Satoshi Institute · treasury policy
Size the Bitcoin position to the policy
Start from the constraint a board actually sets, the most the treasury may fall in a severe selloff, and work back to the allocation that respects it. Then weigh what that position adds across return scenarios you can see and change.
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The trade-off
Treasury value at the horizon as the allocation grows, upside and downside both widen.
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What this leaves out. Scenario modeling, not investment, treasury, or financial advice. The return scenarios are assumptions you set, not forecasts; the power-law figure is a reference, not a promise, and real Bitcoin returns have been more extreme than any of these in both directions. The worst-case drawdown is an instantaneous mark-to-market hit and ignores liquidity timing, rebalancing, and tax. Decisions and their consequences are yours.
Used together with
Both companion tools share the same 95% likely-range view, so sizing the position here stays consistent with the reserve and earnings tests next door.
FAQ
How much Bitcoin should a company actually hold?
There is no universal answer — but there is a framework for getting to the right number for a specific balance sheet.
The MicroStrategy effect and what it doesn't prove:
MicroStrategy's Bitcoin strategy produced extraordinary returns during a specific period and has been widely covered. It also created a company whose stock price is now a leveraged proxy for Bitcoin, which was a deliberate choice by that management team for that company with that shareholder base. The lesson is not "allocate as much as possible." The lesson is "the allocation decision has downstream effects on your entire capital structure and investor profile."
The variables that actually determine the right allocation:
- Operating cash requirements: How much cash does the business need to operate for 12–24 months under a stress scenario? That amount is not available for Bitcoin allocation.
- Debt covenants: Many credit facilities have covenant restrictions on speculative asset holdings or net worth floors. A Bitcoin drawdown that breaches a covenant can trigger forced refinancing at the worst moment.
- Board and shareholder mandate: A public company CFO allocating to Bitcoin without explicit board approval and shareholder communication has a governance problem that exists independently of the investment outcome.
- Time horizon: Bitcoin's volatility at a 12-month horizon is very different from its volatility at a 5-year horizon. The allocation that makes sense is partly a function of when you might need the money.
The Kelly-adjacent framing:
The modeler uses a mean-variance optimization framework to size the allocation relative to expected return, volatility, and correlation with existing assets. The output is not a recommendation — it is the allocation implied by your own inputs about expected return and risk tolerance.
Where should the policy ceiling be set?
The policy ceiling is the maximum percentage of treasury allowed in Bitcoin, set in writing by the board. It exists so that price appreciation alone never drifts the company into an unintended risk posture.
Common ceiling ranges by company type:
- Conservative public company: 1–5% of treasury, sometimes 10% for cash-rich tech
- Bitcoin-strategic public company: 25–50%+, deliberately disclosed as part of the equity story
- Private company / family office: whatever the board and owners explicitly authorise
The right ceiling is the one the board can actually defend in writing to auditors, lenders and shareholders. If the answer makes anyone uncomfortable, the ceiling is too high.
Bear, base, bull — what return assumptions are reasonable?
The defaults in the model are intentionally wide because Bitcoin's distribution is wide. Anchor each scenario in something verifiable:
- Bear: −20% to −40% annualised over the horizon. This roughly matches Bitcoin's worst-rolling-3-year periods historically
- Base: 10–20% annualised. Below the historical CAGR, above long-run equities — a deceleration-aware central estimate
- Bull: 30–50% annualised. Consistent with the power-law trend continuing without major regime change
The output is most useful when the bear case still passes the policy test. If allocation only "works" in the base and bull cases, the position size is being chosen by hope, not policy.
How does the FASB fair-value rule change the picture?
Under FASB ASU 2023-08, Bitcoin held on the balance sheet is now reported at fair value through net income each quarter. Earnings become directly exposed to price swings — both up and down.
Practical implications for the allocation decision:
- Allocation size should be sized so a historical-worst-case quarterly drawdown does not move EPS by more than the company can credibly explain
- Analyst coverage may model the Bitcoin sleeve separately from operations — engage with this proactively in IR materials rather than letting it surprise the model
- Audit committees will want stress-test output as part of the policy memo, not as a one-time tab
The modeler exposes the trade-off; turning it into a board-ready policy memo is where the Treasury Briefing and Bitcoin Treasury Governance Framework take over.
Methodology
Stress-tests a {cash, BTC} treasury across bull, base, and bear BTC scenarios and reports risk-adjusted metrics for each allocation.
- Scenario BTC Value
- B' = B · m (m ∈ {×10, ×3, ×0.25})
- New Treasury Total
- T' = C + B'
- New BTC Weight
- w' = B' ÷ T'
- Portfolio Variance
- σ²_p = wᵀ Σ w
- Two-Asset Reduction
- σ_p = w_BTC · σ_BTC
- Sharpe Ratio
- S = (R_p − R_f) ÷ σ_p
- Bear Absorbable If
- 0.75 · B ≤ C
Σ is the asset covariance matrix; w the weight vector. The right allocation is the largest one whose bear scenario you can still sit through without becoming a forced seller.