Crypto Treasury Companies

Monty Hall Mathematics & The Frodo Baggins Retirement Plan

Good Morning Team.

For international readers, if you’re watching the UK small-cap scene, including AQUIS, AIM or LSE, you’ve probably noticed:

Things have gone absolutely parabolic.

The question, of course, is whether this is a new financial paradigm, or whether someone's rebranded 'Pass the Bomb' for adults.

It’s worth starting with this article I published on 19 May - Strategy, The Smarter Web Company & Coinsilium - just over a month ago.

In it, I told you that:

‘when The Smarter Web Company & Coinsilium start up their own BTC - or altcoin - treasuries, they are taking advantage of Strategy’s strategy (and also, offering the potential to get in on the ground floor of the next Strategy)…

The potential volume and profit is beyond the mind of the small cap UK investor to comprehend…

But absolutely insane returns (with correspondingly high levels of risk) are very much on the table.’

At the time, Smarter Web sported a £50 million market cap and is now worth well over £1 billion. Coinsilium was trading for 4p, and has jumped 1,900% from 4p to 80p as I type.

In fact, if you had invested £10,000 at the SWC IPO price and held your shares until the record high last week, your investment would have been worth approximately £2,490,000.

It’s doing okay.

I mean, the liquidity to sell at this high wasn’t quite there. And let’s be honest, you would have sold at 3-4x already many times over (unless you were a Teathers shareholder who had forgotten all about it).

The point is though that we’re looking at a 20x return in a month. If that’s not worth hitting the subscribe button, then good fucking luck finding better stock tips.

AND THEY’RE STILL GOING.

The first point I want to make is this: there are Bitcoin Maxis out there (I spoke to several over the weekend) who believe that SWC and COIN are going to the moon. Beyond the moon. Into the upper echelons of the FTSE 100.

There are others who believe this is all a game of Musical Chairs. Another GameStop/AMC/Blackberry/Bed, Bath & Beyond mania (not in terms of short/gamma squeeze vs treasury model, but in terms of mania).

Tulips.

I’m not going to attempt to tell you who’s right.

I don’t know.

The bear case is that these stocks are insanely overvalued on traditional fundamentals (current assets vs current mcap) and a fall in the BTC price could torpedo the strategy.

The bull case is that Strategy in the US is worth >$100 billion, so US investors looking for an earlier stage entry will pour ever more capital into SWC, COIN and the new plethora.

Know the meaning of ‘enough’

I don't give advice - financial or otherwise.

But for me, taking a large profit out and leaving some left in case it does go to infinity (and beyond) is the middle ground.

And particularly if you’ve made lifechanging (or even wife-changing) money, do not give it all back to the markets in the name of greed.

There are many investors for whom it is never enough.

Don’t be one of them.

The Dwarves of the Lonely Mountain dug up so much gold, they attracted a dragon. The Dwarves of Moria delved too greedily and too deep, and awoke a Balrog.

Be a Hobbit. But like, a Frodo Baggins Hobbit - with a massive house, lands, a dedicated gardener and a massive chest of gold.

I digress.

Once again, read the original article - then come back - as I try to explain the model in more depth for those of you bemused at how a crypto treasury company can be valued at so much more than the crypto on its books.

Technical Understanding

The first thing you have to do is suspend your own understanding of traditional accounting metrics. It makes it a lot easier - much like grappling with the Monty Hall problem for the first time.

Because understanding how Crypto Treasury Companies are being valued is key to being able to debate, in your own mind, whether they’re being FAIRLY valued.

Here’s why.

In your mind, a market NAV (mNAV) of 1 is the baseline.

Because, you think that if a pure-play crypto treasury company has ONE Bitcoin, it should be valued on the shell + cash + the CURRENT value of that one Bitcoin. Or in other words, the company could sell the Bitcoin, then sell the shell, and distribute all proceeds to shareholders - and in theory the shareholders would receive the market cap in cash back.

Of course, the market is inefficient - and many stocks trade above or below mNAV. But not to this degree in any other sector.

But you, broadly, get the idea.

On a logical level, this appeals to you.

Monty.

But if you’re a Bitcoin Maxi, this makes absolutely no sense whatsoever. If you genuinely (not bandwagon, but genuinely) believe that Bitcoin is headed to $1 million+ by the mid-2030s, then valuing a Bitcoin Treasury Company at a mNAV of 1 is insane.

Consider - one Bitcoin is worth around $100,000 right now. Under traditional financial metrics, a company with 100 Bitcoin would be ‘worth’ $10 million. But if Bitcoin is going to 10x by the mid 2030s, then that company is now sitting on $100 million of future assets, and therefore a mNAV of 10 makes absolute sense.

But wait, this is insane?

Hang on.

Did you buy Nvidia, Microsoft or Amazon stock this year? You already use this valuation metric.

Let’s take Nvidia - with a price-to-earnings ratio of 46. If you bought shares in Nvidia today (and everyday, someone does), then you are paying 46 times earnings, because you expect the company to continue to grow. If you don’t expect this, you’re making an irrational investment.

Apply the same logic to Bitcoin Treasury Companies.

If you expect Bitcoin to keep rising in price - and it’s been by some distance the best performing asset for years now - then the premium associated with the highest quality treasury companies makes all the sense in the world.

Ah, but Charles.

The poster child for this model is MicroStrategy.

Nobody can argue with that.

And Strategy is trading at a very low mNAV. So clearly, something’s up.

There are only two explanations. Either, it’s grown so large that investors are not prepared to invest at scale and the model will collapse in on itself.

Or, the market is inefficient. Investors have simply not caught up to where the world is heading, and we’re still early.

It’s also worth noting that the more aggressively a company is accumulating Bitcoin, the higher the premium should go, as more BTC = more exposure to the upside.

Going deeper, you’ll have seen a bunch of charts on ‘days to cover mNAV.’

Basically, this refers to the theoretical time it would take for the growth in a company's Bitcoin holdings per share (often referred to as BTC Yield) to catch up to its current mNAV premium.

In simpler terms, it's a way to gauge how long it might take for the value of the underlying Bitcoin to justify the current market premium of the stock.

For example, if a company has an mNAV of 2 (meaning its market cap is twice the value of its Bitcoin holdings) and is consistently growing its Bitcoin per share, days to cover mNAV estimates how many days or months it will take for that growth to effectively cover the current premium.

The idea is that the faster you can cover the gap, the higher your share price should go - to a point where most companies share a middle ground.

Of course, there are many other factors at play - see below. But that’s the idea. Add in the fact that there is no other way - currently - to access Bitcoin in an ISA or SIPP, and the demand is only going one way.

So what are we looking for in a BTC/Crypto Treasury company?

If you’re scalping profits, good sentiment is all you need.

There’s plenty of that around.

But for longer term plays, consider:

1. Are they focused on long-term shareholder value, or short-term personal gain?

2. Does the company have an underlying business to keep the lights on in a crypto winter, without needing to sell any BTC?

3. Do the team genuinely believe in Bitcoin, or are they just riding the hype?

4. Are the leaders public, engaged and active in the Bitcoin/small cap community?

5. Do they have a clear and aggressive plan to accumulate Bitcoin fast?

6. Is the company structure fair and shareholder-friendly, or is it built to enrich insiders?

If you haven’t asked yourself these questions yet and applied them to your picks, then consider them.

If your company sells a single Bitcoin, it’s game over.

Strategy has a $100 billion market cap, because it was able to hold on with its circa $500 million revenue business in 2022 when Bitcoin cratered 70%.

And don’t be the Gingerbread man trusting the fox to carry you across the river.

It’s in the fox’s nature to eat you.

One other point to mention is that this is not just a feast for investors. It’s a market maker’s wet dream. The tree shakes, mind games and monkey business is going to another level.

Also, if you can’t buy on open, please remember to treat your broker with respect.

They can’t always get your Taylor Woodrow.

The Crypto Treasury Plays

Which horse to back?

The key point when it comes to backing one of these plays is this: stocks with smaller market caps have higher execution risk and higher potential rewards as you’re starting from a smaller base.

Thankfully, that bit of your economics degree is still useful.

Another important point is that even the largest are viewed by the Bitcoin community as undervalued - and to American capital, the current >$1 billion SWC market cap is a rounding error.

Telegram thinks the winners this week will be Coinsilium, the London Bitcoin Company and Tiger Royalties.

In a sentiment-led market, this is invaluable insight. The majority is often right.

But let’s consider the viewpoints of the ones I’m currently tracking:

Smarter Web Company

Yes I know TAO isn’t Bitcoin, it’s not that deep.

Anyway, Smarter Web is the OG. No denying it. Webley has leveraged his marketing connections and US finances to build something special.

But if we consider the mNAV, it’s much higher than the newer horses in the race. Ergo, not a buy? The poll thinks so, but I suspect it’s because they are missing how the flywheel works.

Smarter Web attracted £3.8 million in new capital from a single strategic investor at nearly £5 per share today. Someone thinks this is going higher - and high enough to cash out £3.8 million + profit at some point in the future.

Smart cookie?

Smarter Web now has more cash than it does Bitcoin, and will invest this cash soon. If its stash doubles to circa 700 Bitcoin, we’re then on track to buy 2,000 Bitcoin in three to four months. It took Strategy’s runner-up, Metaplanet, six months to get to 1,000.

Days to cover is now around 50 - and the Shard ATM offering is genius.

So in Bitcoin economics, it’s cheap.

Going higher.

Coinsilium

On a risk-reward basis, probably the best buy there is currently.

The right names, the right structure.

Also a pretty new website, with a clear ‘Bitcoin-first philosophy’ - including new details on the treasury policy and longer-term vision.

We also enjoyed some decent momentum last week and today - and encouragingly the UK buying is always followed by strong US-side buying.

US liquidity runs deep.

On both sides of the Atlantic, there are far more equity accounts than crypto accounts - and the read-across from SWC is glorious.

If SWC keeps rising, investors will simply expect COIN to follow the same trajectory - if SWC goes above $1 billion, the perception is that COIN can do it too.

It also helps to see both COIN and SWC on Hargreaves’ top 10 list. But for those struggling with HL, just get an IG account. It offers free trading and all the stocks online that you have to call HL for.

It’s the only way the dinosaur will learn.

London Bitcoin Company (Vinanz)

The Bitcoin buying RNS will land tomorrow.

The stock should go ballistic as it may have more BTC than anyone else other than SWC.

However, it’s also true that a certain key player here isn’t so much as red flag as…anyway, the point is that the sentiment trade has been, and may continue to be, decent.

The CEO is also a Bitcoin Bro and is clearly switched on - buying as much BTC as possible, and as aggressively as possible, is talk you want to hear.

The near-term NASDAQ listing and perhaps perceived superiority of Main Market status may also help.

There’s a great deal to be had with Valereum right now as well - which owns 9% of this stock - and has a market cap of about two potatoes and a carrot.

Tiger Royalties

This stock has real staying power and is far more complex in terms of the investment case than any other.

This is going to require its own in-depth article - likely later this week or early next week - but for brevity, you’ve got a £250,000 Investment for 26% of Standard Strategies, a pioneer in BTC Treasury Company Investment,

A £250,000 equity investment in Tao Strategies Singapore, a dedicated operator of miner and validator nodes and subnodes on the Bittensor network.

The acquisition of the Tiger subnet on the Bittensor network, where TAO, the native cryptocurrency of the Bittensor network, maintains a market capitalisation of $3.3 billion, with a daily turnover of often over $100 million.

The turnover generated by this subnet is increasing at an insane pace.

A £250,000 investment agreement in AROK, an innovative and sentient AI agent, which is printing money for the company.

Tiger is the dark horse - and will come good.

If you invest in this one, then it only makes sense to take on some TAO ALPHA too.

Vaultz Capital (formerly Helium Ventures)

The rapid OTC listing is a good sign - without US liquidity, it is much harder.

But the key point here is that the stock has a market cap of £59 million and £5.2 million in cash.

Ergo, all being equal (nothing’s equal), the stock should experience a rapid rise to catch up to the leaders.

For the high risk investors among you, looking for a quick profit, this might be the one.

Vult Ventures

Ethereum? Someone was always going to do it.

Wait for the XRP treasury stock - someone’s going to do it.

I did enjoy the 11 year plan - apparently someone had to eclipse the 10 year - and at some point, a plot to create a 1000 year…

Hang on.

Anyway, only £64,000 worth of Ethereum and £17,000 worth of Bitcoin as a test trade and as part of treasury diversification so far.

But, a cheap market cap and something a little different.

PR1

This company is generating revenue.

It’s not a pure-play.

We need to see a growth in customer numbers across its core SME platform, new users for the Funding Circle and Capitano Ai offerings, tangible revenue contributions from the Funding Circle commissions and Capitano Ai subscriptions, a successful rollout and uptake of new features and services from the NVIDIA partnership and the Leukaemia Care project…and the progress of Capitano Ai’s US market expansion.

But this is the only BTC Treasury company on AIM, and it has got the go-ahead to purchase.

One assumes a purchase this week is coming, and a recovery to beyond the IPO price is all but certain.

Some contract wins along the way would help immensely.

You

This might sound boring, but if Bitcoin is going to keep rising, you could always get a Trezor, buy some of your own BTC, and custody your own keys.

But where would be the fun in that?

As a reminder for anyone thinking this is free money, it’s not.

There is a very high level of risk with every single one of these companies - especially if Bitcoin goes through a prolonged slump.

Only invest what you can afford to lose.

Consider the benefits of diversification and profit-taking on the way up.

We do not know where this all ends in the long term.

And remember - if it all goes pear-shaped - no crying in the casino.