Article by: Yueqi Yang
Compiled by: Block unicorn
The stock market for companies primarily holding cryptocurrencies like Bitcoin, such as Michael Saylor's Strategy, is showing cracks. These stocks have become a very popular way for investors to speculate on Bitcoin and some recently popular cryptocurrencies.
Valuations for Strategy and other companies (including Bitcoin holder Semler Scientific and Solana holder Upexi) have declined, while companies with more speculative tokens have seen their valuations plummet, with some even falling below the value of their held cryptocurrencies. The structure of these companies and the leverage used by some of them mean that sell-offs can accelerate quickly.
Steve Kurz, head of global asset management at Galaxy Digital, said, "The market shows some signs of fatigue. I don’t think it has lost momentum. There will be differentiation in the future, with winners-take-all situations emerging in different verticals."
Globally, more than 160 stocks like Strategy are now referred to as cryptocurrency stocks, allowing investors to gain exposure to cryptocurrencies without directly buying tokens. In this respect, they are similar to cryptocurrency exchange-traded funds (ETFs) that have become popular since their launch in the U.S. in early 2024.
Despite Strategy's years of purchasing Bitcoin, soaring cryptocurrency prices have triggered a wave of new products. According to data from cryptocurrency consulting firm Architect Partners, U.S. publicly traded companies have announced plans to raise over $91 billion for purchasing Bitcoin and other cryptocurrencies so far this year.
Dealogic data shows this far exceeds the $38 billion raised by U.S. companies through initial public offerings this year. Meanwhile, fundraising activities in private equity and private credit have slowed this year.
Cosmo Jiang, general partner of cryptocurrency fund Pantera, said, "These digital asset tools have overshadowed everything else. It's almost the only thing people are discussing." This year, Pantera has invested hundreds of millions in over 10 cryptocurrency stocks.
Large investors are still injecting funds into these instruments. According to insiders, the hedge fund Citadel, founded by Ken Griffin, is one of the companies actively considering investing in selected cryptocurrency stocks. Billionaire investors Stanley Druckenmiller and Cathie Wood's Ark Invest recently invested in Ethereum stock BitMine, as reflected in a filing and announcement.
A representative from Citadel declined to comment.
Signs of slowing are evident when observing Strategy (formerly MicroStrategy) stocks. As a pioneer in the cryptocurrency stock market, Strategy currently holds $73 billion worth of Bitcoin. In May, its stock traded at twice the value of its Bitcoin holdings. Now, it trades at 1.75 times the value of its Bitcoin holdings.
According to Blockworks data, imitators of Strategy have generally declined in the past two weeks, in some cases erasing premiums or bringing stock prices below the value of their held cryptocurrencies.
Josh Salisbury, vice president of ParaFi, stated that stock premiums have decreased due to reduced trading volumes in the summer and an increase in the number of products.
Hyperion DeFi (formerly the biopharmaceutical stock Eyenovia) began purchasing hyperliquid tokens in June. Hyperliquid is one of the fastest-growing cryptocurrency exchanges. Hyperion currently has a market capitalization of $30.5 million, although according to current token prices, the hyperliquid tokens it holds are worth nearly $60 million. Since changing its name to HYPD and altering its stock code on July 2, Hyperion's stock price has dropped 62%.
When these companies trade at a premium above their assets, it's easy to raise funds — but when they trade at a discount, the situation reverses. This makes it difficult for them to raise funds to buy more cryptocurrencies. In this case, the decline in the value of underlying tokens like hyperliquid may further depress the company's stock prices.
Companies holding popular tokens like Bitcoin have performed far better than those holding smaller tokens. According to statistics from Architect Partners, cryptocurrency stocks holding Bitcoin, Ethereum, or Solana tokens have a median return of 92.8% since their respective announcements.
In contrast, the median return rate for cryptocurrency stocks investing in less popular tokens is -24%.
A weak market may lower the earnings of cryptocurrency asset management firms such as Pantera, Hivemind, ParaFi, and Galaxy Digital. These firms invest in companies planning to buy cryptocurrencies through private placements before the stocks announce their plans. These deals almost always yield returns because stocks typically rise after announcements are made.
The rise of cryptocurrency stocks has increased the connection between traditional markets and cryptocurrencies, potentially adding volatility to stocks. Hivemind founder Matt Zhang stated, "As this integration deepens, traditional stock investors will face more risks they have never encountered before. They may also not be used to certain tokens dropping 15% in a day, which happens frequently in the cryptocurrency space."
Nic Carter, founding partner of cryptocurrency venture capital firm Castle Island Ventures, stated that the firm has consistently avoided investing in cryptocurrency stocks. "We believe that companies which are essentially zero-sum games carry a certain reputational risk, and the returns from such companies primarily come from leverage or retail shareholders buying in at unfavorable prices."
