The dilution trap where Bitcoin holdings rise while shareholder value stalls

Buying shares in a Bitcoin treasury company gives ownership in a business that holds Bitcoin, and management decides how to pay for the coins and when to buy or sell them.

The company also has bills to pay and may owe money to lenders, so the shares' value depends on those decisions and Bitcoin's price.

France's Capital B is a Bitcoin treasury company that makes that relationship easy to see. Between Aug. 17 and Sept. 7, its treasury Bitcoin holdings increased from 3,145 BTC to 3,521 BTC, roughly 12%.

However, Bitcoin per share barely moved under the company's calculation, which includes some shares that could be created in the future. More Bitcoin came into the business alongside more claims to ownership.

That result explains why the method of paying for Bitcoin belongs at the center of any assessment of a treasury stock.

Selling new shares raises cash, but existing shareholders then own a smaller percentage of the company. Borrowing preserves their percentage for the moment while adding a repayment obligation. Either can work well on favorable terms, but both affect the investment's value.

Capital B is listed on Euronext Growth Paris and adopted its Bitcoin strategy in November 2024. Previously known as The Blockchain Group, it also retained technology-services businesses. Its operating-company portfolio includes iORGA, which builds web applications, and Trimane, which supplies business-intelligence and AI consulting.

Shareholders own a stake in the whole group, including the subsidiaries and their expenses.

Like Strategy, Capital B aims to use access to investment capital to accumulate Bitcoin. Its French accounting rules and euro funding mean it must pursue that goal in a very different financial setting than its American colleagues. The comparison helps explain what investors gain by putting a management team between themselves and the coins, and what they pay for that arrangement.

Buying Bitcoin is the easy part

Companies can use cash earned by their businesses to buy Bitcoin, or raise money from investors and lenders. Each approach gives the financiers a different claim on the company.

Using surplus operating cash doesn't directly add shares or debt, although it uses money that could have served another purpose. Selling shares brings in fresh capital and spreads ownership across more shares. Borrowing creates an obligation that has to be met even if the investment disappoints.

More shares aren't automatically bad for existing shareholders. The issue price determines how much new purchasing power each share brings into the company.

Consider a hypothetical business with 100 BTC and 100 shares, with Bitcoin fixed at €100,000. It issues another ten shares and uses every euro raised to buy coins. This simplified example assumes no fees, taxes, operating expenses, or debt.

Both start with one BTC per share. Prices and quantities are hypothetical and do not describe Capital B securities.

In the first case, an existing shareholder owns a smaller percentage of a company containing enough additional Bitcoin to increase the amount per share. In the second, the new cash doesn't buy enough coins to maintain the original ratio.

The first transaction depends on investors paying more per new share than the Bitcoin value of an existing one. They might accept that premium because they expect management to repeat profitable financings.

That expectation can help the process continue, but once buyers stop paying the premium, issuing shares buys less Bitcoin for each additional share created.

Capital B also raises money through packages combining ordinary shares and warrants. Warrants give holders the right to buy future shares at specified exercise prices. Capital B's Aug.28 financing terms attached four warrants to each share, with different exercise prices and five-year maturities.

Investors pay for the initial package and can later pay again to exercise the warrants. That second payment could finance more Bitcoin purchases, but it isn't cash already in the company's account. If exercise is unattractive, the holder may never supply that additional cash.

Exercised warrants bring in cash and create shares at the same time. Any estimate of their effect on existing owners needs to include both, using the exercise price to calculate how much money the company would receive.

Convertible debt is another way to finance Bitcoin purchases. Lenders receive repayment claims with a contractual path into shares, and the company owes the debt under its terms until conversion.

Capital B has used Bitcoin-denominated convertible financing, described in its annual results presentation, alongside its other funding arrangements.

Bitcoin-linked obligations behave differently from fixed-euro debt. When repayment follows Bitcoin's value, a more valuable reserve can come with a more expensive obligation in euros. The conversion and repayment provisions determine that relationship.

Zero-coupon financing avoids periodic interest payments, while lenders can receive compensation through other terms, including their conversion rights.

Strategy's US business uses common equity, convertible debt, and preferred stock. Preferred shares generally rank above common shares for specified claims and can carry dividend obligations, depending on their terms.

Its July results also describe Bitcoin sales to fund part of its preferred dividends. Treasury companies can therefore differ in how they use Bitcoin and how they finance it.

More coins divided among more shares

The most visible number in a treasury announcement is usually the coin balance. To understand an existing shareholder's position, you have to pair that number with a share count.

Capital B's Sept. 7 filing provides the comparison below. Its diluted share count includes existing shares and certain shares that could be issued, allowing the company to estimate how much Bitcoin each would represent. Satoshis are the smallest Bitcoin units, with 100 million in one BTC.

All share figures use the pre-consolidation basis in the Sept. 7 filing. The reserve excludes separately designated operational Bitcoin. The diluted count is company-defined.

Both the Bitcoin reserve and the diluted share count expanded by roughly 12%, leaving the ratio almost flat. This ratio compares the holdings to a defined number of shares. Shareholders have no general right to exchange each share for that amount of Bitcoin, and the calculation doesn't deduct the company's debts.

The next day brought an administrative event that can distort comparisons with these figures. Capital B's ten-for-one reverse stock split took effect Sept. 8. Ten old shares became one new share. The consolidation reduces the share count and mechanically increases the amount attributable to each resulting share without multiplying the company's assets.

On that basis, 736.6 satoshis per old share corresponds mechanically to 7,366 per new share, converting the historical figure into the new units. Charts must use a consistent share basis or risk displaying spectacular performance produced entirely by the consolidation.

The company's “BTC Yield” measures the percentage movement in Bitcoin per diluted share over a period. Despite its name, it pays shareholders no cash and measures a different outcome from their investment return, as Capital B explains in its disclosure.

Shareholders' returns depend on the prices at which they buy and sell, while corporate obligations affect their claim on the assets.

“Fully diluted” sounds as though it includes every possible future share, but a company-defined performance measure can use a specific set of assumptions. Capital B's count incorporates issued shares, assumed convertible-bond shares, employee awards, and an additional reserve for potential shares.

To assess the outstanding warrants, we need a separate exercise scenario, including the proceeds discussed earlier. How much Bitcoin those proceeds could buy depends on its price when the cash becomes available.

Conversion adds shares to the calculation, but it doesn't make conversion inevitable. If lenders instead retain repayment claims, common shareholders must account for those claims. Subtracting debt and assuming the same debt converts at the same time can also double-count the burden.

Gross Bitcoin-per-share figures describe the reserve relative to a share count. Net asset value subtracts obligations from assets, and the stock market can price shares above or below that result.

Comparing these measures requires consistent assumptions about debt conversion and the money any new shares would bring in.

What buying through a French company adds

Europe makes this model different in ways that reach beyond the exchange on which the shares trade, starting with the currency.

Capital B raises money and reports most figures in euros. Bitcoin itself isn't a dollar claim, even though the Bitcoin dollar price dominates financial coverage. The euro cost of buying it reflects both that commonly quoted price and the euro-dollar exchange rate.

Suppose Bitcoin stays at $100,000. At $1.25 to the euro, it costs €80,000. At $1 to the euro, it costs €100,000. Those are hypothetical exchange rates, but they explain why an unchanged dollar Bitcoin price doesn't imply an unchanged euro balance-sheet value.

Euro operating costs and Bitcoin-linked financing obligations add different exposures to the same company.

The second difference is the market through which it raises capital. Euronext Growth is a multilateral trading facility aimed at smaller companies, with requirements distinct from Euronext's main regulated markets.

Capital B operates within a French corporate framework and the rules governing that venue and its securities.

Those rules govern how management can issue shares and what investors must be told. Subscription rights can give existing shareholders a chance to buy new shares before outside investors, helping them maintain their ownership percentage.

Whether those rights apply or have been waived depends on the transaction. The price at which Capital B can raise money also depends on investors willing to buy its securities.

Accounting is the third difference, and it depends on the company and its location.

Capital B's 2025 consolidated accounts use French accounting rules. Under its stated Bitcoin policy, unrealized gains are recorded through balance-sheet accounts, while unrealized losses can require a provision charged against earnings.

That means increases and decreases in Bitcoin's value can affect reported results differently, even when no coins are sold.

US rules for qualifying crypto assets require fair-value measurement with valuation movements recognized in net income, so the FASB standard produces different earnings.

Other European companies may use IFRS, whose crypto accounting framework also depends on the purpose of the holdings. The applicable accounting rules must therefore be checked company by company.

Company-specific comparison using the cited disclosures. Neither column represents every treasury company in its region; instruments and policies can evolve.

Different accounting can make two businesses' reported profits difficult to compare even when their assets experience the same market move. Those valuation entries describe movements in asset value, while the cash available to meet bills depends on the company's receipts, spending, and financing.

Capital B's 2025 results put that distinction into context. It reported a €62.2 million net loss, largely attributable to a €53.9 million Bitcoin impairment, alongside positive adjusted EBITDA of about €1.2 million at its established operating entities. Group adjusted EBITDA was negative, and the release identified about €4.1 million of treasury-business costs.

Those numbers describe different parts of the business and help describe operating performance, while cash available to buy coins depends on actual receipts and payments.

Custody, staff, and corporate financing require resources even when management intends to retain its reserves. Operating subsidiaries can help fund those expenses without making them disappear.

Finally, European investors already have alternatives to corporate treasury exposure. WisdomTree's Bitcoin product document describes a physically backed exchange-traded debt security. Its legal structure differs from both direct Bitcoin and shares in Capital B, but it demonstrates that buying a treasury company isn't Europe's only listed route to the asset.

Investors also have to separate the business's merit from its share price. Paying a large premium for capable management means paying today for some of its hoped-for future success. Discounts may compensate buyers for corporate expenses or doubts about access to fresh capital.

Either price needs to be judged against the obligations and prospects behind it.

Favorable issuance can increase Bitcoin exposure per share, giving shareholders something direct holdings cannot deliver on their own. That benefit has to earn its place alongside corporate expenses and financing risk.

Investors who prefer a passive product accept a more limited mandate in exchange for avoiding those management decisions.

Capital B's appeal depends on management raising money on terms that leave existing shareholders better off once the company's costs and obligations are accounted for. Its larger Bitcoin reserve is one part of that assessment.

The share count explains how widely ownership is divided, and the financing contracts explain who must be paid. Buying the stock means trusting management to make those pieces work together at a price worth paying.

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