Hard Throughput Bitcoin Companies (HTBCs): a new capitalization architecture to fix things with bitcoin

Because fuck waiting around for fiat to hit zero to do things

Prelude

I was fortunate enough to learn about bitcoin rather convincingly by the venture capital asset class a number of years ago. As an asset class, especially in the prior decade, venture capital has greatly underperformed the public markets on a comparable basis, with people employed in the industry collecting above market compensation. To assess this, one simply needs to look at sector index funds, and to balance out the fact that public markets are liquid, better collateral, and have lower downside risk, one would look at 2x or 3x leveraged ETFs, and it very quickly becomes apparent how rare it was for a firm to beat the public markets, and that’s before you even consider a public market portfolio with a small portion of bitcoin (obviously, just bitcoin massively outperforms all of those).

This underperformance is not a surprise to anyone who had the unfortunate opportunity to become intimately familiar with the contrived thinking of venture capitalists at a low level — while excellence is splendid to witness, observing the failures of venture capitalists first hand becomes viscerally repulsive as one gets closer, the single death tragedy that you consider a statistic, perhaps preventing you from appreciating the enormity, and conveniently saving you from the disgust. I am however not alone in my feelings of disgust for the fiat world. Consider where disgust orginates from in nature: literal biological decay filled with bacteria and parasites, this is literally the nature of venture capital, and only via infection does it become tolerable to normal people who become zombified carriers.

Ultimately, this response is driven by the systemic failure to effectively generate real wealth i.e. productive generation of goods & services with ever greater efficiency. Capital markets require actual capital to function properly, and it is only the cucked zombies who would call the present state of affairs capitalism, rather than admitting is a distributed authoritarian form of neo-communism, with various central elements of Marxism that Karl Marx laid out: centralized banking, centralized state run education. Capitalism requires individual economic actors and through centralized mimetic control, the individual can be rendered into executing rote shell-script-like behavior that cannot truly be considered human action, and instead is how central bank communism has spread throughout the West — at a baseline, we might estimate that anywhere between 95% and 99% of the capital is controlled in this way and only 1-10% of the world is actually running on capitalism with individual actors engaged in human action.

The part of the world running on capitalism matters quite a bit since that’s where wealth generation arises. The fact that the world has grown and that this form of communism does not lead to total collapse does not change the fact that it is communism: a technically literate person understands that the default is for growth even with the mere compounding of existing technologies, whereas if we actually had capitalism the rate of growth would accelerate, jerk, and jounce upward faster — people with a 85 IQ such as prison inmates struggle with these notions of alternative hypothetical realities and are only able to grok “actual today number more big than actual last year number.” Interestingly, 125 IQ professional normies, by some pyschological trick of the central banking will resort to the prison inmate style of thinking unless they are humble enough to be roused by this style of mockery, which is why I consider my insults to VCs a rather altruistic (and yes, costly) public service. You’re welcome.

Anyway, the premise of bitcoin fixing everything is far less hyperbolic if one simply takes it to mean that it eliminates authoritarian communist central planning, and one understands that the default nature of humans is to iteratively work on fixing everything in perpetuity. Unfortunately, even as bitcoin continues its spectacular rise, the world still operates on the substrate of fiat, and even bitcoiners operate under the incentives of the fiat world — during the transition, the rational bitcoiner actually operates with the highest time preference of all economic actors, we might say that counterintuitively, the bitcoiner rationally hyperfiatizes to maximize their bitcoin returns. In this way, the bitcoiner becomes as equally a passive NPC as any first order fiat person and decides to kick the can down the road on the actual thinking about the nature of the world and the things they might invest in fixing. However, I would argue that the man who feels he can do nothing of relevance to reshape a highly dysfunctional world as a billionaire other than hodling and naive zombie-bitcoin-treasury-shit-company yield maximizing, will also have nothing to contribute to the world as a trillionaire when fiat is dead.

Therefore, I present an alternative: a new architecture for capitalizing, establishing, and growing bitcoin treasury companies that also do actually useful things in the world today rather than capitalism and the fixing of things being something we will have access to later. I expect it to be able to outperform the shit-company bitcoin treasury approach, while stabilizing the world during the transition by providing a way to bridge the gap between real companies and the financial realities that bitcoin is beginning to impose on the world. The global economy in 1901 at the end of the gilded age had 40x less energy production, and if we consider a 25x technological value multiplier, that means the world is 1000x larger than the last time capitalism existed writ large. It would be intellectually lazy to assume that the standard practices around corporate architectures and capitalization of new ventures would not require any new thinking. Historically, shifting relations between stakeholders has led to immense wealth as was seen with the invention of the Joint Stock Company. I think it is possible to do better than the shit-company zombie treasury plays.

Moreover, it is incumbent upon bitcoiners to contemplate the formation of new businesses, that thing called a startup, for if all the existing companies that were formed largely through communism trigger hyperbitcoinization tomorrow, it means the quality of goods & services on day 1 after fiat is dead, and day 1000, will be far worse than they could be — capitalism is a dynamic, iterative process, and the starting conditions have a substantial impact on how quickly the fixing can ramp up. Under free markets, startups will be as interesting as the people running the Government pension (oh yes, VCs and founders are ironically often quasi-government employees) ponzi schemes would like you to believe they are. It is worthwhile having the shit companies of the fiat standard crushed with great haste. If you want hundred billion dollar companies buying bitcoin, why not make some, real ones, in the years or decades that fiat is still around? Then you can actually enjoy a thing or two, beyond just the meta-problem of the money itself being fixed, rather than telling your grandchildren “the fixing of things is about to start ramping up.” You can be part of the fixing and doing of real things today, and the bitcoin thing is already done, and it is quite obvious — that other people are retarded is no reason to drop your standards, you know how trivially obvious it is, so why not challenge yourself to do something harder?

I call my architectural substrate to restore human action during the transition: Hard Throughput Bitcoin Companies.

Time Preferences and Non-Ergoding Risk-Taking among Poor People

A rather peculiar thing occurs under communism: through authoritarian decree, poor people find themselves with sums of capital many times larger than their net worth under management. Poor is of course relative and could mean a centimillionaire managing a $2b fund, but the fundamentals of risk-taking dynamics work across scales (though be careful to note this scaling is certainly non-linear). The power law of high volatility startup returns means the returns cannot be captured by the poor people appointed by fiat unless they are psychologically aberrant in certain ways that fiat robustly selects against. What happens is that maximizing expected value of returns (the mean expected return) comes at the expense of reducing the median expected value, which is no problem if one is an LP with an index of high risk funds, but shifting the decision-making to poor people breaks capitalism because they desperately pursue median outcome maximization, for the GP only sees the returns (or failure) of their own fund, not the returns of the asset class. Of course, a similar problem can exist with a founder who might be unwilling to make decisions that optimize expected value at the expense of median outcome.

The characteristic aspect of these scenarios, that individual actors do not get to access the returns of the larger pool in which they are in, is exactly what defines non-ergodicity (more formally, the distribution of outcomes for 1 person in the pool aggregated over time, is different from the distribution of outcomes across all people at any given slice of time). A more general definition of poverty might be that it is operating in such a way under non-ergodic conditions where one optimizes median over mean outcomes, and one acts impoverished in proportion to which this optimization is made.

Optimizing for median outcomes also drives time preferences up and a focus on simple business models since it is inherently harder to predict things further out into the future. This means venture capital is inherently anti-technology in nature from the perspective of producing new technologies, as opposed to consuming technology early, a sometimes subtle distinction given the hierarchical nature of technology. Inherently, things that are highly legible, offering a high degree of predictability, will not be able to outperform since this literally means it is known to the broader markets and its upside will be quickly priced in.

If you act poor, no matter how rich you are, you will be poorer in the future, regardless of whether you are richer in the future. This has real consequences even for the wealthiest in the world as it means things like a private supersonic jet will not be available for them — knowing all these things and attempting to do nothing is thus a capitulatory declaration that one deems oneself incapable of radical tranformation of the world (ironically, the people funding private supersonic jets today are actually on the side of making capitulatory declarations, but that counterintuitve reality is beyond the scope of this post — I have written about specifically why you need to not go directly for supersonic private jets if you actually want them, and in the queue to publish on this substack). Degeneracy is what follows from these poverty mindsets. It is from this robust mathematical framwork of decision-making under certainty from which the fundamental dynamics of human action under the capitalism that bitcoin will bring about emerge. Bitcoin is special because it provides the option of perfect ergodicity, eliminating the volatility risks everyone faces in ways traditional ETFs are wholly incapable of. The requirement of a perfect measure for economic calculus that only bitcoin can provide can thus be reframed as the requirement for ergodicity. This allows the fear and poverty with which even seemingly wealthy people act on the fiat standard to disappear, and all that remains is true attempts at optimizing returns, for all those actors who target median return optimization will find the bitcoin they have to do so diminishes to zero over time (all strategies that underperform the mean will have nominally negative returns once fiat is dead; the average is driven by the tails).

Characteristics of startups and established companies under fiat

Public Companies under the past century of fiat money have shown a pronounced increase in P/E ratio of about 2x from the low tens to the mid twenties as people increasingly use the stock market as a monetary substitute.

Startups are even more extreme in what might be called their moneyness, where the target P/E ratios are in the hundreds, though far more often than not, it is negative since startups are rarely profitable even when they are touted as “successes” — success simply meaning being able to dump an unprofitable, centrally planned nexus of contracts upon a buyer with misaligned principal-agent problems who is not managing their own money.

To the extent these have become monetary instruments, the particulars of what a company does has become increasingly irrelevant, hence, the investor as shell-script non-human-actor. Instead, the requirements are to have certain monetary parameters. The key parameter of a startup to be successful is that the percentage real company cannot be too large. There must be a very high monetary premium because this premium can be rapidly amplified, whereas the real company kernel can only grow so quickly. The optimal premium appears to be around 10-100x i.e. 1-10% real company kernel. Fraudulent schemes such as Theranos were really a minor “off by 1 error” in that they choose 0% kernel instead of 1% kernel, an easy mistake to make in Silicon Valley.

With the highly structured and uncreative nature of finance here, the startup follows a very regimented path: first it raises X dollars at 4-5X, and then does this a few more times. All the while, there are all sorts of interconnected schemes to pull out money from these 90-99% zombie entities. LPs mandate that GPs do not deviate from this — it is incredibly obvious we are witnessing soviet style bureaucracy, not capitalism at play.

The Flip: Hard Throughput Bitcoin Companies

For someone who is not in the contrived situation of being a VC and actually wants to not have fun staying poor into the future, they would almost never part with their bitcoin in a round where there is a 20% ownership target. Venture investments are always heavily forward looking and by public company standards would nearly always be worth a tiny fraction of the valuations at which they raise capital. The conservative and intelligent investor knows that a company is ultimately worth the bitcoin it can return, and if a company raises for 20%, even if they go 100% in bitcoin, the investor is effectively 20% in bitcoin, 80% in the speculative equity, which is quite far out on the risk curve (risk is how much you are short bitcoin).

Given bitcoin’s historical returns, and uncertainty as to whether there will be a drawn out lull, or an inflection point in the hyperbolic growth model (I was the first person to correctly describe bitcoin’s growth as hyperbolic — this offers no ability to predict future price, it is just a mathematical tautology of the finite time singularity as fiat approaches zero), the 80% equity portion of this startup has a large hurdle, and it is only likely to overcome this hurdle (in the unlikely event that it does) through aspects inherent in its moneyness and ability to catch a bid as a meme company, expansionary layer on top of what may in fact be a good real business kernel (on the fiat standard, you lose if you don’t use fiat, and until fiat is dead, it cannot simply be ignored). That makes it tantamount to monetary shitcoinery, a foolish and harmful activity.

The correct way to finance a company if one understands bitcoin is to adjust these ratios. Instead of investing an amount that is 4-5x less than the valuation, one must invest 4-5x more than the company is worth e.g. instead of investing $4-5m at $20m pre-money, you would want to invest $70-80m at $20-30m pre-money, resulting in a post-money valuation of $100m. Then with a full bitcoin treasury, if you consider the startup speculative and call it a 0 at the present moment, you are down only 1.2-1.5x rather than 4-6x in bitcoin terms. But why take the downside at all since you can simply hold onto your 1x baseline (zero downside)? For a traditional startup company, it actually does not make sense given the significant risk that it actually grows into a mini-mimetic-monetary local Schelling point of interest, and most will not, which means the entire balance sheet will actually get destroyed since startups are spectacularly effective machines for destroying arbitrarily large amounts of capital. Startups are the most robust vehicle for eliciting a “how the heck did they waste all that money while building basically nothing” response.

The Target Company: Hard Revenue Money Printer Maximization

You actually want a company with a very different type of optimization factor: instead of optimizing for catching a bid as a meme-company from future VCs (or, maybe growing 10,000x overnight since it’s probably software), you want to optimize for high growth (only 100-1000x) and high revenue: the revenue is what makes the business better collateral to access debt markets to buy more bitcoin, and the growth is what enables outperforming zombie companies that are simply borrowing against their bitcoin. The outperformance would presumably be even greater when adding in bear markets. The key is to have the real company portion not be so large that it brings too large an opportunity cost, while also not so small that it is negligible. Luckily, the amount of revenue needed to generate a particular amount of money printer access is quite favorable. Moreover, the venture capital asset class knows it is sort of cooked with the rise of bitcoin as a respectable alternative asset. This means you can actually do a multi-stage approach. Instead of simply scaling directly and eventually going public, it may be possible to access growth stage venture capital prior to going public.

1. A company with low 7-figure revenues raises $75m at $100m post money

2. Over the following 2 years, it efficiently grows revenue to mid 8 figures, while adding profits to bitcoin treasury, but let’s assume those are negligible. The bitcoin might be worth $150-500m after this.

3. Use VC math with the fast growing 8-figure revenue COMBINED with the risk reduction of the bitcoin treasury play to command a $2-4b private market valuation with a narrative of why the revenue can grow another 100x.

4. Raise $500m or so and immediately go all in on bitcoin, but then boost spend rate slightly to rebalance the bitcoin to real company ratio, with some call options to hedge the boosted spending rates — for some businesses (will discuss later), the time to return on boosted spending can be kept to under 6 months.

5. Once rebalanced, keep raising VC at inflated valuations until it stops being inflated, and only then go public for best debt market access.

This can potentially grow the underlying bitcoin investment severalfold in bitcoin terms. Some key aspects to highlight — this needs to be done early and deliberately, if you get in after a single VC round with VC fiat math, you are probably fucked (compared to what is obviously possible, even if you get lucky in a particular deal). One exception would be the valuation is low enough since the true limitation is you need to put 3-5x what the company is worth in bitcoin into the company, and a prior VC round actually has residual moneyness that hurts you from a value perspective as an investor even if the numbers end up close enough to working.

From the founder perspective, giving up 70-80% early may seem suboptimal, but that is only for founders who do not understand bitcoin and the importance of scaling quickly. Ironically, it is this quick scaling that also allows scaling slowly. One of the many problems with the commie/fiat VC industry is it pushes very fast burn rates, and as the saying goes, what 1 developer can do in 1 month, 2 developers can do in 2 months. Having a balance of bitcoin alongside a real company means that a founder can make prudent decisions of when to invest capital in the real company portion that actually support growth since the time value of money mostly collapses when the balance sheet is bitcoin. If the business has a natural ceiling of $10b, but you can get there 5 years faster with bitcoin, it’s better to take a 5x equity hit. This also seems far closer to how things would play out in a bitcoinized world where the capital is not nearly free.

The premise of every company getting into bitcoin is sort of correct, but only in the same way that every economic actor triggering hyperbitcoinization and instantly bringing fiat to 0 at THIS EXACT MOMENT is correct. For large, established companies going beyond a modest addition of bitcoin in their balance sheet, they are effectively declaring that bitcoin is a better buy than their stock since if it were not, they would do stock buybacks. This is technically true, but if it were revealed to be true at scale, it would lead to a massive re-pricing of stocks, and fiat-denominated fiduciary argument is that if triggering this revelation would hurt the shareholders. You can only operate in the shareholders interests by acquiring more than your market cap in bitcoin terms (to be conservative about it), which is a rather large move because by definition, if the shareholder preferred bitcoin, they would just sell the shares and by it themselves. Whether this dynamic breaks next week and bitcoin jumps to $3m next month, or if it persists for another decade, it’s hard to say — what is clear is that if you are anchored to a large percentage of equity in the company, you get suboptimal returns, and you need to be overwhelmingly bitcoin balance sheet on your market cap or you are taking an inordinate amount of risk, which means you cannot hold the position in size.

You also do not want to act like a middle market private equity firm taking CapEx intensive companies because you know you will not meet the high growth criteria I established. To have high growth, you tend to need a small business that hasn’t been around that long.

Hard Throughput Companies in Practice

I am not sure what all the companies might be that meet the parameters I have specified, but a few possibilities stand out to me:

1. DTC Physical Goods: If you make good consumer products, you can rapidly scale 100x and have a business that can quickly turn money spent into revenue, often in a matter of days when driven by ads. Moreover, if optimizing for scaling a HTBC, one can take an approach of aggressively driving down prices to push up revenue, even at the expensive of margins, as this hardens the business by making it less attractive/vulnerable to competitors. Unlike in other forms of production, simply having good taste can enable a single person to make something more valuable, and this means that this sort of business can be used to displace shitty fiat goods with a superior alternative, providing a way for bitcoiner to enact their will upon the world. Moreover, if we consider what bitcoin and capitalism mean at a deep level, it is about maximal liquidity — when there is maximal liquidity in information, the cost of reaching customers with a truly superior product will be far lower. NOSTR is still in its infancy, but I am generally bullish on rapid organic spread of information rather than pay-to-play media chokepoints.

2. Low CapEx Industrial/Energy Technologies: There are a number of industrial energy technologies that build upon new types of automation technologies at the micro and meso scale in ways that will enable unusually high value to CapEx ratios. There are only so many of these, but plugging into energy generation works quite well for high revenue low margin since the energy markets do not give you a window of much higher margins early on. Unlike mining, which does nothing for energy (please, stop the pathetic techno-industrialist LARPing, bitcoin is good enough without you lying about it to make it sound even better), this would be using bitcoin monetarily to reshap the nature of energy production. This category can be a bit trickier to get timing right on.

3. Low CapEx Tactical Weapons: I have used the phrase “turning missiles into bitcoin” a number of times in the past. The reality is that technological acceleration, American strategic superiority, and bitcoin are the things that reduce war, so ironically, every missile sold for bitcoin defunds war, and every missile you don’t sell because you want to cover your eyes & ears and yell “lalalalala” is simply a tacit acceptance of the status quo. By having a single person who knows how to do arithmetic and middle school level science to look at the value chains, it is clear that there are opportunities to massively undercut missile costs, especially looking at the rise of loitering munitions (drones). The opportunities become readily apparent when thinking about total ton-mile costs from a von Kármán–Gabrielli perspective, combined with cost-exchange ratio.

4. Strategic Defense Companies: This one is not for you.

Scaling Beyond 1-off HTBCs

I have 1 company that would fit well for category 1, Chroma, which has a bunch of LED devices, and recently launched oils, with food chips launching soon. Now, the criminal cartels mean that it can only scale so much from the perspective of the trillion dollar fake healthcare industry, and consumer preferences can be fickle, but it does meet all the parameters I established. When looking at some chip company recently acquired for a billion dollars or so, or some other company acquired for a couple hundred million in health, it is clear that this is Soviet style nonsense because the avocado oil underpinning both of those is flawed. Again, this is basic arithmetic, actually, it’s less than that, it’s knowing which of two numbers is larger. I could say these people are simply retarded, or I could be nice and phrase it as them being short autism, but 16% linoleic acid avocado oil is pathetic. YOU SHOULD BE EMBARRASSED TO BE OF THE HUMAN SPECIES WITNESS THIS. Ok? Will you do nothing and be a loser? See, that right there is the problem with people on the fiat standard, they think status is purely relative, which is no different from moral relativism, which most of the bitcoiners I know would reject, but on status, you pretend it’s real — the better way to think about it is to imagine 10,000 instances across parallel universes, or alien civilizations, and ask yourself, what might they be able accomplish in this situation?

It’s not so much about all the particulars, it is that you need 1 person with standards. A single person with standards can simply fix all the problems in a domain: the food, the air purification, and the lights. Easy. If this happens, one day you will get to live in a world where those things are fixed. If not, maybe you will get to see on your deathbed what the world could have looked like 20 years prior.

Unfortunately, people like me might be the critical limiting reagent here, but I don’t think it should be. If my premise is correct, it should scale to quite a few companies, and people will emulate the model even if they do so imperfectly.

An HTBC Venture Fund

Bitcoiner venture capital ended up being a fiat, but with bitcoin thing i.e. taking the model of funding shit companies in the hopes that someone else would pay more for them before everyone accepted the reality that these shit companies and their meme founders would not suddenly generate something immensely valuable out of nothing. And these things were obvious from day 1 when the lousy business models were proposed — value does not magically appear out of nowhere from memes and vibes marketing.

Bitcoin companies, just like other software companies, fail to meet the parameters of a Hard Throughput company, nor have most of them done much to advance bitcoin adoption. If instead there were ways to grow the productive industrial base of bitcoin acquiring economic actors, then the price would rise, which is the most important part of adoption. It is a bit like a quasi-nation where the one operating on the harder money has an edge. This means the possibility of fixing things today and beginning to reshape the world rather than waiting around for fiat to die, and then bitcoin to start fixing the world. The ensemble of bitcoiners can have an edge in the real world, not just in their savings. It is quite damning of early bitcoiners that none was able to pull of Microstrategy before Microstrategy, but I digress.

A fund could be made that implements this strategy with a two-tiered approach:

1. Minority investments to seed the generation of more eligible companies

2. Supermajority investments in a smaller number of select companies

How to play the fiat game a bit less naively:

1. Hold bitcoin in the fund before investing rather than making just in time capital calls to LPs.

2. Have non-standard startup investment deals with smaller, staggered tranches with fiat denominated warrant options.

3. Leverage the extremely high IRR from bitcoin to raise a growth VC fund from the retarded pension funds and university endowments — use that growth fund to lead deals into the companies in which the bitcoiner-LP-backed main fund has invested, to bootstrap mimetic interest among other growth VC funds (everyone knows VCs operate exactly like women, it’s all memes). Of course, the fiat returns in doing this will be excellent so there is nothing uncouth about it — moreover, LPA mandates on holdings cannot robustly extend to portfolio companies!

Anyway, as I mentioned in the prelude, I have always been in it for the fixing of things. I have asked bitcoiners many times what they might want to see fixed or built in the world after fiat dies and few seem to have an answer. It is easy to think in vague memes about aesthetic ideals, times in history, or high level ideas around free markets, but those things emerge from individuals with particular ideas about very specific things. Enough of the fiat-brain on bitcoin and amidst bitcoiners. Who else yearns for the bitcoin world enough to become a human actor today? The bitcoiners will inherit the Earth, but when will you take your thrones, kings?