{"id":44499,"date":"2025-06-30T14:15:29","date_gmt":"2025-06-30T19:15:29","guid":{"rendered":"https:\/\/bitcoinmagazine.com\/?p=44499"},"modified":"2025-07-04T03:57:54","modified_gmt":"2025-07-04T08:57:54","slug":"are-bitcoin-treasury-companies-ponzis","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/takes\/are-bitcoin-treasury-companies-ponzis","title":{"rendered":"Are Bitcoin Treasury Companies Ponzi Schemes?"},"content":{"rendered":"
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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.<\/em><\/p>\n\n\n\n

Satoshi Nakamoto<\/a>, 11 February, 2009.<\/p>\n\n\n\n

Bitcoin treasury companies are all the rage, these days. <\/p>\n\n\n\n

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There\u2019s a story, likely<\/a> apocryphal<\/a>, of Albert Einstein working at the Swiss Patent Office in the early 1900s and examining devices claiming to be perpetual motion machines. \u201cWe know they don\u2019t work,\u201d Einstein is supposed to have quipped. \u201cThe fun part is working out why<\/em> they don\u2019t work.\u201d <\/p>\n\n\n\n

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Financial machines of perpetual motion don\u2019t work either, but financial<\/a> history<\/a>, my specialty<\/a>, 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<\/a> away Britain\u2019s government debt in 1720 to the shitcoiners and scammers of 2017 (and again in 2022) dreaming of perpetual crypto riches, there\u2019s always another schmuck thinking this time is different.<\/p>\n\n\n\n

Admittedly, when (if?) we<\/em> are right and bitcoin swallows the world, hyperbitcoinization<\/a> (defined around here as \u201cthe inflection point at which bitcoin becomes the default value system of the world<\/a>\u201d) implies that eventually, some time will be different<\/em>. <\/p>\n\n\n\n

When the now-forgotten Sam Bankman-Fried, on Bloomberg\u2019s Odd Lots<\/a> 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: \u201cYou\u2019re just like, well, I\u2019m in the Ponzi business and it\u2019s pretty good<\/em>.\u201d<\/p>\n\n\n\n

\u2026to which SBF answered yes \u2014 completely serious and without hesitation. Yes, I\u2019m peddling Ponzis and business is good<\/em>.<\/p>\n\n\n\n

Oh, how memories fade. Fast-forward a mere three years and we made the Ponzi<\/a> business great again. Bitcoin 2025<\/a> saw announcement after announcement by bitcoin treasury companies launching one daring and aggressive financial engineering attempt after another.<\/p>\n\n\n\n

Supposedly, the way bitcoin reaches the heavens or even the plebian masses now is not a mass exodus<\/a> from financial institutions and a fulfillment of a dreamy cypherpunk<\/a> destiny<\/a>, but through heavily speculative, ridiculously complicated financial plays that turn equities and fixed-income securities into funding pools for buying bitcoin.<\/p>\n\n\n\n

Bitcoin treasury companies \u2014 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<\/a> in several others, hashtag disclaimers everywhere<\/em> \u2014 are this cycle\u2019s 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 <\/strong>worth<\/strong><\/a> double, triple, or ten times<\/strong> the most liquid, observable and obviously indisputable price on the planet? <\/p>\n\n\n\n

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 \u2014 in \u201cwaves of credit bubbles,\u201d we hear the ghost of Satoshi faintly whisper.<\/em><\/p>\n\n\n\n

Bitcoin treasury companies are hardly what Satoshi had in mind when he created a new electronic cash<\/a> system to make third-party, financial middlemen obsolete. In sixteen short years, we turned Satoshi\u2019s great discovery into the very thing he tried to exit. <\/p>\n\n\n\n

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<\/em>: I can see the prices paid and the money raised as well as the next observer. And I\u2019m happy to accept that market<\/a> prices<\/a> know something I don\u2019t<\/a> \u2014 but it comes with a nasty feeling that Bitcoin analyst James Check<\/a>, recently joining the doubters, is right: <\/p>\n\n\n\n

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\u201cI 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.\u201d<\/p>\n<\/blockquote>\n\n\n\n

In an interview a few weeks ago, Jeff Walton of the MSTR True North podcast<\/a>, a show dedicated to exploring and explaining the bitcoin treasury strategy of, well, Strategy, had this to say: <\/p>\n\n\n\n

BRITISH HODL<\/a>: \u201cSo, how are the dividends that [Strategy is] paying out funded?”
Walton: \u201cThey could, theoretically, ATM any of these instruments to pay the dividend of any of the [other] instruments<\/strong>… It\u2019s effectively like re-financing your debt.\u201d<\/p>\n\n\n\n

That, my friends, is the definition of a Ponzi. If the thing you\u2019re advancing depends for its ever-increasing valuation on new money coming in to pay off the old money\u2026 yeah, you\u2019re in the Ponzi business. Let\u2019s hope it\u2019s good. (As Emil Sandstedt, whose gigantum “Rise and Future Fall of MicroStrategy<\/a>” is mandatory reading, says<\/a>: “You<\/em> create the arbitrage from where the Bitcoin yield flows.”)<\/p>\n\n\n\n

This is not to single out Walton, specifically \u2014 god knows he has suffered enough at the hands of Madam Tooth<\/a> in the pretty embarrassing FT<\/em> Film documentary<\/a> on Saylor earlier this year. (Besides, I\u2019ve spent dozens of hours listening to Walton walk me through the intricacies of these Strategy products, so I owe him much gratitude.)<\/p>\n\n\n\n

Take Anthony Pompliano, and his ProCap Financial SPAC merger announced this week<\/a>, speaking about the bitcoin treasury company trend: \u201cThere\u2019s a reason the bubble forms \u2014 because the trend works.<\/a>\u201d<\/p>\n\n\n\n

I’m in the Ponzi business, and business is good…<\/em><\/p>\n\n\n\n

There\u2019s a moment in said FT documentary<\/a> where Saylor rhetorically exclaims, \u201cMichael, you\u2019re a financial engineer. Yes, I am!<\/strong>\u201d<\/p>\n\n\n\n

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<\/em>. are doing: As David Bailey<\/a> says, \u201cIf you can sell a dollar for more than a dollar, you do that trade all day long.\u201d<\/p>\n\n\n\n

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