What is a Bitcoin Treasury Company?

In our last article, we covered what Bitcoin actually is, digital money with a fixed supply of 21 million coins, run by a global network rather than any bank or government. Once that clicks, a new question naturally follows: why do public companies hold it on their balance sheet, and what does that actually mean if you're thinking about investing?

That's where the term "Bitcoin treasury company" comes in, and it's quickly become one of the most talked-about structures in public markets, both in the US and increasingly here in the UK.

A Bitcoin treasury company, in one sentence

A Bitcoin treasury company is a publicly listed business that holds Bitcoin as a core part of its balance sheet (often instead of, or alongside, cash) as a long-term store of value and a way to build wealth for shareholders.

Put simply: rather than leaving spare cash sitting in a bank account earning very little, these companies choose to hold some, or even most, of their reserves in Bitcoin instead.

Where did the idea come from?

The model was pioneered in the US in 2020 by a software company then called MicroStrategy, now simply known as Strategy. Its leadership made a public case that holding large cash reserves was, in real terms, a slowly depreciating asset, while Bitcoin's fixed supply made it a stronger long-term store of value.

Since then, publicly listed companies around the world have adopted a version of the same idea, each holding Bitcoin on their own balance sheet alongside, or instead of, their core business. Our article on Strategy, formerly MicroStrategy, covers exactly how the model started, and why it's had such an influence on companies everywhere, including here in the UK.

Why would a company want to hold Bitcoin at all?

• Protecting reserves from inflation. Cash sitting in a bank account tends to lose purchasing power over time. Bitcoin's fixed supply means it can't be diluted the way currencies can be printed.
• A long-term store of value. Rather than being spent or held short-term, Bitcoin is treated as an asset to hold and compound over years, not weeks.
• Building shareholder value. Bitcoin held on a company's balance sheet can grow in value over time, adding to the underlying worth behind each share.
• Standing out to a new type of investor. Holding Bitcoin gives a company a distinct identity, appealing to shareholders who believe in Bitcoin's long-term prospects but want to access it through familiar public markets.

How does a company actually build up a Bitcoin treasury?

Most Bitcoin treasury companies don't simply spend cash already sitting in the bank. Instead, many raise new capital (commonly by issuing new shares) and use the proceeds to buy Bitcoin. Done carefully, this can actually grow the amount of Bitcoin sitting behind each individual share over time, something the industry calls an accretive Bitcoin strategy.

If you want to understand the mechanics properly, our articles on what Bitcoin per share means and what an accretive Bitcoin strategy actually is walk through it step by step.

Buying shares in a Bitcoin treasury company isn't the same as buying Bitcoin

This is an important distinction, and worth being completely clear about. When you buy shares in a Bitcoin treasury company, you are buying shares in that company, you are not buying Bitcoin itself, and the shares are not a fund, tracker or exchange-traded product designed to mirror the Bitcoin price directly.

That said, because a significant proportion of the company's balance sheet may be held in Bitcoin, a material rise or fall in the Bitcoin price is likely to affect the value of the company, and, in turn, the value of its shares. That relationship is central to how these businesses are valued, and it's a risk factor anyone considering an investment should understand clearly, alongside the normal risks of investing in any publicly listed company.

Our guide to the different ways people invest in Bitcoin, and our comparison of buying Bitcoin directly versus buying shares in a company that holds it, both go into this distinction in more depth.

Why does a company's Bitcoin holding affect its share price?

One concept that comes up a lot around Bitcoin treasury companies is Net Asset Value, or NAV, broadly, the value of everything the company owns, including its Bitcoin, measured against its share price. Investors often watch whether a company's shares trade above or below the value of the Bitcoin (and other assets) it holds, since that relationship says a lot about how the market is pricing the company's strategy, management and future growth.

Is investing in a Bitcoin treasury company risky?

Yes, and it's worth being upfront about that. Because a large part of a treasury company's value is tied to Bitcoin, its share price can move sharply, in both directions, largely in line with Bitcoin's own volatility. It also carries the normal risks of investing in any publicly listed company, on top of that. Nothing in this article is financial advice, and anyone considering an investment should do their own research and consider speaking to a regulated financial adviser.

Does the UK have a Bitcoin treasury company?

Yes. Smarter Web (trading as The Smarter Web Company plc (ticker: SWC)) is the UK's largest listed Bitcoin treasury company, holding several thousand bitcoin on its balance sheet alongside its ongoing web-operating business. We look at this in full in our dedicated article, does the UK have a Bitcoin treasury company?

Next in knowledge base

In our next article, What is The Smarter Web Company? Stock and Share Information, we'll look at exactly what Smarter Web is, how the business is structured, and everything you need to know about its shares and stock information.