Treasury Problem Framework

The Treasury Problem is about how companies must generate returns that exceed the cost of capital to avoid destroying shareholder value, particularly in high-inflation environments.

Core Treasury Problem

• Cost of capital exploded from 8% to 25% after March 2020
• Companies must generate returns above cost of capital or destroy wealth
• Asset inflation appears immediately when central banks stimulate economy
• Money sitting in zero-interest accounts loses significant value
  • At 10% inflation: Lose half value in 7 years
  • At 25% inflation: Lose half value in 3 years

Money Supply Impact

• Federal Reserve expanded M2 money supply:
  • 5-6% annually for decade before 2020
  • Jumped to 20-25% after March 2020
• Current expansion drivers:
  • Fed and EU buying $1T bonds annually
  • Multi-trillion dollar government deficits
  • $1T+ stimulus packages
• Projected 15% expansion rate for next 4-8 years

Asset Performance Requirements

• Companies need 20%+ growth rate to maintain value
• Assets must generate minimum returns to avoid value destruction:
  • Bonds need >15% interest rate
  • Commercial real estate needs >15% yield
  • Company cash flows need >20% growth
• Most assets have negative real yields:
  • Gold: -3% (mining/hypothecation rate)
  • Sovereign debt: -12-13%
  • Corporate debt: -10%
  • Cash: -15% annually

Corporate Strategy Solutions

• Convert treasury to Bitcoin
• Sweep cash flows into Bitcoin
• Borrow against future cash flows in dollars, convert to Bitcoin
• Finance fixed assets in dollars, convert to Bitcoin
• Issue equity at highest possible dollar valuation, invest in Bitcoin
• Rationale: Bitcoin is "apex property"
  • Most scarce monetary asset
  • Cannot be diluted
  • Resistant to property tax
  • Minimal counterparty risk
  • Technically superior asset on open protocol