Bitcoin digital asset treasuries (BTC DATs) have made their decision. They will be judged primarily by one metric: “Bitcoin per share.”
This public market version of “whoever has the most Bitcoin wins” marks a new era of Bitcoin adoption and activation.
As for what’s next, there remains a clear fork in the road. How will BTC DATs actually grow Bitcoin per share?
Whether through dilutive financial engineering or non-dilutive yield and operations, the path forward may determine whether DATs become a zero-sum, winner-takes-all contest or a positive-sum expansion of Bitcoin utility.
The Brilliance of BTC DATs
When Bitcoin is put into a DAT, the holder has more tools at their disposal than if it were in a cold wallet.
Specifically, public markets open the door to two major toolsets for BTC DATS:
- Income generation: Operations that generate income to earn or purchase more BTC.
- Financial engineering: Debt, leverage, and other tools to restructure balance sheets.
While most public companies are known primarily for their income generation, BTC DATs have so far focused primarily on financial engineering.
Strategy (MSTR) is the first and clearest example of a BTC DAT using financial tools to grow Bitcoin per share. Saylor has created a slew of synthetic Bitcoin financial products for Wall Street. STRK, STRF, STRD, and STRC are all products Strategy has carved from its Bitcoin balance sheet.
Wall Street loves these products as they allow them to speculate on Bitcoin in previously unavailable ways. In return, they’ve rewarded MicroStrategy with cheap financing, which MicroStrategy has used to buy more BTC.
Saylor’s successful Strategy has awoken several Bitcoin entrepreneurs who realized that putting their BTC in a DAT can be like putting Tony Stark in the Iron Man suit.
At the same time, it’s important to note that wrapping Bitcoin in a stock is not a fast pass to the end game. It’s very much the beginning of a journey with many potential pitfalls.
The Dilution Trap
While financial engineering can create immense value for DATs, it also introduces a critical challenge: dilution.
Using a DAT for financial engineering begs the question: How can I acquire BTC today with the least possible dilution tomorrow?
Strategy answers that question by offering financial products to Wall Street in exchange for minimally dilutive financing.
However, without Strategy’s scale, cost basis, and financial product suite, it’s really difficult for newer BTC DATs to grow BTC per share via financial engineering.
Oftentimes, acquiring BTC today means issuing stock tomorrow. That means a short-term growth in BPS followed by a return to stasis. This is not a particularly sustainable way to grow Bitcoin per share.
BTC DATs can compete for minimally dilutive financing by copying Strategy’s playbook, but this of course begs the question of competitive differentiation.
If DATs are only meant to divvy up the Bitcoin financial product pie, then there’s not a ton of room for differentiation or growth.
Thankfully, DATs can move beyond slicing up the pie by growing the pie itself.
How to Grow the Pie
The future of BTC DATs lies less in financial engineering and more in income generation.
While a given in the world of equities, BTC DATs that launched with heavy balance sheets and light operations may face challenges in finding non-dilutive income that scales with their BTC value.
Operating positive cash-flow generating businesses can work for some DATs, but running operations can be prohibitively expensive and struggle to scale with a growing BTC balance sheet.
Alternatively, lending or collateralizing the underlying assets would scale with the BTC balance sheet, but would open up new forms of risk that could jeopardize BTC security.
The Search for Non-Dilutive Yield
For many non-BTC DATs, non-dilutive yield generation is simply built in. Native staking of the underlying token forms an income base that scales with the treasury’s size and carries relatively low risk.
While Bitcoin has historically lacked this option as a Proof of Work chain, the introduction of Bitcoin staking protocols could serve as a source of non-dilutive income these DATs need.
As has been witnessed in non-BTC DATs, a base staking yield also unlocks additional financial products for Wall Street’s usage. So, Bitcoin staking could, in addition to unlocking scalable, non-dilutive income generation, also open the door to additional financial engineering.
A whole new layer of income generation and financial engineering can support a new wave of BTC DATs predicated on optimized Bitcoin yield services and derivatives creation. If Strategy was able to grow as large as it has with idle BTC on its balance sheet, imagine the financial product behemoths that could be formed on the backbone of yield-bearing BTC.
Bitcoin staking protocols also open the door to the expansion of BTC scaling products. Leading operational DATs can also expand offerings to build more sophisticated financial products and even create new Bitcoin-based businesses like neobanks, custody solutions, and protocol infrastructure tailored to Bitcoin scaling protocols.
The Rising Tide
The embrace of non-dilutive yield is how the BTC DAT space can move beyond clever balance-sheet maneuvers and into an era of real Bitcoin value creation. If BTC DATs lead the way in adopting new Bitcoin use-cases, products, and services, they can expand Bitcoin’s utility and create a flywheel of compounding Bitcoin per share growth.
This is the path toward the Bitcoinification of finance rather than the financialization of Bitcoin. It is how BTC DATs can mature from balance-sheet plays into true Bitcoin operating companies and expand Bitcoin’s role as a productive financial asset.
