Bitcoin Magazine
Are Bitcoin Treasury Companies Ponzi Schemes?
The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.
Satoshi Nakamoto, 11 February, 2009.
Bitcoin treasury companies are all the rage, these days.
There’s a story, likely apocryphal, of Albert Einstein working at the Swiss Patent Office in the early 1900s and examining devices claiming to be perpetual motion machines. “We know they don’t work,” Einstein is supposed to have quipped. “The fun part is working out why they don’t work.”
Financial machines of perpetual motion don’t work either, but financial history, my specialty, is littered with people trying: Usually, the elaborate attempts have to blow up before we can see them for what they were. From the South Sea Company directors trying to bubble away Britain’s government debt in 1720 to the shitcoiners and scammers of 2017 (and again in 2022) dreaming of perpetual crypto riches, there’s always another schmuck thinking this time is different.
Admittedly, when (if?) we are right and bitcoin swallows the world, hyperbitcoinization (defined around here as “the inflection point at which bitcoin becomes the default value system of the world”) implies that eventually, some time will be different.
When the now-forgotten Sam Bankman-Fried, on Bloomberg’s Odd Lots in April 2022, infamously analogized yield farming to an empty black box of crypto changing hands at ever-higher prices, Matt Levine restated his description thus: “You’re just like, well, I’m in the Ponzi business and it’s pretty good.”
…to which SBF answered yes — completely serious and without hesitation. Yes, I’m peddling Ponzis and business is good.
Oh, how memories fade. Fast-forward a mere three years and we made the Ponzi business great again. Bitcoin 2025 saw announcement after announcement by bitcoin treasury companies launching one daring and aggressive financial engineering attempt after another.
Supposedly, the way bitcoin reaches the heavens or even the plebian masses now is not a mass exodus from financial institutions and a fulfillment of a dreamy cypherpunk destiny, but through heavily speculative, ridiculously complicated financial plays that turn equities and fixed-income securities into funding pools for buying bitcoin.
Bitcoin treasury companies — of which David Bailey, the owner of Bitcoin Magazine, is peddling one, NAKA, and UTXO Management, another sister company of Bitcoin Magazine, is heavily invested in several others, hashtag disclaimers everywhere — are this cycle’s FTX, led by more eloquent, sophisticated and better-looking Bankman-Frieds, and trading in much larger volumes than the convicted felon now serving 25 years in prison ever could have dreamed of.
For how can a bitcoin, wrapped in a corporate charter, suddenly be worth double, triple, or ten times the most liquid, observable and obviously indisputable price on the planet?
What extreme value-added transformation does our orange coin undergo the moment you take it under your financially leveraged wings and promise to issue debt, preferred stock, and equity against it — in “waves of credit bubbles,” we hear the ghost of Satoshi faintly whisper.
Bitcoin treasury companies are hardly what Satoshi had in mind when he created a new electronic cash system to make third-party, financial middlemen obsolete. In sixteen short years, we turned Satoshi’s great discovery into the very thing he tried to exit.
OK, fine; these things are growing and stock prices are forward-looking. OK, fine; there’s plenty of regulatory arbitrage to overcome. I’m not blind to what is: I can see the prices paid and the money raised as well as the next observer. And I’m happy to accept that market prices know something I don’t — but it comes with a nasty feeling that Bitcoin analyst James Check, recently joining the doubters, is right:
“I suspect many (arguably most) Treasury Companies will suffer the same fate as the shitcoin complex in the fullness of time. A few will survive, but most are probably destined to under-perform spot Bitcoin.”
In an interview a few weeks ago, Jeff Walton of the MSTR True North podcast, a show dedicated to exploring and explaining the bitcoin treasury strategy of, well, Strategy, had this to say:
BRITISH HODL: “So, how are the dividends that [Strategy is] paying out funded?”
Walton: “They could, theoretically, ATM any of these instruments to pay the dividend of any of the [other] instruments… It’s effectively like re-financing your debt.”
That, my friends, is the definition of a Ponzi. If the thing you’re advancing depends for its ever-increasing valuation on new money coming in to pay off the old money… yeah, you’re in the Ponzi business. Let’s hope it’s good. (As Emil Sandstedt, whose gigantum “Rise and Future Fall of MicroStrategy” is mandatory reading, says: “You create the arbitrage from where the Bitcoin yield flows.”)
This is not to single out Walton, specifically — god knows he has suffered enough at the hands of Madam Tooth in the pretty embarrassing FT Film documentary on Saylor earlier this year. (Besides, I’ve spent dozens of hours listening to Walton walk me through the intricacies of these Strategy products, so I owe him much gratitude.)
Take Anthony Pompliano, and his ProCap Financial SPAC merger announced this week, speaking about the bitcoin treasury company trend: “There’s a reason the bubble forms — because the trend works.”
I’m in the Ponzi business, and business is good…
There’s a moment in said FT documentary where Saylor rhetorically exclaims, “Michael, you’re a financial engineer. Yes, I am!”
And to be fair, most of us, if given a money-printing machine in the form of privileged access to the capital markets and mNAV>1, would do precisely what Saylor et al. are doing: As David Bailey says, “If you can sell a dollar for more than a dollar, you do that trade all day long.”
(Dylan LeClair: “What do investors want? They want more bitcoin. What do we do at Metaplanet? We give them more bitcoin!” June 27, Bitcoin 2025)
That’s not the mysterious bit. The truly remarkable aspect is why Wall Street capital, the most arbitrage-hungry and greedy profit-seekers on the planet, are willing to buy bitcoin at between $183,000 and $2 million a coin when it’s wrapped in a corporate charter — but only $102,000 for the real deal.
And even if the equity->bitcoin->at-the-market (preferred) equity issuance-> more bitcoin funnel worked — an infinite flywheel — with the next treasury company having a higher “torque” than the previous, why would any bagholder, sorry, “investor,” hold the stock? Just dump it on another unsuspecting victim and move on to the next recently announced scheme that some famous Bitcoiner just joined the board of.
If in 1720 they could bubble some government debt, we, in 2025, can bubble some convertible corporate debt and sprinkle some bitcoin-backed corporate stock all over the financial place. Perhaps this time is different: Maybe these aggressively financed, financial alchemy-peddling entities tripping over themselves to issue debt to investors won’t blow up. Maybe this is the final speculative attack, putting an end to fiat money.
Maybe it’s a great thing “that these treasury co’s can tap HUGE pools of capital that might not have otherwise come into Bitcoin at this time,” as Stephan Livera calmly observed.
A kid can dream.
If I’m wrong, and the “capital pump to accelerate the flow of capital from bonds to bitcoin” accelerates hyperbitcoinization, I’ll be the first to celebrate. In the meantime, I implore you, beloved financial engineers of the world, to please explain to me — preferably like I’m five — why all these shrewd shenanigans won’t simply implode.
Perpetual motion machines, financial or otherwise, don’t work. Why is this one any different?
This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This post Are Bitcoin Treasury Companies Ponzi Schemes? first appeared on Bitcoin Magazine and is written by Joakim Book.