over the last year more than a dozen publicly
traded companies around the world have announced that they’ll be buying Bitcoin their stocks went
parabolic as a result and many have continued to pump pump it and just recently Cardano and Polka
Dot announced plans to accumulate Bitcoin too and this has everyone wondering if ADA DOT and
other altcoins with Bitcoin treasuries will pump the same way that the stocks did and that’s
why today we’re going to do a deep dive into why Bitcoin treasury companies have performed so well
assess whether altcoins with Bitcoin treasuries could follow suit and examine just how high they
could go my name is Nick stay tuned the reason why Bitcoin treasury companies have performed
so well is quite simple by accumulating BTC the future valuation of these companies increases if
BTC continues following its historical trend now for context BTC’s annualized return over the last
decade is around 50% outpacing every major other asset class because the markets are forwardlooking
investors will price in the future growth of these BTC reserves today which is why the shares of
Bitcoin treasury companies rally so much when they announce these acquisitions it’s also why
they tend to rally when they announce they’re going to be buying more investors are just
pricing in the fact that the Bitcoin Treasury company has purchased more BTC meaning that the
future value of the shares will be even higher again this all fundamentally assumes that BTC
will continue experiencing annualized returns of 50% which is not guaranteed but that’s the logic
here nonetheless and this begs the question of why investors continue to buy these companies when
they can just buy BTC directly or indirectly via spot bitcoin ETFs the short answer is that Bitcoin
treasury companies are typically businesses with cash flows that can be used to fund additional
BTC purchases as such you can think of Bitcoin Treasury companies as being spot Bitcoin ETFs
that also have a side hustle that generates additional income that can be used to buy even
more BTC to back the shares of the company each Bitcoin treasury company has its own unique
side hustle which creates a variety among these companies the real question then is how exactly
these Bitcoin purchases are being financed and whether it’s something that altcoins like Cardano
or Polka Dot could also do broadly speaking these companies have been raising money to buy Bitcoin
in two ways by issuing debt or by selling shares obviously there are many ways that they can
structure these capital raises for example strategy previously Micro Strategy is famous
for issuing large amounts of convertible notes which are basically corporate bonds that can be
converted into company shares at some later date of course the main concern about altcoins like
Cardano and Polka Dot creating their own Bitcoin treasuries is that they will need to sell lots of
ADA and DOT to fund their BTC purchases in theory this will result in lots of selling pressure that
causes the prices to fall which their communities obviously don’t want in practice however old coins
theoretically have more options to finance their BTC purchases than publicly traded companies
do and some of these options could be even more optimal for instance ADA could be used
as collateral in DeFi to borrow stable coins to buy BTC for Cardano’s community treasury if
the loan to value or LTV is kept low then there would be little to no risk of liquidation this
approach would make it possible for Cardano to accumulate tens possibly hundreds of millions of
dollars of BTC without having to sell a single ADA indefinitely by contrast most of these companies
are structuring their Bitcoin purchases in a way that eventually requires the sale of shares which
is of course much less optimal and by the way guys what exactly Cardono and Polka Dot are planning
in terms of their Bitcoin treasuries and what impacts it could have on ADA and DOT starting
with Cardano its founder Charles Hoskinson started openly discussing the possibility of
creating a decentralized sovereign wealth fund for Cardano in mid June and said that a portion
of this fund could be used to buy Bitcoin now for reference Cardano’s community treasury holds
close to 1.8 billion ADA that’s worth close to a billion dollars at the time of shooting logically
Cardano’s sovereign wealth fund would be funded using Cardano’s treasury with Charles noting
that they could use $100 million worth of ADA to start with now it’s extremely important to
note that the purpose of this sovereign wealth fund is not to become a Bitcoin treasury company
in case you forgot only a portion of this capital will go towards buying BTC most of it will go
towards buying stable coins to give a boost to Cardano’s DeFi ecosystem uh to put things into
perspective there’s only around $30 million of stable coins on Cardano according to DeFi Lama but
I should note that this is apparently by design the Cardano community is hyper aware that large
stable coin issuers like Tether and Circle could have significant influence over the blockchain
and this is why Cardano’s ecosystem has been working on launching its own native stable coins
the only problem is that the growth of Cardano’s stable coins has been stagnant cardano’s sovereign
wealth fund ultimately aims to be the solution in practical terms this means selling $100 million of
ADA to buy Cardano stable coins to increase its D5 liquidity again a portion of this capital will
go towards buying BTC which could also be used to bootstrap Cardano’s Bitcoin D5 protocols before
you panic Charles explained that these ADA sales would be done over the course of multiple weeks
with the help of market makers to ensure that they have little to no impact on ADA’s price not
only that but the yield earned on the stable coins would be used to buy back all of that ADA over
time charles revealed in a recent expost that the specifics around how Cardano’s sovereign wealth
fund will work will be revealed at the rare EVO conference which takes place from August 6th to
10th in Las Vegas between now and then be sure to follow Charles on X and YouTube for any additional
updates now given the specifics of Cardano’s sovereign wealth fund are still up in the air it’s
hard to say exactly what it would mean for ADA’s price that said there’s no question that Cardano
has the connections required to gradually sell large sums of ADA without causing it to tank
it’s also worth remembering that the news of this Cardano sovereign wealth fund launching
could also cause the price of ADA to pump in the long term the yield strategies employed by
Cardano’s sovereign wealth fund could also help support ADA’s price during downturns and also grow
the Cardano ecosystem during the bare market as some of you will know lots of Cardano projects
shut down in the last bare market due to lack of funds a Cardano sovereign wealth fund could
prevent this from happening assuming it’s managed correctly of course in some then Cardano’s Bitcoin
buy will be likely bullish in the short term when the announcement is formally made it could also
create a bullish tailwind in the long term that could support ADA’s price and Cardano’s ecosystem
which is essentially the entire purpose of having the wealth fund to begin with and say if you want
to trade the upcoming announcements at Rare Evo more interesting discussions around creating a
quote strategic Bitcoin reserve have been around since as early as January when a member of the
Polka Dot community highlighted the fact that DOT continues to lose value against Bitcoin naturally
they proposed that Polka Dot consider using a portion of the Treasury funds to buy BTC as a
hedge against further losses in case you missed it the Polka Dot community had previously voted
to convert some of the DOT in their treasury into stable coins according to dotreasury.com there’s
around $100 million of assets in the treasury are mostly comprised of DOT notably some of the stable
coins in the Polka Dot Treasury are being lent out in DeFi to earn a yield news flash this means
Polka Dot is effectively doing what Cardano wants to do anyways fast forward to June when another
member of the Polka Dot community followed up on the initial discussions around a Bitcoin treasury
by formally proposing a plan for Polka Dot to buy Bitcoin and this would involve slowly purchasing
TBTC a form of wrapped BTC over the course of a year using 500,000 DOT from the Polka Dot Treasury
that’s around $2 million at the time of shooting this video hippie Stank the wonderfully named
user who proposed this plan noted that they would submit an onchain proposal quote as soon as next
week which would have been sometime in the second week of June however we could not find an onchain
proposal for Polka Dot Bitcoin Treasury on the official governance website so this suggests that
discussions around a Polka Dot Bitcoin treasury are still ongoing for the time being as to why
that’s the case we reckon that’s because those in favor of the proposal are trying to gather the
necessary community support to ensure the onchain proposal passes as far as we can tell there
is widespread support for the proposal so it’s probably only a matter of time until it’s tabled
and passed now what makes Polka Dot’s plans to buy BTC so interesting is that it’s something that
Polka Dot founder Gavin Wood actually proposed in an interview way back in November 2023
he advocated for the Polka Dot Treasury to diversify its assets including fiat currency gold
NFTts and other cryptocurrencies so far the Polka Dot Treasury only holds fiat currencies in the
form of stable coins and one alcoin from Polka Dot’s ecosystem it stands to reason then that
we could see further diversification into other assets with Bitcoin likely being first in line due
to its accessibility and the hype around Bitcoin treasuries as for what it means for DOT it’s a
similar story to ADA dot could pump in the short term due to the speculation if the BTC purchased
is approved by the Polka Dot community gradually selling $2 million worth of DOT would probably
have next to zero impact on its price and the TBTC accumulated by the Treasury could likewise
act as a tailwind and support for DOT and Polka Dot’s ecosystem respectively then again it’s not
like Polka Dot is planning on buying billions of dollars worth of BTC nor is Cardono for that
matter it’s possible that these allocations will have no impact on DOT and ADA as a result
polka dot and Cardano are also missing another key ingredient a side hustle that can be used
to buy more BTC as we learned earlier the reason why Bitcoin Treasury companies have performed so
well is because BTC has historically experienced annualized returns of 50% so when investors
see these companies buying Bitcoin they start extrapolating its historical performance into
the future and mapping this increase in value onto the share price of these companies the more
BTC they buy the higher the future share price in case you haven’t noticed altcoins like Cardano
and Polka Dot are doing something completely different with their treasury strategies rather
than using Bitcoin as a means of increasing the price of their respective coins they’re using
it as a means of growing their ecosystem and hedging against volatility at least for now the
good news is that there’s nothing stopping them from pursuing the same strategy the even better
news is that altcoins have more leeway in terms of how they could fund future Bitcoin purchases
and could do all sorts of DeFi and CFI magic required to shore up the capital they need the
bad news is that all these strategies require significant cash flows which very few altcoins
have recall the possibility that the Cardano Treasury could use ADA as collateral in DeFi
and borrow stable coins against this ADA to buy BTC besides keeping the LTV low the only way
this would work is if the Cardano Treasury had a way of generating enough revenue to gradually pay
down the DeFi loan suppose they used $100 million worth of ADA as collateral to borrow stable coins
instead of selling said ADA and then they kept a super low LTV of 10% so only borrowing $10 million
worth of stable coins now for those unfamiliar stable coin interest rates tend to hover around
10% per year during a bull market and this means the Cardano Treasury would need to pay hundreds
of thousands of dollars just to keep the LTV low aside from the fact that it would be hard for
the Cardano Treasury to consistently generate this kind of revenue the money used to pay
the interest would be better spent on other initiatives within the Cardano ecosystem it would
be better to be the lender of stable coins rather than the borrower of stable coins within a DY
protocol and this is precisely what Cardono is planning to do with its wealth fund polka
dot situation is a lot more precarious in this sense because it has a much smaller treasury and a
much smaller pool of capital it can sell dot into and this means that it can’t spend large sums of
money on building up a big treasury like Cardano especially when Polka Dot is already spending a
lot on marketing and this underscores the fact that Cardano and Polka Dot are doing something
completely different with their Bitcoin treasury strategies and not just compared to Bitcoin
treasury companies but compared to each other Cardano is aiming to boost its ecosystem whereas
Polka Dot is trying to minimize its reliance on DOT chances are that any other altcoin Bitcoin
Treasury strategies will have similar nuances to them and this brings me to the big question
and that’s whether we’ll see any other altcoins announce Bitcoin Treasury strategies and whether
their respective coins or tokens could benefit the answer to the former is probably yes because
Cardano and Polka Dot aren’t the only cryptos trying to bring more Bitcoin into their ecosystems
more smart contract cryptos want more Bitcoin on their chains due to its growing value if you
watched our video about wrapped Bitcoin you’ll know that the supply of various forms has been
going parabolic on multiple blockchains and this wrapped Bitcoin is then being used in DeFi both
as a trading pair indexes and as collateral in lending and borrowing protocols the catch is that
smart contract cryptos need some way of growing BTC liquidity on their respective chains in case
it wasn’t clear enough Bitcoin treasury strategies are one of the ways of growing their Bitcoin
liquidity and the logic in this case is that the more BTC liquidity there is the more activity
on the crypto’s blockchain or protocol whether their respective coins or tokens could benefit
is another question entirely though from our perspective a Bitcoin treasury strategy will only
be beneficial for an altcoin in so far as that altcoin can generate revenue to continue buying
BTC or engage in strategies similar to Bitcoin treasury companies again there are not many
altcoins that fit into this bucket one of the few is Hyperlid which is currently generating close
to a billion dollars of annualized fee revenue according to DY Lava the caveat is that Hyperlid
will probably continue directing this revenue towards buybacks of its own hype coin after all
if a project is earning large revenues why would it use that revenue to buy Bitcoin when it can
instead buy back its own native token some would actually go so far as arguing that it’s pointless
for an altcoin to accumulate BTC as a reserve asset because all cryptos are highly correlated
and this highlights another nuance and that’s that whereas accumulating crypto assets like
BTC as a means of diversification for publicly traded companies accumulating trady assets like
fiat currencies in the form of stable coins is a means of diversification for crypto Dows in other
words if the purpose of a crypto dial’s treasury strategy is to diversify reserves Bitcoin probably
wouldn’t get a very large allocation and what this means is that the only reason an altcoin would
choose to accumulate large amounts of Bitcoin would be to grow its Bitcoin D5 ecosystem even
then there are other ways of increasing onchain BTC liquidity that don’t involve a mainchain DAO
vote if you’re a DeFi DJ you’ll know that it’s much more common to offer various yield farming
opportunities and these tend to be at the protocol level so no we probably won’t be seeing any
altcoins going parabolic because of their Bitcoin treasury strategies because they’re doing
something completely different than the publicly traded companies there is a silver line in here
though and that’s that there will be a lot of D5 protocols that benefit from the injections of
BTC liquidity on Cardano Polka Dot and any other altcoins if they start buying BTC for DY reasons
and if you want to know which D5 cryptos could have the most potential in this cycle then be
sure to check out our latest video on that right over here and if you’re not subscribed to the
channel yet well you can do that right over here that’s me Nick signing off thank you very much
for watching and I’ll see you guys again soon
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