The Bitcoin Treasury "Infinite Money Glitch"

What is discussed, and when

1. 0:00 – 3:00: GameStop

Notable quotes from "The Bitcoin Treasury "Infinite Money Glitch""

• Long for other companies to clamor into the space. some notable examples include Tesla, Block, and GameStop, who over the past few years have made announcements around acquiring Bitcoin.

  about GameStop · at 1:00

Who and what is mentioned in this episode?

Companies & orgs

• GameStop — Company · 1 mention · first at 1:03
• Block, Inc. — Company · 1 mention

Full transcript with timestamps

0:00 Hey everyone, it's Richard. You're watching the Plain Bagel. Amid Bitcoin reaching new all-time highs and the favorable treatment of the cryptocurrency under the Trump administration, there's been a rise in a new type of company, the so-called Bitcoin Treasury. Uh, businesses who opt to hold Bitcoin on their balance sheet. A strategy that was first popularized by the eccentric CEO Michael Sailor and his company Micro Strategy, now just called Strategy, I guess, because it's grown so much, which has been capturing a few spotlights in 2025. You see, 5 years ago, Micro Strategy was a business intelligence company that was well off of its uh.com heydays, experiencing years of declining revenue and compressing margins. But in August of 2020, the company became the first publicly listed stock to buy Bitcoin, a strategy that 5 years later has made Strategy one of the largest 100 companies in the US. with the stock

0:47 having risen roughly 2600% over the past 5 years, nearly three times the return of Bitcoin itself, something that has been referred to as an infinite money glitch. And as you'd expect from any infinite money glitch, it hasn't taken long for other companies to clamor into the space. Uh some notable examples include Tesla, Block, and GameStop, who over the past few years have made announcements around acquiring Bitcoin. But the activity has really accelerated recently with us now having over 166 publicly traded companies who own Bitcoin. uh more than triple the amount we had the previous year and these companies collectively owning roughly 5% of all outstanding Bitcoin. In fact, the group has quickly become one of the largest buyers of the cryptocurrency with for the third quarter in a row these companies actually buying more Bitcoin than Bitcoin ETFs. But while strategy has been praised by some uh in

1:35 particular Michael Sailor himself for this feat of financial engineering, the trend has been raising a couple of eyebrows, especially given that a number of these companies, strategy included actually trade for valuations that well exceed the value of the Bitcoin these companies hold. So why are investors buying Bitcoin Treasury stocks? And is it truly the infinite money glitch, the Bitcoin prophecy being fulfilled as foretold, or just a gimmick to cash in on the crypto craze? Well, that naturally depends on who you ask. And today, I'll share the thesis around paying $2 for $1 Bitcoin to highlight why investors are arguing that this might make sense as an investment, but also the risks that it entails. But let's start off with explaining how this so-called infinite money glitch works.

2:17 Uh, a big component to this strategy is the fact that strategy stock MSTR uh trades at a premium to the value of the Bitcoin that it holds. uh with this known as MNAV or multiple of net asset value and for strategy it's in the past sat between two and three times meaning the stock price has been two to three times the diluted Bitcoin per share. Now it's worth highlighting that strategy does still operate its business intelligence software business. Uh, so that does also add value to the stock here, but the business earns less than $500 million in revenue annually compared to the $75 billion it has of Bitcoin. And the business actually loses money at the operating income level. So most people do view the company primarily as a Bitcoin vehicle. And because of the company's premium valuation, it's been able to raise a bunch of money by issuing new securities. Uh, use that money to buy a bunch of Bitcoin, which has arguably

3:07 helped to support the price of Bitcoin and push it higher. uh which has allowed Micro Strategy to issue more securities given that now the asset it holds has increased in value and allowing the company to effectively rinse and repeat with the company having tripled its diluted share count since 2020. But it brings us to the first confusing part of the strategy. Why would investors buy MSTR at a premium when they could just take that money and buy more Bitcoin themselves? After all, it's generally not a good idea to pay $2 for $1 of well, anything. And while some have argued that strategy uses leverage here and that helps to enhance the returns individuals could arguably themselves borrow money to leverage Bitcoin and buy more of it.

3:50 So why don't they? Well, at a very high level, it's been argued online that the stock's premium represents investor enthusiasm for the space, confidence in Sailor Strategy here, as well as the view that the stock's premium will actually continue to expand in the future. And Michael Sailor himself has indicated that the premium comes from the company's credit amplification options advantage, passive flows, and institutional access. Now, if none of that made any sense to you, don't worry. You aren't alone. Uh, now try to flesh out the proposed reasons for the valuation outside of just markets aren't good at math. For one, there are some places where borrowing money to buy Bitcoin isn't really feasible at the individual or even at the fund level. Uh so this premium could in part reflect a sort of regulatory premium given that the uh investment is allowing investors to get this exposure that's otherwise

4:37 hard to find in the space. There's also the argument that Strategia here has you know, again, the intelligent leverage, uh, which is more or less the argument that the company's able to get more attractive financing than individuals could get themselves. Because while the company has issued roughly $30 billion in common equity since it first started buying Bitcoin it's also borrowed an additional $9 billion by selling convertible notes and $3 billion by selling preferred shares. And it's how this leverage is structured that's gotten a lot of attention from investors. You see, leverage is a two-edged sword. Yes, it does amplify your return if the amount you earn on an investment exceeds the cost of capital but if it doesn't, then it actually amplifies your losses. So, the cost of capital plays an important role in how profitable leverage will end up being.

5:21 But in Strategy's case, they've been able to raise debt at very low at times 0% interest rates for the purpose of buying more Bitcoin by focusing instead on those convertible notes. You see convertible notes are a type of hybrid security that, as name implies, allows the lender to at some point under certain conditions convert the debt that the company owes them into just equity of the company, which is an attractive feature for lenders since it gives their debt more upside. If the stock happens to skyrocket in value, even if they have a high conversion price, which strategy tends to have on its convertible notes they get that upside exposure to the investment. And if it doesn't perform well or even just stays flat, then they get their money back plus any interest they might have earned. And because Strategy is such a volatile stock with a beta of over three, that conversion feature is quite valuable and has led to

6:07 these very low interest rates. Now naturally, these convertible notes don't operate the same as typical debt, and this doesn't represent typical leverage. Uh, but you still effectively have these convertible lenders uh giving more money to the company and accepting fewer shares, assuming conversion happens, for the right to this convertability. And the company benefits because they're getting more bang for their buck from their shares to benefit current investors. As for the preferred shares that strategy has issued, they do function more closely to typical debt and pay a higher dividend rate with only one of the four classes being convertible, but they still don't have a severe impact on the company solveny given that they still constitute equity here. And skipping a dividend payment if the company were say in a pinch wouldn't constitute a default from the company.

6:49 Uh it would come with other consequences which we'll touch on. Uh but it has been argued that focusing on convertible notes and preferred shares rather than typical debt gives a company a better ability to navigate volatile Bitcoin prices without being forced to liquidate its Bitcoin when it's in a pinch. Uh whereas an individual investor, for example, might get margin called if they find that their investment has fallen. And finally, there's the last sort of key argument around the stock's premium. uh the so-called Bitcoin yield, which yes is a madeup term, which is something investors love, but one that nonetheless has been a focus for many investors of Micro Strategy, with the company arguing that it's been able to increase the number of Bitcoin per share for its investors over time with them presenting a Bitcoin yield for 2024 of 74%. Now, of course, the company isn't just magically

7:37 generating Bitcoin. There is someone along the line who's paying for this extra Bitcoin for shareholders here. So it is fairly misrepresentative to take a company's number of bitcoins and divide by the number of shares without accounting for growing liabilities. Nonetheless, it's argued that if investors keep coming in and paying higher conversion premiums and higher valuations for the stock that it will continue to be able to uh raise more money, buy more bitcoin and increase the bitcoin per share. So, those are some of the key arguments you find online. Okay.

8:05 Now, Michael Sailor has also indicated that because the stock has a sizable options market and institutional investors are trading the stock in part due to its inclusion in some indices that also helps. But there are plenty of other publicly traded stocks with those same sort of exposures that don't get that same sort of multiple expansion benefit. And there are other Bitcoin treasuries with even higher multiples that don't check those same boxes. So I'm not really sure how important those market variables are. Nonetheless that's arguably why the company has been able to succeed. And the skyrocketing stock price has really made Sailor a revered figure in the Bitcoin space with a being a very vocal if not a bit aggressive advocate for the cryptocurrency.

8:43 People that use fiat currency as a store of value. There's a name for them. We call them poor. Okay. So, even among real diehard Bitcoin fans, the stocks managed to earn its place as a portfolio diversifier I guess. And while you might still be scratching your head trying to figure it all out, other companies have heard enough to uh start mimicking the model themselves with some companies again just adding Bitcoin to their balance sheet to adopt it as one of their capital allocation assets. While other companies have completely pivoted away from uh their perhaps loss-making ventures to focus entirely on becoming a Bitcoin focused entity with us also seeing a rise of Bitcoin enthusiasts buying out defunct public companies to convert them into treasuries as well as a revival of Bitcoin focused spaxs because I'm sure it'll go better in the cryptocurrency space with companies recognizing that they can buy $1 of

9:34 Bitcoin and effectively sell it for $2 if they do so as a publicly traded treasury company. It's easy to see why the trend has picked up speed given that a number of these companies have seen their share price shoot up over 100% on the announcements that they would be buying Bitcoin despite there not being any meaningful movement in Bitcoin's price over those periods. Meaning the company hasn't actually made any gain on its investment yet. A phenomenon that draws parallels with do companies in 2000 where companies would just add dot to their name and see a jump in their price or even the blockchain companies of 2017. And the idea is quickly spreading to other areas of the cryptosphere as well with Ethereum treasury companies also becoming a popular concept and even Trump's own World Liberty Financial recently launching a publicly listed stock to raise $1.5 billion for the purpose of buying its own World Liberty Financial

10:23 token. Now, while some have been highlighting the rise of Bitcoin treasuries as evidence of Bitcoin's adoption, naturally, this does blur the line between companies that genuinely believe in the future of cryptocurrency as a store of value and companies that are treating it as a gimmick to capture investor enthusiasm and access to capital markets. In London, for example most of the UK listed companies that have announced Bitcoin treasuries are small loss-making companies with small trading volumes. In fact, we've even seen, some, of the, companies, we've, covered on this channel for paying YouTubers to promote their loss-making businesses as promising investments now announcing their own Bitcoin treasuries. So, the strategy has seemingly become that if your stock doesn't have a good business if you're losing money, you just announce that you're buying Bitcoin and investors will forgive you for not being

11:06 good, at, your, job,, at least, for, a, little bit. Now, having a bunch of companies rush into the space to buy Bitcoin especially those with questionable financials, does present a number of challenges. While it does lead to more institutions owning and controlling Bitcoin, which I've been told now is a good thing, it does also increase competition for capital. If you have a 100 companies all offering the same sort of Bitcoin exposure, there's going to be more competition to attract investor funds, which will require either higher interest rates offered by these companies or other sort of conversion concessions that might not be to the advantage of current investors. Even for strategy, as the company grows, it will likely struggle to maintain its Bitcoin yield, as it will require exponentially increasing the number of shares or hybrid securities that it issues. And in fact, we've already seen the company's

11:50 premium relative to its Bitcoin holdings decrease over time with it more recently trading at roughly 1.5 times, which could prove challenging if your main business model is selling shares. And in fact, the company has issued guidance that it won't issue more shares for the company below a 2.5 times MNAV except to pay off interest or dividends. Meaning the company will only accept new investors to help pay off the old ones. Now, I know you're thinking this is starting to sound a little bit triangular, but that just means you're thinking too hard about it. It also again remains unclear whether we're truly seeing that paradigm shift around whether conventional companies will treat Bitcoin more as a balance sheet asset. And it could prove challenging for more of these conventional companies to adopt Bitcoin. If you suspend your disbelief for a moment and operate under the assumption that Bitcoin might not

12:37 always increase in value, it is a pretty volatile asset for companies to be parking their excess savings into. Yes the US dollar does typically lose value over time, but if you are a profit earning company with attractive return on investment opportunities, you likely won't want to invest your excess cash that you might need in the near future in these volatile assets. which is also why you don't typically see companies parking any sizable amount of their cash into the stock market, but rather lower risk bond and money market investments even though the stock market has over time done very well. In fact, investors may actually punish companies for doing just that. It's quite common for holding companies that just own other stocks to actually trade at a discount to their net asset value. It's also worth highlighting that while strategy has more or less become just a proxy for leverage Bitcoin investing the

13:22 correlation between MSTR and Bitcoin prices itself while positive has varied quite a bit over time with on a monthly basis the figure typically sitting between 0.5 and8 and while expanding multiples and issuing securities works quite well when it works it also doesn't when it doesn't. Naturally this leverage gives these companies a lot of downside exposure should Bitcoin's price decrease. And while yes, strategy has focused on these hybrid investments to circumvent some of the main pain points of leverage, it still presents risk. The company may still need to sell Bitcoin to make dividend payments, which will hurt that supposed Bitcoin yield, which will hurt their share. And if the company skips a dividend payment, that will greatly impact the valuation of their securities, which will make it difficult to continually raise more money to meet dividend payments or to buy more Bitcoin, which will eventually

14:09 require the company to sell its holdings. And on the conversion dates there's a risk that if MSTR is not above the conversion price, that the note holders will require their money back and force further Bitcoin liquidation which could actually impact the price of Bitcoin and lead to this sort of opposite effect of the infinite money glitch. And as more questionable companies pile into this strategy, that just increases the risk of the exposure here. Now, I will again highlight that for strategy, they do have that hybrid exposure, which is different from typical leverage, and the convertible notes and prefer only represent roughly 17.2% 2% of the company's Bitcoin value on its balance sheet, meaning the balance sheet is not actually that excessively levered. It's also unclear how levered in general the Bitcoin space has become. However, strategy itself does operate at a current ratio below

14:53 one times, meaning that does have more current liabilities due in the next 12 months than it has current assets to meet those liabilities, albeit they might not all be cash liabilities. And as more companies with questionable financials enter the space, that only increases the risk of a correction here. a risk the company faces even if Bitcoin remains flat with a stock having lost a fifth of its value over the past month despite Bitcoin not really moving that much. Now truly none of this is to argue that strategy or Bitcoin is going to collapse in price. Uh trends like this can continue for quite a long time. Uh while we have seen bubbles in the past in for example real estate, it does typically require a sort of catalyst to kick off the deflation of those asset prices. And if demand for Bitcoin does continue to increase if we do see more institutional adoption, then this could continue for quite some time. But is

15:39 interesting how departed this is from the initial arguments for Bitcoin of not your keys, not your coins, building a system in protest of Wall Street and now cheerleading their involvement. Nonetheless, it's not Bitcoin's fault that Michael Sailor is its number one fan. And we'll have to wait and see how things ultimately shake out. Anyway that's the video. Thanks for joining me today. If you like this video, please do make sure to like, subscribe, all that good stuff. It does help the channel tremendously. Let me know your thoughts on the strategy strategy down below and Bitcoin treasuries as a whole.

Questions about this episode

What is discussed in "The Bitcoin Treasury "Infinite Money Glitch""?

In order: 0:00 GameStop.

What is mentioned in this The Plain Bagel episode?

2 people, works and ideas are mentioned, including GameStop, Block, Inc.. Each one on this page links to its own page with every episode that mentions it.

How long is "The Bitcoin Treasury "Infinite Money Glitch""?

The episode runs 16 min; the transcript is about 3,215 words in 22 timestamped sections.

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