering traditional public capital markets through various instruments.
- The scale is significant: Josh notes, "from this January to May roughly 40 companies raised capital to have some type of crypto asset on their treasury... and that was roughly 17 billion in capital."
- ParaFi is interested because these strategies disrupt "sleepy markets" like the preferred equity (prep) market and the convertible bond market, with MicroStrategy potentially being the largest single convert issuer.
- A core attraction for ParaFi, as Josh explains, is the potential to "construct a like Bitcoin plus return profile with these instruments," aiming for Bitcoin's performance on the downside but superior performance on the upside through careful structuring and entry points.
Understanding Asymmetric Bitcoin Exposure and "Torque"
- The discussion addresses why MicroStrategy has often outperformed Bitcoin directly. Josh attributes this to Saylor's ability to "captivate the capital markets" and employ "capital structure arbitrage" to create a "juiced up return on Bitcoin."
- He introduces the finance term "Torque," which refers to capital structure engineering. Saylor applies this by increasing Bitcoin value per share through financing mechanisms. As long as the premium to Net Asset Value (NAV) – the total value of a company's assets minus its liabilities – is maintained, value can be created.
- The underlying volatility of Bitcoin is key. By packaging this volatility appealingly for different investor types (debt, equity), companies can bring in capital at a premium to NAV, allowing them to acquire more Bitcoin per share in a less dilutive way.
- Tyler Evans adds that this "positive growth in Bitcoin per share or you know colloquially called BTC yield" is a crucial differentiator from Bitcoin ETFs, where fees can lead to a decreasing Bitcoin balance per share over time.
The Art of Storytelling vs. Financial Engineering
- Josh Solesbury candidly states, "I'm willing to say that I think a large part of it is captivating candidly." He emphasizes that Saylor's storytelling ability is critical for convincing investors to buy Bitcoin exposure at a premium.
- Tyler Evans, while agreeing on the marketing aspect, characterizes the "arbitrage" component as Saylor identifying a "true supply demand imbalance." For instance, there's demand from fixed-income investors for Bitcoin exposure, and MicroStrategy creates products to service this unmet demand, achieving preferential pricing.
Comparing to Grayscale's GBTC
- Both Tyler and Josh have deep experience with the Grayscale Bitcoin Trust (GBTC) trade, including activist efforts to convert it to an ETF. GBTC is an investment vehicle that allows investors to gain exposure to Bitcoin without directly buying and holding the cryptocurrency.
- Tyler explains that MicroStrategy taps into a similar supply-demand imbalance that caused GBTC to trade at a premium. However, the crucial difference is that "with the corporate issuer model. The company is the one who can issue new securities who can capture that arbitrage and and turn it into shareholder value," unlike a trust structure.
- Josh theorizes that corporate treasury strategies might have a better mechanism to manage discounts to NAV by potentially selling Bitcoin to buy back shares, an action Grayscale couldn't take. This raises questions about CEO willingness to sell Bitcoin versus ideological "stacking."
What Assets Suit This Treasury Strategy?
- Josh Solesbury believes there's a limit. The asset needs "size underlying wise to be able to accumulate" and "recognition and quote unquote, you know, trust." He finds it hard to engineer this for obscure long-tail assets.
- While seeing exploratory opportunities for a few other assets with high volatility and sufficient market cap, Josh views the proliferation of long-tail asset treasury strategies as "a bit of a sign of froth in the market perhaps."
The Expanding Universe of Bitcoin Treasury Plays
- Beyond MicroStrategy, companies like Tether, SoftBank, and Jack Mallers' 21 are adopting similar Bitcoin treasury strategies. Tyler Evans is involved with Nakamoto, which raised a significant PIPE deal. A PIPE (Private Investment in Public Equity) is a mechanism for companies to raise capital by selling publicly traded common shares or preferred stock to private investors.
- Tyler suggests there's room for more than one player, as institutional funds have risk limits per company. Differentiation can occur through the nature of any operating business (e.g., MicroStrategy's software, 21's pure play), leverage types, and how actively the Bitcoin on the balance sheet is managed (e.g., generating yield via on-chain activities or lending).
Structuring These Bitcoin Treasury Vehicles
- The host outlines a common path: start a holding company, seed it, raise larger capital (equity/debt), find a public shell company, and execute a reverse merger – a way for a private company to go public by acquiring a publicly listed shell company.
- Tyler Evans confirms this is one route (used by Nakamoto) but highlights diversity:
- SPACs (Special Purpose Acquisition Companies): e.g., 21 merging with Cantor Fitzgerald Equity Partners. A SPAC is a shell company set up by investors with the sole purpose of raising money through an IPO to eventually acquire another company.
- Existing listed companies pivoting: e.g., MetaPlanet, a Japanese hotel company, raised equity to start its Bitcoin journey.
- IPOs: e.g., The Smarter Web Company (SWC) in the UK, an investment Tyler is involved with, IPO'd as a Bitcoin treasury play, initially incorporating a web design agency to facilitate the listing process.
Global Proliferation and Deal Structuring
- Tyler Evans observes a rapid increase in these treasury companies globally, predicting "we're going to have one in in every single capital market in the next 12 months," especially where Bitcoin ETFs are unavailable.
- Josh Solesbury discusses structuring deals for these emerging players. Entry points vary (private, just public). ParaFi aims for the "best like risk-adjusted return," using instruments like straight equity, converts, warrants, and put options to engineer a "Bitcoin plus" return profile with downside protection.
- A key consideration for investors like Josh is whether they are thinking in Bitcoin-denominated returns or US dollar terms. "For Tyler and I, it's a little bit easier to wrap our heads around [Bitcoin-denominated returns], but for other folks... they're like, 'Oh, I can't put money in this because what if Bitcoin price goes down?'" This Bitcoin-native perspective can be an edge.
Risks and Misunderstandings in the Treasury Strategy
- Dan Ardele's skeptical tweet about corporate treasury strategies ending badly prompts a discussion on risks. Tyler Evans identifies the primary risk as the "use of leverage or converts by these companies," especially those taking on excessive leverage or predatory terms, or encumbering their Bitcoin (which MicroStrategy avoids). This echoes issues seen with public Bitcoin miners in the previous cycle.
- Despite risks, Tyler sees the strategy as a net positive, onboarding billions from traditional finance into Bitcoin and educating institutional investors.
- A common misunderstanding, according to Tyler, is not grasping the MNAB (Market Cap to Net Asset Value) multiple. Investors should understand how much they're paying for $1 of Bitcoin on a company's balance sheet. Paying a 10-20x multiple might be a bad deal, while a 2-3x multiple for a company growing its Bitcoin stack rapidly could be attractive.
- Josh Solesbury emphasizes the importance of "sound operators who have a very... deep understanding of capital markets." Smaller operators might struggle to replicate MicroStrategy's success with instruments like ATMs (At-The-Market offerings) – which allow public companies to raise capital over time by selling newly issued shares directly into the trading market – if they lack robust volume and market access.
Beyond Bitcoin: Treasury Strategies for Other Crypto Assets
- The conversation shifts to applying this playbook to non-Bitcoin assets, like Solana (the transcript uses "Salana"). Josh Solesbury notes many similarities in the analytical framework but highlights differences:
- Public market access: There might be no ETF for assets like Solana, potentially creating retail demand for a proxy.
- Yield from Proof-of-Stake (POS) assets: Staking rewards can offer an additional accretion mechanism, potentially funding dividends or interest payments. POS is a consensus mechanism where users stake their own crypto to validate transactions and create new blocks.
- However, Josh expresses caution about L1/L2 founders rushing to create public entities to buy their tokens. He believes the "appetite in the markets for these longtail assets is extremely temporal," and access to capital could dry up quickly if market conditions change.
- Tyler Evans adds that for this strategy to be sustainable long-term, it needs to service an "institutional buyer, institutional bid," which clearly exists for Bitcoin but is "much more dubious" and "probably is too early" for most other assets.
The Indispensable "Michael Saylor" Archetype
- A critical, often underestimated, piece of the puzzle is having a strong leader. The speakers agree that simply running the financial playbook isn't enough; a "Michael Saylor" figure – brilliant financially and as a marketer/storyteller – is crucial.
- Tyler Evans calls this the "director of Bitcoin strategy role," emphasizing the need for an evangelist to build community excitement and narrative, which translates into market flows.
The Grand Vision: Hyperbitcoinization and Reverse Tokenization
- Tyler Evans' long-term vision is "hyper Bitcoinization," with Bitcoin becoming the reserve asset. He sees companies like Tesla and Block (formerly Square) already treating Bitcoin as a responsible treasury management strategy. Hyperbitcoinization is a theoretical future state where Bitcoin becomes the world's dominant form of money.
- He notes that with companies like Coinbase in the S&P 500 and MicroStrategy in the QQQ, Bitcoin exposure is indirectly becoming part of many standard investment portfolios, forcing money managers to consider it.
- Josh Solesbury reiterates the significance of "reverse tokenization," a term coined by ParaFi's Benco. He states, "we've not at all ever seen the level of activity at the intersection of public markets and crypto assets that we're seeing today." This institutional engagement legitimizes the space and brings in new pools of capital.
- Josh believes this trend will "unlock doors... on the technology side as well," as familiarity with Bitcoin in traditional finance pipes could pave the way for stablecoins and other digital asset integrations.
Concluding Thoughts on the Bitcoin Ecosystem
- Tyler Evans, whose firm UTXO is Bitcoin-focused, remains excited about Bitcoin L2s (Layer 2 scaling solutions) and the DeFi ecosystem being built on Bitcoin. He sees treasury corporations as "stage one to Trojan horse TradFi flows into Bitcoin," hoping users will then explore the broader Bitcoin-native financial ecosystem.
This episode reveals corporate Bitcoin treasuries as a major institutional adoption vector. Investors and researchers should monitor the MNAB multiples of these entities and the quality of their capital market execution, particularly regarding leverage and operator expertise, as this trend expands globally.
