What if we backtested the digital credit / perpetual preferred equity model by inserting it into Bitcoin’s actual price history at the start of 2015? I modeled a hypothetical Bitcoin treasury company with: 1. $100M of common equity 2. $100M of 11% perpetual preferred equity 3. $200M of Bitcoin... purchased on day one 4. 2.0x initial BTC coverage on the preferred 5. Up to $100M of additional preferred-funded BTC purchases per year 6. No additional common stock issuance 7. Dividends funded by selling Bitcoin 8. The ability to defer cumulative dividends during periods of weak coverage Then I ran the structure through every Bitcoin boom and crash from January 2015 through September 2026. Bitcoin itself compounded at 59.8% annually over the period. $100M invested directly into BTC became $24.08 billion. The same $100M of initial common equity behind the preferred-funded Bitcoin treasury became $62.87 billion. That is 2.61x the terminal value of simply holding Bitcoin. Modeled common NAV CAGR = 73.4% vs. 59.8% for BTC And this happened despite the company selling 103,729 BTC over the period to fund $770M of cash preferred dividends. When Bitcoin appreciates faster than the cost of the preferred capital, the fixed-dollar claim becomes progressively smaller relative to the asset base. The preferred starts with only 2.0x BTC coverage. By the end of the backtest, coverage reaches 54.1x. The common equity effectively captures the residual convexity. But there is a huge caveat. The modeled common also suffered a 91.2% maximum drawdown. That is the entire game. Perpetual preferred equity changes the time structure of the liability. There is no maturity date forcing the company to refinance or liquidate Bitcoin at the worst possible moment. And if dividends are cumulative but deferrable, management can choose not to sell scarce Bitcoin into a crash merely to satisfy a quarterly cash obligation. You are effectively matching a permanent dollar liability against a scarce monetary asset with historically enormous long-term appreciation, while allowing common equity to own the residual upside. That might be the deepest insight from the backtest. The superpower of digital credit is not leverage. It is time itself.show more

Adam Livingston

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