The Bitcoin Treasury Trade

POTUS pounces on the latest crypto craze

“I’ve built my enterprise on the firmest ground that can be found—the foolishness of people”. Ivar Krueger, the Match King (1880-1932)

Over the years I have written about a number of seemingly crazy trends in the world of finance, including SPACs, meme stocks, pump and dump schemes, and DOGE coin. But never did I expect to see all of these themes come together in a single financial construct, let alone one promoted by the President of the United States. This is now the world we live in, however, exemplified by the latest transaction from Trump Media & Technology Group (“Trump Media”), the President’s publicly traded company formed by the 2024 merger of Truth Social with the Digital World Acquisition Corp SPAC, a transaction I wrote about in April 2024, under the title Trump and Dump.

As readers may recall from my last post, Our Crypto President, Trump Media recently raised $2.4 billion from investors for the purpose of financing the company’s purchase of bitcoin, in a transaction modeled after the “bitcoin treasury” strategy of Michael Saylor's controversial company, MicroStrategy. This transaction came about after the President and his family had formed their own private crypto company, World Liberty Financial, and after the President had launched his own personal meme coin, $TRUMP, generating hundreds of millions of dollars for himself and his family. It also came after the President had announced plans to establish a US Bitcoin Strategic Reserve, which may with time become the world’s largest buyer and owner of bitcoin.

President Trump is not the only one trying to get in on the action, of course. As reported by The Wall Street Journal, at least sixty other companies are also now “binging on bitcoin” in the hopes of replicating the success of Saylor’s MicroStrategy, the shares of which have increased in price by 30x over the past five years. Among the other companies raising funds to buy bitcoin is the infamous GameStop , which perhaps tells us just about all we need to know about the financial integrity of this latest stock market trend.

But what exactly is the ‘bitcoin treasury’ strategy developed by Saylor’s MicroStrategy and now being copied by Trump Media and the others? How does it differ from other more traditional investment structures and strategies? And why should we be concerned when the President of the United States gets personally involved in promoting this sort of financial scheme?

Let’s explore.

Financing strategy 101. Before we get too deep into the weeds on MicroStategy and Trump Media, let’s cover just a few basics for those readers who may not be overly familiar with investment management or finance. And let's begin with the simple example of an individual who wants to make a $1,000 investment in the US stock market.

The easiest way for an individual to invest in the US stock market is through a traditional mutual fund or ETF (exchange traded fund) which is designed to match the performance of the S&P 500 or some other published stock index (a so-called “index fund”). That fund will typically buy each stock in the index in some proportion, giving the fund investor a “long” exposure to the US equity market. (In this context “long” means that the investor has effectively bought the index, betting on stock prices to rise. In contrast, a “short” position would result when the investor has effectively sold the index, betting on stock prices to fall.) When the price of the stocks in the S&P index increases by an aggregate 10%, the market value of the investor’s stake in the index fund should also increase by roughly the same 10%, net of some modest amount of fund management fees. And when the price of the S&P stocks falls by 10%, the value of the fund investment should decline by roughly that same 10% (less fees).

Now let’s assume that instead of US stocks, our investor wants to own bitcoin (BTC). In this case he (or she) can employ virtually the same investment structure and strategy, investing passively through a mutual fund or ETF which is designed to track changes in the market price of BTC, either through direct ownership of BTC by the fund or through some other financial structure which replicates direct ownership. And when the price of BTC goes up or down by 10%, so should the market value of the fund. (Our investor could also buy BTC directly, rather than through a fund, with similar economics.)

But perhaps our investor is very bullish on BTC, and would like to generate an even greater return on his investment. How might he accomplish this? Simply increasing the amount of money he invests is one way to go about this, but while this strategy will certainly increase the absolute dollar amount of the upside and downside payoffs, it also increases the amount of capital that our investor has at risk, leaving unchanged the percentage rate of return on his now larger investment.

To magnify the percentage returns on his investment without putting more of his own capital at risk, our investor might instead elect to finance some portion of his investment with OPM (Other People’s Money), perhaps through a “margin loan” from his bank or brokerage firm. Through the margin loan structure—essentially a non-recourse loan collateralized by the underlying investment (in this case shares of the BTC fund)—our investor can create a “leveraged” investment in bitcoin, which amplifies the rate of return on the “equity” portion of his investment. And so let’s assume that instead of buying $2,000 of a BTC fund with his own money, our investor finances half of his investment with a $1,000 margin loan from his broker. Now when the price of BTC goes up 10%, our investor will earn a levered return of perhaps 15%, reflecting the 10% gross return on the $2,000 investment ($200), less 5% assumed interest expense on the $1,000 margin loan ($50), resulting in a net gain of $150 on the $1,000 of equity in the transaction (15%). Of course leverage magnifies investor returns on the downside as well as the upside, and if the price of BTC goes down by 10% ($200), the investor will have lost $250 net of interest expense ($50), a negative return of 25% on his $1,000 equity investment.

There are of course other ways in which our investor might attempt to replicate the economics of the margin loan structure, for example by purchasing a leveraged ETF available from various financial institutions. These ETFs come with pre-packaged financing (and higher fees), but they do not always do a great job of replicating leveraged asset returns, for reasons that we do not need to go into here but which make these funds quite unattractive to more sophisticated investors.

But what if our investor could instead have invested his $1,000 directly into the shares of a publicly traded operating company (Company X) which itself employs financial leverage (borrowed money) for the purpose of buying bitcoin to hold in its corporate treasury investment account? This debt would by definition be non-recourse to our investor, because the money has been lent directly to Company X and not to its shareholders, a result which even the margin loan structure does not quite accomplish. And let’s assume that Company X finances its bitcoin purchases with the proceeds of borrowed funds (50%) and newly issued shares of common stock (50%). In this case, the returns to our bitcoin investor might look very similar to what he could have achieved with his own 50/50 margin loan structure, but with a more streamlined transaction structure.

As we will discuss below, this is pretty much the strategy which has so far been employed to great success by MicroStrategy, generating equity returns for its shareholders far in excess of the returns earned by those who purchased (unlevered) bitcoin directly (or through a fund). And this is also the strategy being adapted by Trump Media, GameStop and other newcomers looking to get in on the ‘treasury bitcoin’ gambit.

As is often the case, however, the devil is in the details. So let’s probe a bit more deeply into the MicroStrategy model, before turning our attention to Trump Media’s latest transaction.

The MicroStrategy Model. Michael Saylor’s company MicroStrategy, recently renamed “Strategy”, is the world’s largest publicly traded corporate owner of bitcoin, with holdings worth over $60 billion at current market prices. Its shares of common stock (ticker MSTR) now trade at an implied market value of over $100 billion and are owned by some 13,000 institutional investors as well as 800,000 retail accounts and over 500 ETFs. From the date on which it started buying Bitcoin, on August 10, 2020, to the date of the company’s latest financial statement, May 1, 2025, MicroStrategy raised roughly $38 billion from investors, the proceeds of which were used to purchase an equivalent amount of bitcoin (BTC), which it has retained in its corporate treasury investment account. This money was raised largely in the form of common stock ($26 billion) and convertible securities ($12bn). As of May 1, MSTR owned 553,555 BTC, representing 2.6% of all bitcoins in existence, worth $54 billion at the then current market price, a 42% increase over MSTR’s average purchase price of $68,459.

MSTR has continued purchasing bitcoin over the past six weeks, funded with the issuance of additional common stock and converts in varying proportions. As of June 9, MSTR owned roughly 582,000 BTC with a value of approximately $60 billion, a cumulative gain of roughly 50% over the company’s cost basis. On this same date, MSTR’s common stock had a market value of $110 billion, and traded at a price of roughly 2x the market value of its underlying BTC holdings, an aggregate difference of roughly $60 billion. Viewed another way, at today’s market prices MSTR shareholders are paying roughly $2 in share price for every $1 of bitcoin owned by the company on their behalf, down from $2.75 last fall.

Given this large share premium to the underlying value of its bitcoin holdings, it is not surprising that MicroStrategy has chosen to finance its bitcoin purchases with a large component of common stock. After all, for every newly issued share which it sells to investors, the Company is effectively exchanging $1 of underlying bitcoin for $2 in cash, which it uses to buy $2 of additional BTC, increasing the average per share bitcoin value for its preexisting shareholders. And it does this simply by issuing new shares to willing investors, without incurring any of the operational or other costs associated with mining new bitcoin.

This of course begs the question of why any rational investor would willingly pay $2 to purchase a security (MSTR shares) which has an intrinsic economic value of just $1 (invested in bitcoin), when the investor could instead buy the same amount of BTC directly (or though a fund) for half the price. And despite several days of research, I must admit that I still do not have a good answer. But rational or not, investors have bought a lot of MSTR shares over the years and they continue to do so today.

Journalist Molly Roberts has compared the mindset of MSTR shareholders to a “new religion…. You have to believe in bitcoin for it to work”. But there must be more to the MSTR magic than just a religious devotion to bitcoin, as even bitcoin true believers presumably don’t willingly burn half of every dollar they invest. Others have described MSTR as an “infinite money glitch”, a vague phrase which might suggest something akin to a Ponzi scheme, or less pejoratively some sort of market inefficiency which has not yet been arbitraged away, perhaps due to regulatory or other institutional constraints of some sort. Michael Saylor himself describes MSTR as a “quadratically reflexive engineered instrument”, which may (or may not) make sense to the financial engineers reading this blog, but which won’t likely shed much light on the question for the rest of us.

As a general matter, I am a huge skeptic when it comes to the value creation potential of highly engineered financing structures, which always make me think of Enron, LTCM or the derivatives traders at my old firm Deutsche Bank. And while I have read a number of more or less thoughtful reports on MSTR, I simply do not understand how one can possibly find $60 billion of incremental intrinsic value in the financing strategy or structure of a company whose total funding raised to date is only a fraction (not a multiple) of this amount. But Michael Saylor seems to have figured it out, or at least his investors believe that he has. And they must all be a lot smarter than I am, because they certainly are a lot richer.

For a bit more insight on this question I turned to Matt Levine of Money Stuff fame, thinking that he might not only understand what’s really going on at MSTR, but more importantly might be able to explain it to the rest of us in more or less plain English. As many B&B readers will know, Matt is a very smart guy who was an investment banker before he went straight and started earning an honest living as a financial journalist. And because he worked on the convert desk (at Goldman I believe), he presumably understands more than most of us do about financial engineering and the role it plays at MicroStrategy.

Levine refers to MSTR as a “perpetual motion machine” with a “self-reinforcing feedback loop” which sounds a lot like Saylor’s “quadratically reflexive engineered instrument”, and is not particularly informative (to me at least). According to Levine, the MSTR strategy has three principal components: (1) owning a big pot of bitcoin, (2) selling new shares at a large premium to the per share value of its bitcoin, and (3) reinvesting the money from the share sales in yet more bitcoin. This seems like an accurate description, based on my understanding of MSTR, but it doesn’t explain why investors would buy MSTR shares at such a large premium to NAV in the first place.

According to Levine, the explanation may have something to do with the value of the securities sold by MSTR, at least in part. MicroStrategy is a buyer of bitcoin, but it is a seller of volatility, of which it has a lot. The price of bitcoin (an asset of MSTR) is highly volatile, as is MSTR’s stock, and while most companies (and their shareholders) dislike volatility and would presumably pay a lot to reduce it, they don’t in fact often sell it. But MSTR does sell volatility, in large amounts, most notably by issuing convertible bonds to investors who want to own it. And the price these investors are willing to pay for volatility translates into a lower cost of capital for MSTR, increasing the intrinsic value of the company. At least this is how I understand Levine’s argument. But once again the total amount of convertible debt sold by MicroStrategy to date is on the order of only $15 billion, only $5 billion of which remains on the company’s balance sheet today, amounts which can’t possibly explain much of our missing $60 billion. And I don’t see how one can make a similar argument about enhancing intrinsic value by ‘selling volatility’ to the buyers of common stock, without engaging in circular logic. (The buyers of common stock are the owners of the company.)

Some portion of the missing $60 billion is no doubt attributable to the value of MicroStrategy’s software operations, but with less than $500 million in annual revenues this is unlikely to account for more than a few billion dollars of value at most. It may also be the case that some investors are willing to pay up for exposure to bitcoin via MSTR because of regulatory or institutional constraints on their ability to buy bitcoin directly or to replicate MSTR’s levered bitcoin strategy on their own. And while there might be something to this, I have yet to read a cogent analysis of what these constraints might be and how much they might be worth to the marginal buyer and seller of MSTR shares.

Call me a cynic, but I suspect that a more likely explanation for the pricing and performance of MSTR shares lies in the hyper-speculative nature of our current post-covid capital markets. In a world where investors (speculators) will even today buy Dogecoin at a market cap of $27 billion ($85bn at peak value), GameStop at $10 billion ($25bn peak value), and $TRUMP coins at $10 billion ($40bn peak), almost anything is possible I suppose.

And in this context, MicroStrategy’s ability to sell tens of billions of dollars of common shares to investors for twice their net asset value seems almost reasonable by comparison.

Trump Media’s New Strategy. As noted above, President Trump’s publicly traded media company, Trump Media, recently raised $2.4 billion from investors for the purpose of buying bitcoin. According to Eric Trump, this transaction was part of the company’s new “bitcoin treasury strategy” which was not only patterned on that of MicroStrategy but was also recommended to the Trumps by Michael Saylor himself.

But what exactly is Trump Media’s new ‘bitcoin treasury strategy’? Well here is how the CEO Devin Nunes (yes, that Devin Nunes) describes it in the Company’s offering press release: "We view Bitcoin as an apex instrument of financial freedom, and now Trump Media will hold cryptocurrency as a crucial part of our assets. Our first acquisition of a crown jewel asset, this investment will help defend our Company against harassment and discrimination by financial institutions, which plague many Americans and U.S. firms, and will create synergies for subscription payments, a utility token, and other planned transactions across Truth Social and Truth+. It's a big step forward in the Company's plans to evolve into a holding company by acquiring additional profit-generating, crown jewel assets consistent with America First principles."

I am not at all sure how to interpret Nunes’ statement, which at first glance reads more like a political manifesto than a description of corporate financial strategy, but which makes a bit more sense in the context of the company’s evolving commercial ambitions. (For more on this, read then summary of recent events in the company’s first quarter earnings release.) The Wall Street Journal recently published an article suggesting that the bitcoin industry has now gone “all-in” on MAGA, but from Nunes’ statement it also appears that MAGA (and DJT) has also gone all-in on bitcoin.

As B&B readers may recall, Trump Media (ticker DJT) was formed through the 2024 merger of the Trump family’s private social media company, Truth Social, with the publicly traded SPAC, Digital World Acquisition Corp, a transaction which I wrote about in my post Trump and Dump, which I recommend for those of you who may need a bit of a refresher on this part of the company’s history.

Trump Media is an early stage company with big ambitions but to date negligible revenues and large losses. Nevertheless, prior to its latest transaction the shares of DJT traded in the stock market at an implied value of $5.5 billion, for reasons that are not apparent (to me at least). Trump Media generated annual revenues in 2024 of less than $4 million (that’s million, not billion) and an operating loss of $186 million. At that time the company’s only asset of note was $750 million of cash and short-term investments, accounting for $3.40 a share in a $25 share price. Prior to the latest fundraising, President Trump owned a bit over 50% of the company, a stake with an implied market value of $2.8 billion, down from over $9 billion at the time of the peak merger related hype, but with an underlying asset value (cash and investments) of only $387 million.

All of this changed in late May, however, when Trump Media announced its transformational shift in both strategy and capitalization. As noted, the company issued $2.4 billon of new securities, consisting of $1.4 billion of new common stock (issued at $25.72 per share) and $1 billion of zero-coupon notes convertible into common stock at a price of $34.72, a conversion premium of 35%. The transaction was executed as a private placement (a so-called PIPE) with approximately 50 unnamed institutional investors. The transaction had the effect of diluting President Trump’s ownership stake in Trump Media from over 50% to around 40%, but it also tripled the underlying asset value of his shares (and those of the other legacy DJT shareholders), from an estimated $3.40 per share to $11 per share. (I am ignoring here all of the company’s associated liabilities.) For the President himself, this was an increase in asset value of $866 million, which strikes me as a very good trade for the President (and the other legacy DJT shareholders) though not perhaps for the new investors, who bought into the equity of a company that before the transaction was trading in the stock market at a price of over 7x asset value (2x pro-forma for the financing), only to see 20% of the value of their newly acquired shares disappear as the DJT share price collapsed in after market trading.

Why should we care about any of this? I obviously believe that the Trump Media transaction is newsworthy, otherwise I would not have written about it. But why? Well, for B&B readers who are still new to the study and practice of finance, both MSTR and DJT raise interesting questions about the workings of capital markets and our concepts of economic value, which often go unasked or unchallenged in the classroom, in corporate boardrooms and on Wall Street. Warren Buffett likes to say that “price is what you pay and value is what you get”, but far too many of us in the world of finance too often equate the concepts of price and value. According to Buffett, the stock market tells us the price of a security, but it doesn’t necessarily tell us much about its economic or intrinsic value. And if this is the case, what are we to make of companies like MSTR and DJT which trade in the stock market at share prices that seem divorced from any traditional sense of fundamental investment value?

We know very little about the fifty institutional investors who bought into Trump Media in the latest fundraising, and it is quite possible that at least some of them participated in the transaction for non-economic reasons, as was almost certainly the case with some of those who bought into $TRUMP last January and those who purchased World Liberty tokens before that. And so it may be that Trump Media is not a particularly good case with which to test the workings of ‘efficient capital markets’, although ironically the recent 20% decline in the price of the DJT shares may be a very good example of efficient markets in action.

But what about MSTR, with its 13,000 institutional investors and 800,000 retail shareholders? This is a large number of investors. Surely these folks are not all stupid, and I think we can only assume that at some level the buyers and owners of MSTR see value in the shares where others (including me) do not. This is of course how capital markets are supposed to work, which I think is generally for the good. MicroStrategy is fairly transparent about how it does business, and no one who buys into MSTR today can credibly say that they were misled by the Company about the investment merits of the securities they purchased. Everyone knows that MSTR trades at a big premium to NAV, even if the reasons are a bit unclear, and we should all understand that the company’s future prospects depend heavily on this continuing indefinitely. I think this is a terrible bet to take, at least today, and that’s why I don’t own the stock. Nor can I afford to short it, in case you were wondering.

At one level we can perhaps say more or less the same thing about Trump Media. But the issues raised by DJT are in some ways quite different from those raised by MSTR, precisely because of President Trump’s personal stake in the company and the extent to which he has chosen to tie his personal wealth to the future price of bitcoin and other digital assets. The Trump administration is currently undergoing its own review of crypto regulation, but with the President and several senior members of his administration now so heavily invested in this market, one has to wonder whether this administration is truly capable of making credible independent judgments about crypto policy in the best interests of the American public. And even if one is inclined to give Trump et al the benefit of the doubt, I think we can probably all agree that the optics are not good, with the President announcing the formation of a national “strategic bitcoin reserve” shortly before his own company launched a $2.4 billion bitcoin fund, and with 40% of all future investment gains from this fund flowing into the President’s personal net worth.

I believe it was former Trump senior advisor Anthony Scaramucci who referred to the “Idi Amin levels of financial corruption” now prevalent in the White House. In his view, the coin offerings of $TRUMP and World Liberty Financial were little more than vehicles for political bribery and corruption, which recent press reports seem to confirm. But even those who find the Scaramucci viewpoint overstated should nevertheless be concerned that the President’s personal financial ventures will distract from the need for bipartisan consensus on crypto regulation and further erode trust in an industry not historically known for its trustworthy behavior.

And it won’t help the crypto case when the American public comes to realize that what was once known as a libertarian movement consciously isolated from government entanglement is now in the midst of a full-blown MAGA takeover and has tied its future fortunes to those of our current president, rendering the crypto industry’s policy positions even more suspect to the majority of Americans who have not been drinking the crypto Kool-Aid.

Links

MicroStraegy Q1 2025 Investor Presentation, May 1, 2025

Deconstructing MSTR, VanEck Research, May 22. 2025

MicroStrategy Has Volatility to Sell, Matt Levine, Bloomberg Opinion, December 5. 2024

MicroStrategy Stock Returns by Year, Slickcharts

Trump Media Closes Bitcoin Treasury Trade, Company Website, May 30, 2025

Trump Media Registration Statement, June 5, 2025

Trump Media 10-Q, First Quarter 2025

Trump Media Q1 2025 Results Press Release

Trump Media Annual Report 10-K 2024

Trump’s Crypto Playbook is Now Clear, The Atlantic, June 10, 2025

Bitcoin goes all in on MAGA, Wall Street Journal, June 2, 2025

Breaking Down Trump’s Crypto Entanglements, Wall Street Journal, May 18, 2025