This feature originally appeared in the BitcoinTreasuries.NET newsletter.
Treasury companies face a capital structure dilemma: dilute shareholders through equity at compressed valuations, take on debt with liquidation risk, or stop buying Bitcoin.
But XCE-Connecting Excellence Group is testing a fourth option. One that prices dilution explicitly against Bitcoin performance. On January 21, the UK-based firm settled its first Bitcoin-denominated convertible bond, adding another 10 BTC worth around $925,000 to its existing 50 BTC-strong treasury.
The bond, however, only converts if XCE’s stock outperforms Bitcoin by 20%, and bondholders pay a 30% premium to hold it. The structure aims to directly address the dilution dynamics that weigh on many treasury stocks today.
What XCE is attempting is not just cosmetic financial engineering. It is a deliberate effort to reprice dilution against Bitcoin performance. That’s something traditional equity and debt instruments do poorly. By linking conversion not only to share price appreciation but also outperformance vs Bitcoin itself, the company is experimenting with a capital structure explicitly designed for Bitcoin-denominated balance sheets.
Whether it succeeds or delays the inevitable will be a test of time.
The Convertible Problem
Strategy pioneered the Bitcoin treasury trade partly through its singular convertible note issuance, raising billions of dollars in debt that later converted to equity. Those funds were then deployed to buy Bitcoin.
The mechanics seemed attractive at the time. Borrow money at low interest rates, use that capital to purchase Bitcoin, and if the stock performs well, debt converts to equity without requiring cash repayment.
Not so fast, though, because convertible notes carry a structural flaw. Volatile assets typically convert at fixed prices or modest premiums that are set at issuance, which means conversion terms become punitive after drawdowns.
When treasury stocks trade at 0.3x to 0.8x mNAV — as many do today — traditional convertible notes become massively dilutive. A company that issued converts at $50 per share might see a conversion trigger at $40 after the stock crashes, forcing existing shareholders to absorb dilution at depressed valuations.
What seemed like clever financing when mNAVs traded at premiums quickly becomes a problem when discounts emerge. Companies get locked into dilution regardless of whether the timing serves shareholders.
During the latter part of 2025, Strategy moved beyond converts toward preferred equity (like STRC), but most mid-tier treasuries lack the scale, credibility, and market access to issue digital credit successfully. These firms face a choice: dilute through common stock at compressed mNAVs, take on traditional debt with liquidation risk, or pause accumulation entirely.
Innovation linked to performance
XCE’s Bitcoin-denominated bond flips traditional convertible economics through carefully structured mechanics.
Take their January 21 settlement announcement. The bond issued on December 31, 2025 at $87,578 per Bitcoin with a $0.393 conversion price, represents a 30% premium to the $0.3 cents closing share price at issuance.
If conversion occurs, bondholders receive 22,257,867 ordinary shares, but conversion only happens under specific conditions designed to protect existing shareholders.
Track emerging capital structure innovation on our live dashboard: monitor which micro-cap treasuries experiment with performance-linked bonds, Bitcoin-denominated debt, and alternative financing beyond traditional equity dilution.
The company can require conversion if the volume-weighted average price (VWAP) exceeds 120% of the conversion price for 10 consecutive trading days, which means the stock must trade at $0.47 or higher for two straight weeks before bondholders convert. This 20% outperformance hurdle (120% of $0.393) ensures conversion occurs only when the stock has demonstrably created value beyond the already-premium entry price that bondholders paid.
If the 12-month maturity arrives without conversion, XCE has the option to refix the conversion price, but only if the resulting mNAV multiple exceeds 1.0x. The idea is to ensure Bitcoin accretion for shareholders even with adjusted terms.
If conversion never occurs, bondholders can choose redemption in Bitcoin, although they have to subtract 2% for lifecycle costs.
XCE’s interest-free structure eliminates the cash burden that makes traditional debt dangerous for treasuries. Strategy’s early converts carried 0.75% to 6.5% interest rates requiring cash payments regardless of Bitcoin’s price. XCE's zero-coupon structure means the company faces no forced payments, no liquidation risk if Bitcoin crashes, and no pressure to sell Bitcoin to service debt.
Scalability limits
While XCE’s structure may offer investors some interesting anti-dilution mechanics, it also faces severe scalability constraints.
The 10 BTC settlement represents a meaningful amount of capital for a micro-cap but remains irrelevant for companies that need tens or hundreds of millions for Bitcoin accumulation.
Strategy deployed $264 million in just one week this January, with $257 million from common stock dilution. No performance-linked bond market exists at that scale, in fact. Institutional investors buying $50 million to $200 million blocks want liquid, tradeable securities with established pricing mechanisms, not bespoke structures requiring complex calculations to determine conversion eligibility.
The bond’s 30% premium also becomes harder to justify at scale. Sophisticated institutional investors might pay 5% to 10% premiums for unique structures, but a 30% premium only works when small capital pools chase exposure to innovative vehicles.
Still, the first tranche was fully subscribed at the 30% premium and included Adam Back, Blockstream CEO and veteran Bitcoin cryptographer.
CEO Scott Ellam told BitcoinTreasuries that "multiple institutions are now in discussions" for future tranches, suggesting demand exists at current pricing levels. Still, questions remain as to whether institutional appetite persists through tranche three or four, especially if premiums remain compressed.
Risks
XCE’s structure is internally coherent and thoughtfully engineered, but it shifts risk rather than eliminating it.
What happens when there are simultaneous Bitcoin redemption requests?
That’s the most pressing question at hand when it comes to assessing XCE’s elegant mechanism. If multiple bondholders lose patience and request to redeem their Bitcoin during times of market stress, XCE might need to liquidate its treasury holdings to satisfy claims.
We’ve already seen this happen in other treasuries. Moreover, since the 2% lifecycle cost provides minimal deterrent, bondholders essentially hold a free put option on Bitcoin while XCE absorbs all the downside risk.
Meanwhile, the success penalty paradox creates a series of perverse incentives. Bondholders only convert when XCE outperforms Bitcoin by 20% or more, meaning dilution happens precisely when the company succeeds.
Ellam framed this differently, however. He told BitcoinTreasuries that the 2% lifecycle cost — fixed regardless of holding period and covering custody, transaction costs, and compliance — provides "transparency and predictability" for bondholders who "chose BTC exposure with equity upside."
Existing shareholders watching their stock climb get rewarded with equity dilution at conversion, while underperformance protects them from dilution but leaves the stock stagnant. Compare this to Strive's SATA, where dilution never occurs regardless of performance. The interest obligation remains fixed but common stock never gets diluted.
Premium compression also threatens the model’s sustainability. The first tranche achieved a 30% premium partly because it was novel and small-scale. Will tranche two command 25%? Tranche three 20%? As premiums compress toward 10% to 15%, the anti-dilutive benefit erodes and the structure increasingly resembles regular equity issuance with extra steps. If XCE can only get 10% premiums by mid-2026, issuing 22 million shares raises just $740,000 instead of $875,000, reducing Bitcoin yield while maintaining the same conversion obligations.
In short, XCE swaps immediate dilution for contingent balance-sheet risk.
Bitcoin yield math
XCE frames the bond’s shareholder impact through “Bitcoin yield,” Saylor’s singular per-share Bitcoin accretion metric.
The company reports that Bitcoin yield from its December 11, 2025 IPO increased to 426% from 345% if the bond converts, demonstrating that even with the 22 million share dilution, the 10 BTC addition creates net positive Bitcoin per share for existing holders.
The math works because bondholders paid a 30% premium for shares.
If XCE had issued 22.26 million shares at market price (3.02 cents), it would have raised $673,000. But through the bond structure, with its built-in premium and performance requirements, the company effectively received $875,000 in value (30% more) while only diluting if the stock substantially outperforms Bitcoin. The premium and performance hurdle transform what would be immediate dilution into conditional dilution that only occurs after value creation.
XCE's total holdings now stand at around 51 BTC worth roughly $4.75 million, positioning the UK-based executive recruitment firm at #120 globally among corporate Bitcoin holders.
The future?
XCE’s Bitcoin-denominated bond demonstrates that capital structure innovation is happening at the sector’s margins while the middle remains stuck.
Strategy experiments with preferred equity at a $45 billion market cap. XCE innovates with performance-linked bonds at micro-cap scale. With some notable exceptions like Cango — which employs a mining-based treasury accumulation strategy — the dozens of companies between them largely rely on dilutive common stock issuance or have paused accumulation entirely.
Investors are probably asking themselves whether XCE’s structure remains a curiosity or if it can galvanize broader adoption. The company describes the bond as part of a "2026 Bitcoin-denominated convertible bond programme," indicating plans for multiple tranches throughout the year.
Can XCE successfully raise $6.7 to $13.5 million across multiple bond issuances while maintaining anti-dilutive terms?
XCE targets 1,000 BTC by year-end 2026 — a 20x increase from current holdings — with operational cash flow from [Spencer Riley executive search] providing Bitcoin purchases "independent of capital markets," according to Ellam. The bonds represent “just one part” of the overall treasury strategy, he explained, with management emphasizing "BTC per share growth, not leaderboard position" as the primary focus.
But structural constraints limit applicability beyond certain scales. A company with 1,000 BTC might raise $6.7 to $13.5 million through similar bonds. A company with 5,000 BTC has the potential to raise $33 to $67 million.
Beyond that, the mechanics break down — institutional capital pools demand liquidity and standardization that performance-linked convertibles cannot provide.
Follow XCE's 2026 bond programme on our live dashboard: see whether future tranches maintain 30% premiums, track total capital raised through performance-linked structures, and identify which other treasuries attempt replication.