NIK

There has been a lot of discussion online recently about the importance, or lack of importance, of Bitcoin per Share and BTC Yield (growth in BTC per Share). I want to take a few minutes to share my perspective here. Trigger Warning: Long Post BTC Yield is a critical metric, and there is a reason it is front and center for the companies operating in this space. When you look at a company and its management team, you need to ask yourself what metrics are in place to guide their actions day to day. The metrics established are called KPIs, or Key Performance Indicators. These metrics are intentionally selected because management has the ability to influence the outcome. It takes some of the unknowns out of the equation, BTC price for instance, and focuses the efforts of a management team on taking the best actions they can at this precise moment to drive long-term value for their shareholders. So why is BTC Yield so important? To answer this, let’s not just talk philosophically about exposure to BTC. Let’s think through some of the actual activities tied to managing these companies (can’t cover all of them, but you’ll get the point). For starters, let’s focus on common equity. What actions can a management team take to drive BTC Yield? The first, and most understood, would be issuing common equity when the market cap of the common equity is valued higher than the fair market value of the Bitcoin on the balance sheet. When this happens, the common equity is trading at a premium to the BTC value. If you raise capital at those levels and deploy that capital 100% into BTC, you capture that premium as an increase in BTC per Share. That increase results in a positive BTC Yield. The higher the premium, the more significant the yield is.  This focuses management attention on fostering expanding multiples when possible and ensuring their activities don’t stifle growth by being too aggressive. The impact of this transaction is immediate. You are increasing BTC per Share while also increasing the asset value supporting each share. You are building a higher base value from which future returns can compound. This is critical. The next activity that can generate positive BTC Yield is buying back common equity. This one has more nuance, but let’s start simple. Assume a company has excess cash on the balance sheet and decides to buy back stock, taking into account no other factors. Would this generate positive BTC Yield? Yes. The company would have the same amount of BTC and fewer shares outstanding. However, assets would also be leaving the treasury in the form of cash. So while BTC per Share increases, you are not building the asset base in the same way you are when issuing common equity at a premium and bringing incremental capital onto the balance sheet. Could it still be the right decision? Certainly. But, as with all things, there is nuance. The main thing that needs to be understood with buybacks is that the capital has to come from somewhere. It could come from cash balances, Bitcoin sales, capital raised through other securities, debt facilities, or somewhere else entirely. Each choice has trade-offs. Cash balances are simple, but they deplete your cash runway. Selling Bitcoin is simple, but whether the transaction is accretive (and how accretive it is) to BTC Yield depends on where the common equity is trading relative to the fair market value of the BTC being sold. Using capital raised from other securities could also make sense, but then you have to consider that you now have multiple groups of shareholders with different interests. So how do you balance that? Take the issuance of digital credit, for example. Could a company simply take some of the proceeds from a preferred issuance and continuously funnel that capital into common stock buybacks? Sure. But that likely is not sustainable over the long term, and it does not fit the broader mandate of driving long-term value across the capital structure. It would be eroding the treasury asset coverage of the dividends by taking on more obligations but adding fewer assets to the balance sheet. You can see how that would impact credit quality over time. Credit investors want to know that the balance sheet supporting their dividends is strong. If you consistently funnel capital raised from credit investors into common stock buybacks, you may be creating value for the common while simultaneously reducing value for the credit investors. So who gets prioritized? You cannot be algorithmic here, because doing so effectively tells one group of investors that you will always act against their interests. You need to strike a balance. That is the nuance. And I do not think it is widely understood or appreciated in daily discourse. Management teams are constantly seeking the right balance to keep the value proposition strong for all shareholders and to keep the engine running optimally, valuing both common and preferred. So back to why BTC Yield is important. BTC Yield guides the daily actions and decisions that drive the long term result. When looking at BTC Yield in a dual-security model, you have to understand that there are two components that can drive value over the long term. The first is what we have already discussed, consistently building the asset value behind the common shares. This is the base that all future returns build from. Using BTC Yield as a guiding KPI helps keep common stock issuance aligned with the objective of building that value over time. If the Yield is negative, you are moving backward on a BTC per Share basis. If it is neutral, you are scaling without building immediate foundational value (many times scaling is important and may be the right decision in a neutral manner). If it is slightly positive, you are building that base, but at a slower pace. And if the premium is significant, you can accelerate that value delivery through issuing fewer shares for the assets acquired. It is a sliding scale. Managing the capital markets well, and utilizing strong data and analytics, helps teams identify the right moments to accelerate and the right moments to show restraint with a focus on the long term. Once you have considered how to build the foundation and consistently move it higher, you then have to consider how to generate excess returns on top of that foundation. That is where Amplification comes in. The issuance of digital credit products can also increase BTC Yield when the proceeds are used to acquire BTC, because you are adding Bitcoin without issuing common shares. But the capital is not free. You are introducing dividend obligations and a cost of capital, which means the BTC Yield generated from that transaction has to be considered alongside the obligations created to produce it. That is where the second value driver comes in. Amplification. First, you build a growing asset base per share. Then you amplify that base to capture excess returns when Bitcoin’s performance outpaces the cost of capital. One creates immediate value through the premium capture in the transaction. The other creates deferred value that is realized as the underlying asset performs relative to the cost of the capital used to acquire it. One builds today, the other delivers the long term value creation. When it works, it can be extremely powerful. It is the combination of these two things that creates the value proposition for structured finance companies capitalized on Bitcoin. But throughout this journey, you have to remain focused on balance. There is no single right answer at all times. The correct decision is nuanced and changes with the markets each and every day. Management teams have to constantly evaluate the right execution path to position the company for maximum value delivery over time. Taking short-term actions, or reacting emotionally to market sentiment, can alter that positioning and miss maximal value capture as the thesis ultimately plays out. Long-term thinking outperforms short term reactions. And, as with all things, it is critical that you consider all shareholders and protect their interests. If a company were to be aggressive with the common ATM when it does not deliver value, common shareholders may not be pleased and seek to move capital elsewhere. If you focus only on simple short term ways to drive value for the common equity, that capital is likely being pulled from somewhere else, potentially creating credit-negative actions that preferred investors may not like. Digital credit is the engine that drives amplification, capital feeling mistreated and leaving lessens the ability to deliver on the amplification mandate. If you abuse any portion of your capital structure, liquidity can eventually be put in jeopardy. It goes back to the old saying, “Capital flows to where it is treated best.” That should be the goal of these teams. Create the best long-term value delivery environment for capital, and make capital want to remain inside your ecosystem. BTC Yield helps guide the right actions. It focuses execution, encourages strategic rather than reactive decision-making, and helps management understand whether the capital allocation decisions being made are enhancing or detracting from the overall vision. But BTC Yield does not exist in isolation. Liquidity matters. Risk management matters. The obligations created across the capital structure matter. And the interests of every class of shareholder matter. The job of management is to balance all of those things together. Build the base. Amplify it intelligently. Protect the capital structure. Preserve liquidity. Be bold. And make decisions that position the company to deliver maximum value over the long term. Build a vision. Set the right KPIs. Align incentives. Execute efficiently. Minimize value leakage along the path to total returns. Deliver for your shareholders.