How to apply the bank valuation framework to Bitcoin treasury companies

Author: Andrej Antonijevic, Source: Bitcoin Treasury, Compiled by: Shaw Golden Finance

Introduction

Banks have existed in various forms for hundreds of years. Their business model is usually based on a simple economic mechanism: they absorb deposits and use this funding base to provide financial products such as mortgages, business loans, payment services, and credit facilities. The difference between the return on assets and the cost of liabilities constitutes the basis of their profits.

Due to the widespread existence, regulation, and measurability of this business model, capital markets have developed clear banking valuation methods. One of the most widely used methods is the Price-to-Book (P/B) framework, which directly links the valuation of banks to their long-term return on equity, cost of capital, and sustainable growth rate.

Entering the twenty-first century, a new type of balance sheet entity has emerged: Bitcoin treasury reserve companies. These institutions issue capital (debt, preferred stock, or equity) denominated in fiat currency, for the purpose of acquiring and holding Bitcoin, treating it as part of a long-term capital management strategy and viewing Bitcoin as a capital asset. Although the underlying assets differ, their economic logic is quite similar: both banks and Bitcoin treasury companies engage in capital transformation, and thus can be analyzed using the same valuation principles.

This article demonstrates how the price-to-book ratio framework used by banks can be directly applied to Bitcoin treasury companies, enabling investors to use a relevant and coherent analytical approach to assess their value.

Bank Valuation Framework

The valuation framework of a bank's price-to-book ratio can be expressed as:

Among them:

• ROE is the return on equity of a bank,
• r is the cost of equity (the return rate required by investors),
• g is the long-term growth rate of book value per share and dividends.

If a bank's return on equity (ROE=r) is exactly equal to its cost of equity, then its trading price is equal to its book value. If the ROE is higher than the cost of equity, then its trading price is at a premium. If the ROE is lower than the cost of equity, then its trading price is at a discount.

This logic is the foundation of the price-to-book ratio framework and forms a conceptual bridge to the idea of Bitcoin treasury companies.

Applying the Price-to-Book Ratio Framework to Bitcoin Treasury Companies

Bitcoin treasury companies can be analyzed using the same valuation logic. Their book value is their net asset value (NAV), which is the Bitcoin equity and cash holdings they have.

The return on equity of a Bitcoin treasury company consists of three parts:

1. The price of Bitcoin denominated in fiat currency has risen.
2. When new funds are raised at a price above the net asset value (NAV), or when financing allows the company to increase its per-share Bitcoin holdings faster than passive investors, the appreciation of per-share Bitcoin (BTC yield) can be realized.
3. Leverage, that is, the magnifying effect.

Therefore, the relevant return on net assets indicator is:

Among them:

• g_BTC=The price of Bitcoin in fiat currency has increased,
• a=Bitcoin appreciation per share (BTC yield),
• L=Leverage ratio (percentage of debt to total assets),
• f = cost of debt.

The expression is similar to the equation for bank net asset return on equity (ROE): operating income minus financing costs, adjusted appropriately based on the balance sheet structure.

framework diagram

To demonstrate how the framework operates in practice (not based on specific estimates, for illustrative purposes only), please consider the following parameters:

• Bitcoin price increase: 15%
• Bitcoin appreciation per share (BTC yield): 5%
• Leverage Ratio: 30%
• Cost of debt: 8%

Compound return rate of Bitcoin appreciation and earnings per share growth:

Repaying debts will reduce this ratio:

Grant:

The cost of equity can be estimated using the Capital Asset Pricing Model (CAPM) method, where the risk-free rate is 4% and the market risk premium is 4%. Based on the beta coefficient of the Bitcoin treasury company (for example, between 2.0 and 3.0, adjusted for leverage), the cost of equity will range from 12% to 16%.

Under these exemplary parameters:

Assuming a long-term currency depreciation rate (i.e., inflation rate) of g = 4%, the result roughly falls between 1.2 times and 1.8 times the net asset value.

This is not a prediction, but a demonstration of the method: the valuation directly reflects the relationship between ROE, cost of equity, and long-term growth, which is completely consistent with the situation of banks.

Why this analogy holds

The analytical symmetry between banks and Bitcoin treasury companies is not coincidental. Both rely on capital conversion:

• Banks convert low-yield deposits into high-yield loans and financial assets.
• Bitcoin fund management companies convert fiat currency into Bitcoin exposure, utilizing balance sheet management to enhance the long-term accumulation of Bitcoin per share.

In any case, value creation depends on the institution's ability to maintain a sustained net asset return on equity above its cost of equity (ROE). This spread arises from the following structural advantages:

• Funding Advantages (Access to Low-Cost Capital)
• Risk management and option advantages (timing and structure of issuance),
• Franchise and trust advantages (the ability to effectively attract long-term capital).

These driving factors determine the size and duration of the gap between return on net assets and interest rates, thereby determining whether the valuation multiple is above or below the net asset value.

Conclusion

The price-to-book ratio model has always been the cornerstone of bank valuation, as it directly links valuation with the underlying capital market economy. The same structure naturally applies to Bitcoin treasury companies as well.

The profits of these two types of institutions rely on the spread between their return on capital and the cost of capital. By adopting a mature banking framework, investors can analyze Bitcoin treasury companies from a coherent and transparent perspective, thereby understanding how the balance sheet structure, issuance discipline, and appreciation of Bitcoin together shape their long-term value creation.

If this framework applies to banks, then it equally applies to Bitcoin treasury companies, as in both cases the valuation ultimately reflects the economic benefits of capital conversion.