Is Investing in a Bitcoin Treasury Company a Millionaire-Maker Strategy?

• Bitcoin treasury companies such as Strategy have shown the ability to outperform Bitcoin for extended periods of time.

• A strategy of using debt and leverage to buy Bitcoin only works when its price is rising and the cost of capital is relatively low.

• Over the long haul, investing in the crypto directly is less risky than investing in a Bitcoin treasury company.

• 10 stocks we like better than Strategy ›

New Bitcoin (CRYPTO: BTC) treasury companies are being launched left and right. They are all trying to emulate the success of Strategy (NASDAQ: MSTR), the company formerly known as MicroStrategy, which now has an impressive track record of outperforming Bitcoin.

Case in point: Strategy stock is up 50% this year, while Bitcoin is up 30%. Imagine being able to capture that level of outperformance year after year. In theory, investing in a Bitcoin treasury company such as Strategy will speed up your timeline to becoming a millionaire. But is that really the case?

To answer that question, it’s important to examine the track record of Strategy to understand just how big the performance gap has been over the past few years. The numbers really are incredible.

Here’s a side-by-side comparison of Strategy and Bitcoin, starting from August 2020. That’s when Strategy started its Bitcoin buying spree. At a glance, it becomes obvious that sometime around January 2024, investing in Strategy became a better buy than investing in Bitcoin.

Over the past five years, Strategy is up 3,422%. In comparison, Bitcoin is “only” up 940%. So you can start to see why some people are now referring to Strategy as a potential millionaire maker. At the same time, multimillionaires are now launching their own Bitcoin treasury companies in the hope of becoming billionaires.

By now, you’re probably wondering: “OK, so what’s the catch?” This just seems too easy. Maybe money really does grow on trees.

Here’s the catch: Companies like Strategy are using a mix of debt and leverage to outperform Bitcoin. Some have referred to them as ultra-leveraged Bitcoin funds. This strategy only works when the crypto’s price is rising, the cost of capital is relatively cheap, and market sentiment is positive.

That describes the situation we’re in now. In November, the price of Bitcoin was $69,000. Today, it’s $122,000. Interest rates are no longer near zero, but they are still relatively low from a historical perspective, so the rates that companies must pay on their debt is also relatively low.

And market sentiment, emboldened by all the pro-crypto moves of the Trump administration, is also positive right now. Some even think that the digital coin is about to go on an epic bull-market run that will take it to $200,000 by the end of the year.

But what if all this changes? The ability to raise new money to buy more Bitcoin is only possible if its price continues to move up. Moreover, if financing costs rise, then that imposes an even greater burden on these Bitcoin treasury companies to keep the flywheel going. In a worst-case scenario, they might need to sell some of their tokens to make scheduled payments.

It’s getting to the point where CNBC has warned this could be a bubble in the making: “The rush into Bitcoin treasuries — inflated by cheap capital, yield promises, and brand name endorsements — is starting to resemble a bubble.”

This comes after an unprecedented amount of capital has been raised to buy Bitcoin this year. Nearly every week, it seems, some new company is being launched out of nowhere and announcing a plan to buy hundreds of millions of dollars’ worth of the crypto. It’s becoming hard to keep track of how many companies are now transforming into Bitcoin treasuries.

There are pure plays on this idea, such as Strategy, that do nothing but buy and hold Bitcoin. There are hybrid treasury companies, which are now amassing huge amounts of it to complement other business operations.

And then there are the treasury companies that claim to have plans to do things with all of that cryptocurrency on their balance sheet, such as creating new Bitcoin lending products for consumers.

What has me concerned right now is that some publicly traded companies with failing business models are also embracing the digital coin. They are obviously facing pressure from shareholders to turn things around, so they are transforming into hybrid Bitcoin treasury companies.

As long as the price continues to go up, then this makes sense from a shareholder value perspective. However, some analysts have compared this new mania to the dot-com mania.

So buyer beware. If you are going to invest in a Bitcoin treasury company, make sure you understand the risks involved. The best companies are those that have a significant cash cushion and as little debt as possible, in case the crypto’s price heads south.

Remember: These companies typically have no core operating business to produce cash flow. They depend on continually tapping the capital markets for more money, to support their buying habit.

In the short term, I can see how an investment in one of these new treasury companies could speed up the path to becoming a millionaire. But over the medium to long term, I still think holding Bitcoin directly is the ultimate millionaire-maker strategy. There are fewer variables to worry about, and less that could possibly go wrong.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

Is Investing in a Bitcoin Treasury Company a Millionaire-Maker Strategy? was originally published by The Motley Fool