Bitcoin Magazine

How to Measure the Success of a Bitcoin Treasury Company

In the realm of conventional finance, assessing a company’s success typically involves metrics like revenue growth, earnings per share (EPS), or return on equity (ROE). However, a distinct challenge arises when a company’s primary focus shifts from selling goods or services to acquiring cryptocurrency, specifically Bitcoin.

This dilemma is increasingly relevant for an emerging category of Bitcoin treasury companies. These publicly traded entities are devoted to the long-term acquisition and holding of Bitcoin. To gauge their performance effectively, we require new evaluative tools.

This article delves into those innovative tools—key performance indicators (KPIs) specifically crafted to assess how successfully a company is implementing its Bitcoin strategy. Many of these metrics have been championed by Michael Saylor and his organization, Strategy, where they are showcased on their newly introduced dashboard. Although these metrics may appear intricate at first glance, they offer invaluable insights once clarified, revealing whether a Bitcoin treasury firm is effectively serving its shareholders.

1. BTC Yield: Evaluating Accretion Rather than Earnings

Definition: BTC Yield measures the percentage change over time in the ratio of a company’s Bitcoin holdings to its fully diluted share count. In straightforward terms, it calculates how much additional Bitcoin each potential share of stock represents.

Significance: This KPI aims to answer a crucial question: Is the company securing Bitcoin in a manner that benefits its shareholders?

For example, if a firm possesses 10,000 BTC and has 100 million diluted shares, it equates to 0.1 BTC per share. If, after a year, the company holds 12,000 BTC with 105 million shares, the calculation results in approximately 0.114 BTC per share—a 14% rise. That increase represents your BTC Yield.

Distinctive Feature: BTC Yield disregards factors such as profit margins or earnings before interest, taxes, depreciation, and amortization (EBITDA). It concentrates instead on how effectively the company is enhancing Bitcoin ownership relative to the total possible shares. This focus is critical in a strategy that involves utilizing equity to acquire BTC. If management opts to issue additional shares for Bitcoin purchases, shareholders need to ascertain: is the Bitcoin per share increasing or decreasing?

Application: Investors can monitor BTC Yield over time to determine if dilution (additional shares) is compensated by accretive Bitcoin acquisitions (increased BTC). Consistently rising BTC Yield indicates that management is performing effectively.

2. BTC Gain: The Growth Metric Based on Bitcoin

Definition: BTC Gain takes BTC Yield and applies it to the company’s initial Bitcoin holdings for a specific period. This metric reveals how many theoretical “extra” bitcoins have been accumulated through accretive actions.

Importance: This allows visualization of BTC Yield not merely as a percentage but as actual Bitcoin. For instance, if BTC Yield for a quarter is 5% and the company commenced with 10,000 BTC, the BTC Gain would equal 500 BTC.

Uniqueness: BTC Gain helps frame the analysis in Bitcoin terms, aligning with the company’s long-term ambitions. Shareholders do not only monitor overall BTC growth; they are interested in the accumulation of BTC per share. This metric quantifies how much more BTC the company could have obtained if it had started from zero and increased its holdings strategically.

How to Utilize: BTC Gain is particularly advantageous for comparing different time frames. For example, if one quarter reports a BTC Gain of 200 and the subsequent quarter shows 800 BTC Gain, it is evident that the company’s Bitcoin strategy produced significantly stronger results in the latter period—even if the market price of Bitcoin remained unchanged.

3. BTC $ Gain: Converting Bitcoin Gains into Dollar Terms

Definition: BTC $ Gain converts BTC Gain into U.S. dollar value by multiplying the gain by the Bitcoin price at the end of the assessment period.

Relevance: Investors operate within a financial landscape predominated by fiat currency. Transforming Bitcoin-based growth into dollar values assists in bridging the communication gap between Bitcoin-centric strategies and conventional shareholder expectations.

What Sets It Apart: This metric provides a blended perspective—Bitcoin-denominated growth viewed in fiat currency terms. However, it is important to note that BTC $ Gain could yield a positive figure even if the actual value of the company’s Bitcoin holdings has decreased (as this metric is based on share-adjusted accumulation rather than market value accounting).

Implementation: Consider this metric to place a value (in dollars) on how much the company’s Bitcoin acquisition strategy could have generated over a designated period—while recognizing it is not a measure of profit. It reflects growth in ownership stake rather than gains or losses in accounting terms.

4. Bitcoin NAV: An Overview of Bitcoin Holdings

Definition: Bitcoin NAV (Net Asset Value) assesses the market worth of the company’s Bitcoin assets. It is calculated as follows: Bitcoin Price × Bitcoin Count.

Importance: This figure presents a snapshot of the company’s Bitcoin “treasury,” straightforwardly.

Uniqueness: In contrast to traditional NAV utilized in mutual funds or ETFs, this NAV version ignores liabilities such as debts or preferred stocks. It is not intended to convey what shareholders would receive in liquidation situations; instead, it answers: How much Bitcoin does the company own and what is its current worth?

How to Utilize: Analyze Bitcoin NAV to gauge the extent of the company’s Bitcoin strategy. An increasing NAV may indicate higher Bitcoin quantities, higher market prices, or both. However, it is essential to remember that it does not account for debts or financial commitments, so it offers an incomplete picture of shareholder value.

5. BTC Rating: A Clear Picture of Leverage

Definition: BTC Rating reveals the proportion of the company’s Bitcoin value compared to its total liabilities. This ratio enables a clear analysis of whether the company’s Bitcoin holdings are sufficient to cover its financial obligations, including debt and preferred stock.

Significance: This metric provides clarity on how well a company’s Bitcoin assets can serve its financial commitments. It compares the market value of the Bitcoin portfolio against all liabilities—offering insights into the balance sheet’s strength from a Bitcoin-focused perspective.

Distinctive Feature: This metric answers a pivotal question: How effectively are the company’s Bitcoin resources meeting its obligations? This straightforward ratio juxtaposes the company’s Bitcoin value against its debts, unlike traditional credit ratings that depend on complicated models and institutional credibility. BTC Rating provides a transparent and verifiable snapshot, utilizing public Bitcoin holdings and disclosed liabilities for a data-driven assessment of financial stability.

Application: A BTC Rating greater than 1.0 indicates that the company’s Bitcoin holdings exceed its obligations—signifying strong strategic flexibility and insolvency. Conversely, a rating below 1.0 may highlight excessive leverage or refinancing risks. Monitoring how this ratio evolves can provide investors with critical insights into whether the company’s Bitcoin-centric strategy is being implemented prudently.

Why These Metrics are Essential Collectively

Each KPI offers a distinct vantage point:

BTC Yield demonstrates growth that benefits shareholders.
BTC Gain translates this growth into Bitcoin.
BTC $ Gain expresses it in dollar values.
Bitcoin NAV denotes the raw value of Bitcoin.
BTC Rating assesses how that value measures against liabilities.

When analyzed together, these metrics provide investors with a holistic view of whether a Bitcoin treasury company is:

Effectively expanding its Bitcoin holdings
Safeguarding or augmenting shareholder value
Managing risks effectively

A Final Thought: Acknowledging the Limitations of These Metrics

While these KPIs offer unique insights, they are not conventional financial metrics, nor are they intended to replace them. They overlook factors such as operational revenue, cash flow, and debt servicing costs, and they assume that convertible debt will convert rather than mature.

Essentially, these metrics focus on isolating the Bitcoin strategy, not the entire business ecosystem. Therefore, they should complement a company’s financial statements, rather than serve as a substitute.

Nonetheless, for investors seeking to discern whether a company is making prudent decisions in the Bitcoin space, these metrics provide clarity that traditional tools often lack: a transparent view of whether management is effectively deploying equity and capital in a manner that increases Bitcoin holdings per share.

In a world where Bitcoin takes precedence, understanding this metric might be paramount.

Disclaimer: This content has been created for Bitcoin For Corporations. This article is meant purely for informational purposes and should not be seen as an invitation or solicitation to buy, purchase, or subscribe for securities.

This post How to Measure the Success of a Bitcoin Treasury Company originally appeared on Bitcoin Magazine, authored by Nick Ward.