The Rise of Bitcoin-Only Companies: Is It Time to Invest?

As Bitcoin continues to capture the financial world’s imagination, an intriguing new trend is emerging. A growing number of companies are jumping on the bandwagon, not to sell Bitcoin, but to invest in it—holding as much of the digital currency as they can. With MicroStrategy leading the charge, these so-called “Bitcoin treasury” companies are attracting increasing attention from investors. But does it make sense to invest in a business that does nothing but buy and hold Bitcoin?

MicroStrategy’s Success: A Model for Bitcoin Treasury Companies

MicroStrategy, now rebranded as Strategy, is the most prominent company in this emerging sector. Back in August 2020, the company made a bold move: adopting Bitcoin as its primary treasury asset. The decision has paid off in spades. Since then, Strategy stock has consistently outperformed Bitcoin itself, making it one of the top-performing stocks on the market.

Between 2020 and 2024, Strategy outpaced every company in the S&P 500—an extraordinary feat. So what’s driving this success? The simple answer: Strategy’s focus on Bitcoin. By accumulating vast amounts of Bitcoin, the company has been able to leverage the digital asset’s value appreciation to fuel its stock price growth. This makes it a more lucrative option than investing directly in Bitcoin for some investors.

The allure of Bitcoin treasury companies is undeniable. The returns have been significant, and Bitcoin, as an asset, has outperformed nearly every other investment for the past decade. If companies like Strategy can continue to deliver higher returns than Bitcoin, this approach could become a standard model for future investors.

Bitcoin Treasury Companies Are Gaining Traction

MicroStrategy may have paved the way, but it’s not alone anymore. More companies are following suit, filling the ranks of what some have dubbed the “MicroStrategy copycats.” From biotech firms to tech startups, businesses in industries unrelated to crypto are beginning to load up on Bitcoin as a core part of their financial strategy.

At the end of 2024, several companies made headlines by adding Bitcoin to their balance sheets—companies with no direct connection to the cryptocurrency world. Take biotech, for example. Firms in this sector are now purchasing Bitcoin to boost their financial reserves, a move once unimaginable.

Why is this happening? Bitcoin’s price has been volatile but generally upward-sloping for years, and many companies are betting on its continued appreciation. For businesses with large cash reserves, Bitcoin offers an alternative to holding traditional currencies or low-interest assets. The idea is to use Bitcoin to fuel their financial strategies in the same way other companies use cash or stocks.

Some might argue that adding Bitcoin to a company’s portfolio is a no-brainer given the digital asset’s strong performance in recent years. Yet, the strategy isn’t without risk.

The Risks of Investing in Bitcoin Treasury Companies

While the idea of investing in companies that specialize in Bitcoin might seem like a no-brainer, it comes with its own set of risks. Bitcoin’s value can fluctuate wildly. If the price of Bitcoin stalls or declines, companies like Strategy could find themselves in financial trouble. When that happens, shareholders may find themselves holding assets that are no longer appreciating in value.

Another significant risk is that these companies don’t actually own the Bitcoin you’re investing in. If things go wrong, they hold the Bitcoin, not you. That’s a crucial difference for many Bitcoin purists who prefer to self-custody their digital assets rather than trust a third party.

There’s also the question of regulation. The cryptocurrency space remains highly unregulated, and governments around the world are grappling with how to manage the rise of Bitcoin and other digital currencies. If regulations tighten, it could put additional pressure on these Bitcoin treasury companies, especially if they face compliance hurdles or stricter taxation.

Is Investing in Bitcoin Through Companies a Good Idea?

For many, the appeal of investing in companies like Strategy lies in the opportunity to own Bitcoin in a more traditional, regulated format. Through these businesses, investors can gain exposure to Bitcoin without having to worry about setting up digital wallets, dealing with crypto exchanges, or managing private keys.

Moreover, Bitcoin treasury companies can use strategies such as convertible debt to acquire more Bitcoin, which individual investors often can’t replicate. This allows them to buy Bitcoin at a larger scale and, in theory, deliver higher returns for their shareholders.

Here’s a quick look at some of the ways these companies can potentially outperform direct Bitcoin investment:

• Bitcoin per Share (BPS): This metric is key. It shows how much Bitcoin a company holds relative to its share count. As BPS rises, the company’s stock should increase in value.

• Convertible Debt: This method allows Bitcoin treasury companies to acquire Bitcoin without relying solely on market purchases, which can help smooth out volatility in their assets.

Despite these advantages, it’s important to recognize that the model works only if Bitcoin’s price keeps rising. If Bitcoin were to experience a prolonged downturn, these companies could struggle.

Alternatives: Direct Bitcoin Investment or ETFs?

Of course, there are alternatives to investing in Bitcoin treasury companies. Investors can buy Bitcoin directly through platforms like Coinbase or Robinhood, or they can opt for Bitcoin ETFs, which offer one-to-one tracking with the spot price of the digital currency.

Bitcoin ETFs, such as the spot Bitcoin ETFs, have become a popular way for traditional investors to gain exposure to Bitcoin’s price movements. For those willing to take on a bit more risk, some Bitcoin ETFs also use financial derivatives to amplify returns.

The advantage of Bitcoin ETFs is that they offer exposure to Bitcoin without the complexity of buying and storing the asset yourself. They also come with the benefit of regulatory oversight, which adds a layer of security for investors.

But, like Bitcoin treasury companies, Bitcoin ETFs are only as strong as Bitcoin’s price. If the price of Bitcoin declines, these investment vehicles could see significant losses.