Twenty One Capital, a bitcoin investment firm, has acknowledged limits to a treasury strategy of increasing its bitcoin holdings by relying on a share premium, and is moving to expand operating businesses that generate cash based on its bitcoin holdings.

On July 29, local time, blockchain outlet CryptoSlate reported that Twenty One's new chief executive, Raphael Zagury (라파엘 자구리), said this type of profit structure cannot work permanently.

Zagury, a former board member, said in an interview document filed with the U.S. Securities and Exchange Commission (SEC) on July 22 that issuing shares at prices above the value of its bitcoin holdings and then buying additional bitcoin with the proceeds is closer to a temporary market distortion. He expected that as more companies follow the same strategy, the premium assigned by the market would converge toward 1 times net asset value.

Zagury then said, "Free money is not forever." A premium could return, but it should not remain the only means of generating returns for shareholders.

Accordingly, Twenty One Capital is focusing less on buying bitcoin itself and more on expanding businesses that generate profit by using its bitcoin balance sheet. The company listed its priorities as acquiring or building operating businesses, expanding capital markets capabilities, developing bitcoin-collateral financial products and building a bitcoin-native lending platform. It also set a condition that acquisition targets must contribute to shareholder value on a bitcoin basis.

The strategy shift also coincides with a management change. Zagury became CEO from July 20, and former CEO Jack Mallers stepped down from the CEO post and from the board. The company said Mallers' departure was unrelated to internal differences, and Mallers will focus on bitcoin payments firm Strike. It is also no longer pursuing a combination with Strike.

Zagury cited mining as an example of a new profit engine. He said mining could generate cash and serve as a source of funds that can be redeployed across the portfolio. He added, however, that the company has not yet built such a model in practice and acknowledged execution would not be easy.

Asked whether the company is aiming for returns higher than bitcoin, he said achieving the same value with lower volatility could be a good outcome. He also said that outperforming bitcoin over the long term could require exceptional opportunities or irresponsible leverage. Mining and other operating businesses were presented as tools for better risk-adjusted returns.

Current performance does not yet show that the shift has translated into results. Twenty One Capital's first-quarter report said the company held 43,514 BTC as of March 31. The same report had no operating revenue line item, and its operating loss was tallied at $10.57 million. The cash-generating engine described by the company has not yet been reflected in financial results.

The company's explanation also did not mean it would immediately start selling bitcoin. An example cited by Zagury of swapping 50 BTC out of 100 BTC in treasury assets for a cash-generating company was a hypothetical illustration. The possibility of a combination with Electron Energy, a mining business led by Zagury, also remains at a preliminary stage, with no definitive agreement or assurance of approval.

Ultimately, Twenty One Capital has set a higher bar for itself than a simple strategy of continuing to accumulate bitcoin through share issuance. The key issue ahead is whether it can prove in actual business its goals of improving returns on a bitcoin basis and enhancing risk-adjusted returns. For now, the strategy is closer to a new experiment to prepare for a shrinking premium than a result confirmed by performance.