Funding a Bitcoin purchase is a capital structure decision, not just a treasury one. Most companies use surplus cash, which keeps the risk contained to the asset itself. A smaller group borrows or issues shares to buy Bitcoin, which ties the company's obligations to the asset's price and needs far more careful analysis.
Why the funding source matters
Two companies can hold the same amount of Bitcoin and face very different risks. The difference lies in how they paid for it.
A company that bought Bitcoin with spare cash can wait out a fall. Its worst case is a loss on the asset. A company that borrowed to buy may face interest payments, covenant tests and a repayment date that arrive regardless of Bitcoin's price. Its worst case can be a refinancing problem or a forced sale.
Our overview of Bitcoin treasury companies lists the instruments some listed firms have used. This article focuses on the decision itself: how a CFO should compare the routes and what to test before committing.
The three routes compared
| Surplus cash | Debt | New equity | |
|---|---|---|---|
| Direct cost | Interest income given up | Coupon or interest rate | Dilution of existing shareholders |
| Fixed obligations | None | Interest and repayment | Usually none (except preferred shares) |
| Effect on credit profile | Small | Potentially significant | Can improve it |
| Board approval | Usually sufficient | Board plus lender consents | Board plus shareholder authority in many cases |
| Disclosure burden | Moderate | Higher | Highest |
| Main risk | Opportunity cost and price risk | Obligations due when Bitcoin is down | Issuing shares that do not add Bitcoin per share |
Funding a Bitcoin purchase with surplus cash
This is the default for almost every operating company. The test is simple: is the cash truly surplus?
Cash is surplus only after covering:
- Operating needs over the planning horizon, including seasonal swings.
- Committed capital spending and acquisitions.
- Debt service and covenant headroom.
- A buffer for a downturn in the business itself.
The cost of this route is the yield the cash would otherwise earn, typically on deposits or T-bills. That is the hurdle the board should see. Our guide on how much Bitcoin a company should hold explains how to size the allocation from surplus.
Funding with debt
Borrowing to buy Bitcoin magnifies both gains and losses. It also creates timing risk: obligations fall due on a calendar, while Bitcoin moves without regard to it.
Before considering debt, a CFO should answer four questions.
1. Can the business service the debt without the Bitcoin?
Interest and repayment should be covered by operating cash flow alone. If debt service depends on Bitcoin rising, the company is speculating with borrowed money.
2. How does maturity compare with Bitcoin's cycles?
Bitcoin has historically had multi-year drawdowns. Short-dated debt could fall due at the bottom of one. Longer maturities give more time, at a higher cost.
3. What do the covenants say?
Look for minimum liquidity, net debt ratios and permitted investment clauses. A falling Bitcoin price can reduce asset values that count towards covenants, even if no cash has moved.
4. Is the debt secured on the Bitcoin?
Secured borrowing against Bitcoin brings margin calls and possible liquidation. We cover this separately in Bitcoin-backed lending for companies.
CFO tip: model the debt route at the worst point of a severe historical drawdown, with the refinancing date falling at that moment. If the company still has options in that scenario, the structure may be sound. If it does not, it is not.
Funding with equity
Some listed companies have raised new equity, including through at-the-market programmes, convertible bonds or preferred shares, specifically to buy Bitcoin. This changes the company's identity as much as its balance sheet.
The key test is whether the issue increases Bitcoin per share for existing shareholders. If the shares trade at a premium to the value of the Bitcoin behind them, issuing new shares to buy more Bitcoin can increase each existing share's backing. If they trade at or below that value, issuance dilutes holders. The metric used for this is mNAV.
Equity funding also brings:
- Prospectus or offering document requirements.
- Shareholder authority to issue shares in many jurisdictions.
- Heightened market scrutiny of the strategy and its risks.
- Expectations that the company will continue the approach.
Convertible bonds sit between debt and equity. They usually carry a low coupon but must be repaid if the share price does not rise enough for conversion. Preferred shares can carry fixed dividends that rank ahead of ordinary shareholders. Both create obligations that must be tested as carefully as straight debt.
Running the decision
A sound funding decision follows a sequence:
- Confirm the strategic purpose and target size of the holding.
- Establish how much true surplus cash exists.
- If the target exceeds surplus, decide whether to buy less or to raise capital, and present both options to the board.
- For debt or equity, run stress tests at severe drawdown levels and check every covenant and consent.
- Document the funding rationale in the board paper alongside the purchase rationale.
Companies should take their own accounting, tax and legal advice. Interest deductibility, the treatment of convertible instruments and securities law requirements vary widely.
How The Bitcoin World helps
We help CFOs compare funding routes, build the stress tests and prepare the board paper that sets out the choice. When the purchase proceeds, we plan the execution and settlement. Execution, custody and settlement are carried out by licensed third-party institutions, and we do not hold client assets. See our corporate treasury and board advisory services.