Crypto Treasury Companies: everything you need to know

What Are Crypto Treasury Companies? 

Crypto treasury companies are businesses that hold substantial reserves of cryptocurrencies — most often Bitcoin — as core balance sheet assets. Rather than focusing on traditional revenue-generating operations, these companies operate primarily as crypto asset custodians, giving investors indirect exposure to digital assets through the equity markets.

While this model offers significant upside potential in bullish markets, it also carries an exceptional level of risk, driven by volatility, regulatory uncertainty and perhaps an overreliance on market sentiment.

As of 29 June, MicroStrategy — arguably the most prominent crypto treasury stock — held 597,325 Bitcoin, acquired at an average purchase price of $70,982, totaling roughly $42.4 billion. At a BTC price of $107,000, this reserve is worth approximately $64 billion.

Yet the company’s market capitalisation stands at circa $100 billion.

Why the disconnect? In short: reflexivity, momentum, potential long-term Bitcoin metrics and inarguably, speculation. Of course, whether we are in a market increasingly driven by meme dynamics and liquidity cycles, or these companies are simply being valued by different metrics, is a question for the individual.

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How Does the Flywheel Work?

The flywheel is a core component of a crypto treasury company — with the valuation premium arguably a product of the reflexive financial model:

1. The company raises capital through equity or convertible debt.
2. It uses the capital to purchase Bitcoin.
3. These purchases can drive up the price of Bitcoin due to liquidity constraints.
4. As Bitcoin’s price rises, so does the value of the company’s holdings.
5. The rising NAV (Net Asset Value) fuels investor enthusiasm, pushing up the stock price.
6. This in turn allows for further capital raises at higher valuations.
7. The cycle continues.

This self-reinforcing feedback loop has been highly effective in the crypto bull market, delivering exponential returns and synthetic Bitcoin exposure for shareholders.

However, the same reflexivity becomes a liability in bear markets. Consider the possibility:

1. A drop in BTC reduces NAV.
2. The share price falls, eroding the premium.
3. Fundraising becomes more difficult.
4. Debt obligations may necessitate the forced sale of Bitcoin.
5. Forced sales depress BTC further.
6. The cycle reverses into a downward spiral.

Overall, this means that crypto treasury companies are far more volatile and leveraged than Bitcoin itself, exposing investors to amplified upside and downside risk.

Why Are Crypto Treasury Companies Valued Above Their NAV? 

To understand valuations in this sector (whether sustainable or not) investors need to consider that most crypto treasury stocks do not trade at or near their market Net Asset Value (mNAV). Instead, they tend to work like high growth tech stocks — valued more on their future potential than present day fundamentals.

Consider this analogy: the most valuable stock in the world, Nvidia, trades at over 40x earnings because investors expect its profits to grow. Similarly, if you believe Bitcoin will rise to $1 million per coin, valuing a Bitcoin treasury company at 10x its current BTC holdings may be entirely rational.

However, MicroStrategy, despite being the archetype of this model, currently trades at a relatively modest mNAV premium. There are two possible interpretations — either the company has grown too large, making further growth and capital raises impractical. Or the market remains inefficient, and investors haven’t caught up with the model’s long-term potential.

Either way, the company’s ability to maintain and grow its BTC holdings remains central to its valuation.

Another useful metric in this space is days to cover mNAV, which is a theoretical measure of how long it would take for Bitcoin accumulation to catch up to the current market cap premium, assuming a consistent growth in BTC per share. This offers a rough framework to assess whether the stock price is ahead of fundamentals or if the company is on track to justify its valuation through Bitcoin acquisition alone.

MicroStrategy’s valuation premium reflects market confidence in its ability to accumulate Bitcoin and in Bitcoin’s long-term price trajectory. However, it’s worth considering that this premium may be entirely paper based, as there are significant risks. For example, it is incapable of liquidating its BTC position without a large market impact and remains dependent on both continuous capital inflows and positive momentum.

Further, unlike spot ETFs that track BTC directly and trade near NAV, crypto treasury stocks may also trade at substantial premiums because these companies directly influence the BTC price direction through their purchases.

In effect, this creates a form of leveraged Bitcoin exposure.

Long-Term Potential 

If Bitcoin ultimately fulfils its promise as a global store of value, inflation hedge or foundational layer of a decentralised financial system, then companies like MicroStrategy could become the digital equivalents of gold-backed institutions. A treasury of tens or hundreds of thousands of BTC could well serve as a powerful asset base, offering transformative value over the long term.

But this thesis depends on continued adoption, favourable regulation and Bitcoin’s resilience in future market cycles. For context, Bitcoin’s 24-hour turnover averages around 2% of its circulating supply — suggesting high market activity and a speculative environment.

While many institutions are starting to adopt the alternative asset, this is not a quiet adoption. It’s volatile, still to some extent meme-driven and often irrational. Crypto treasury companies exist within this context, and their valuations reflect it.

The UK’s First Bitcoin Treasury: The Smarter Web Company

Smarter Web Company — and those who followed — have adopted a similar BTC treasury strategy, targeting the underserved UK investor base. Given regulatory restrictions (such as the FCA’s ban on crypto derivatives and the lack of KIDs for US ETFs), British investors have limited ways to gain direct crypto exposure in tax-advantaged accounts.

These firms are exploiting that gap by offering crypto treasury shares that can be held in ISAs and SIPPs, creating a potentially attractive proposition for retail and institutional investors alike.

However, the advantages that come with being a small cap reliant on a BTC treasury strategy comes with risk. In a bear market, junior treasuries may be forced to liquidate. Thin liquidity cuts both ways, amplifying both gains and losses.

What to Look for in a Crypto Treasury Stock

For long-term conviction plays, you might consider:

1. Is the company prioritising shareholder value or insider enrichment?
2. Can it survive a crypto winter without selling BTC?
3. Do executives believe in Bitcoin, or are they riding hype?
4. Are leaders active and transparent in the crypto/small-cap community?
5. Is there a credible, aggressive BTC accumulation strategy?
6. Is the capital structure shareholder-friendly?

Any company that is forced to sell BTC to stay afloat risks destroying its core value proposition. MicroStrategy endured a 70% BTC drawdown in 2022 and survived only because of its underlying software business, which generates just $500 million in revenue per year.

Overall, crypto treasury companies offer a rare mix of narrative momentum and asymmetric upside. But the risks are substantial, and reflexive cycles can turn at any moment. For brokers, market makers, and traders, this is fertile ground for volatility and volume. For investors, the opportunity is real, but so is the danger.

Crypto treasury companies summed up

• Crypto treasury companies hold Bitcoin or altcoins as a balance sheet asset, creating equity-market exposure to BTC
• Their valuations often trade well above NAV due to expectations of continued BTC appreciation
• The model relies on a reflexive feedback loop of capital raises and BTC accumulation
• Risks include leverage, reflexivity reversal and thin market liquidity
• The upside is significant if BTC continues to rise, but investors must weigh that against extreme volatility and structural fragility