Five tricks to using investor funds to buy bitcoin

Michael Saylor has made no secret of his bitcoin (BTC)-accumulating strategy. By issuing bonds and securities like ATMs, Strike, Strife, Stride, Saylor wants his fans to believe in his ability to accomplish accretive dilution.

A type of financial alchemy that involves taking out loans, diluting equity holders, and encumbering future cash flows, MicroStrategy (MSTR) investors believe that demand for volatility products from bond and arbitrage traders supposedly funds Saylor’s issuance of securities.

Because he’s diluted shareholders by less than $1 to buy each additional $1 of BTC, they believe that he could continue to innovate and increase their dilution-adjusted BTC holdings per share over time.

However, Saylor’s success in selling these securities at premium prices has attracted competition in the form of new companies. These entrants have entirely unique iterations on accretive dilution.

Nearly doubling in the past six months, a new cohort of over 130 BTC treasury companies has listed shares on stock exchanges around the world.

Like MicroStrategy, these companies want to grow a BTC treasury on a dilution-adjusted basis, yet they have taken a variety of alternative approaches.

Accretive dilution

MicroStrategy (doing business as Strategy) pioneered this BTC treasury method. By selling securities at premium prices, executives can add BTC per share on a dilution-adjusted basis.

Strategy acquired most of its BTC through at-the-market (ATM) share sales when its common stock was trading at a higher value than its BTC holdings. Mathematically, selling shares at a premium was a guaranteed method for Saylor to accretively dilute.

As time has passed, Saylor has sold a variety of non-common stock securities at premium prices — allegedly funded by bids from bond and arbitrage traders in addition to retail investors.

He’s issued three series of dividend-yielding preferred shares, which don’t dilute common shareholders yet encumber future cash flows.

Many BTC treasury companies utilize the traditional accretive dilution strategy, including Semler Scientific, Next Technology Holding, MetaPlanet, Gamestop, Trump Media & Technology Group, and many others that have directly diluted shareholders to buy BTC.

Accretive dilution by options sales

Companies can raise funds to buy BTC through sales on derivative markets. By selling options underwritten by either the BTC they plan to buy, or the assets like cash that they already own, collecting options premiums is a way to fund BTC purchases.

Of course, selling stock- or cash-covered options limits the unlimited upside potential of BTC price appreciation, but it can be a lucrative strategy in sideways or temperate market conditions.

Because BTC treasury companies collect option premiums up-front and face only the risk that the buyers might call or exercise these options before their expiration dates, this strategy of accretive dilution allows for the immediate acquisition of BTC while adding future risks.

MetaPlanet famously deviated from Saylor’s Strategy by selling options, and other companies have followed suit. In addition, BTC yield ETFs like the Purpose Bitcoin Yield ETF use options-selling tactics to generate income for investors.

Read more: MicroStrategy dilutes its shareholders to buy more bitcoin

Accretive dilution by cash flow

Traditional operating cash flow can allow companies to add BTC to their treasuries without the need to sell shares.

Companies like Tesla and MARA have used this simple strategy to add BTC to their balance sheets. Twenty One Capital, seeded and controlled by Bitfinex and Tether, is also a perfect example of using operating cash flow to acquire BTC.

Indeed, Tether reported $13 billion in profit last year.

Because the outstanding share count of public companies invariably rises over time through corporate actions like options awards, shelf registrations, debt conversion, exercises of warrants, and other dilutive events, accretive dilution by cash flow can allow companies to add BTC on a dilution-adjusted basis through their regular business operations.

Accretive dilution by insurance

Selling insurance is a tried and tested way to collect an upfront premium in exchange for future promises.

Insurance companies often invest the money from the collection of premiums that they are required to hold for payment of claims — and BTC treasury companies choose to invest some or all of this capital into BTC.

Although major insurance companies today favor secure investments like stock indices or Treasury bonds, some companies are choosing to invest in BTC.

Insurance company MassMutual, for example, bought $100 million in BTC, and other companies are starting to experiment with BTC acquisition from premium collections.

Accretive dilution by sale-leaseback

The whole game of accretive dilution is the acquisition of BTC today in exchange for pushing risks and obligations into the future. A sale-leaseback is a straightforward tool to raise capital in this way.

Some BTC treasury companies are choosing to sell assets, yet immediately lease those same assets. For example, a company can sell office space and lease it back without even moving out, or sell expensive equipment and rent it back.

This allows the company to buy BTC today in exchange for ongoing obligations to pay rent or otherwise service their lease.