Author: Nikou Asgari
Translation by: Block unicorn
Three months ago, George Karam never considered that his semiconductor company would start buying Bitcoin.
His New York-listed company's stock price has long been sluggish. After reading news of a healthcare company's stock soaring after purchasing digital currency, Karam began to take an interest in Bitcoin. He said, 'I'm looking for ways to unlock the company's value' after a failed deal scared off investors.
After discussing with the board and some investors, Karam decided to launch a Bitcoin strategy. Sequans Communications raised $384 million from debt and equity markets to purchase the world's most popular cryptocurrency. Its stock price soared 160% after the announcement.
Karam said, 'Last year I wouldn’t have said this, but today I fully believe... I am 100% confident Bitcoin will always exist.'
This cryptocurrency novice largely owes his transformation to Bitcoin evangelist Michael Saylor. Since 2020, this American cryptocurrency tycoon has spent billions of dollars nearly every week buying Bitcoin and hosting meetings to encourage others to follow suit. Saylor's software company's shift to a Bitcoin hoarding strategy is now valued at about $115 billion, nearly double the value of its Bitcoin holdings, as investors flock in. Last week, Strategy purchased $2.5 billion worth of Bitcoin, marking its third-largest purchase on record. Its stock price has soared over 3000% in five years.
This success, coupled with U.S. President Donald Trump's full support for the digital asset industry, has led to a surge in the number of so-called 'cryptocurrency treasury companies' globally.
Biotechnology companies, mining companies, hoteliers, electric vehicle companies, and e-cigarette manufacturers are all rushing to buy cryptocurrencies, supported by investors who wish to share in the cryptocurrency market's dividends without directly engaging with digital assets.
According to data from cryptocurrency consulting firm Architect Partners, in the year ending August 5, about 154 listed companies have raised or committed to raise a total of $98.4 billion to purchase cryptocurrencies. Before this, only 10 companies had raised $33.6 billion.
Some companies are mimicking Strategy by changing their website colors to Bitcoin's orange and providing data showing how much cryptocurrency they hold, its value, and other important metrics for investors.
Even Trump himself has joined the action—his family media company raised $2 billion in July to purchase Bitcoin and related assets.
In a year when Bitcoin and benchmark stock indices are hitting new highs, traditional investment institutions are striving to find the best ways to participate in the new world of digital assets, hence the surge in crypto hoarding.
But many are skeptical that this trend can be sustained. The rapid growth has made some investors worry that the market is overheating. Brian Estes, CEO of Off The Chain Capital and an investor in several Bitcoin treasury companies, stated, 'This is similar to the internet bubble of 1998,' when companies were racing to rebrand themselves as internet-first businesses to attract attention.
The surge in new companies has also raised concerns about falling cryptocurrency prices and their ripple effects. Companies that have borrowed billions to purchase cryptocurrencies may soon find themselves unable to repay creditors.
Eric Benoist of Natixis CIB stated, 'The risk is a Bitcoin crash.' In that case, stock prices would also fall, and if companies cannot pay bondholders, investors will incur losses, 'which could have systemic impacts on the Bitcoin ecosystem,' he added. 'Every time there is a small panic in the market, the whole market goes down.'
Kevin De Patur, CEO of cryptocurrency market maker Keyrock, stated that investors should remain realistic about this. 'You inject a lot of risk into a system that ultimately has almost no support, except for the continued appreciation of the assets.'
For struggling companies, purchasing cryptocurrencies seems to be a surefire way to attract investor attention and boost stock prices—at least temporarily.
Aidan Bishop, founder of London-listed Bluebird Mining Ventures, stated, 'If we hadn't gone down this path, we would have struggled to raise future funds; we were like a struggling company.' The company raised £2 million in June to purchase Bitcoin. Before that, 'to raise funds, I had to go knocking on doors,' he added.
Cryptocurrency evangelist Michael Saylor has spent billions of dollars on Bitcoin since 2020 and has held meetings to encourage others to follow suit. His company Strategy's stock price has soared over 3000% in five years. Source: Travis P Ball/Sipa/Reuters
Most newcomers are ordinary businesses with no prior cryptocurrency experience, but the value of their held digital assets far exceeds their actual company revenues.
For instance, American thermal company KULR Technology has a market value of about $211 million, despite an operating loss of $9.4 million in the first three months of this year. However, it holds Bitcoin valued at approximately $118 million.
In the UK, website design company The Smarter Web Company achieved only a net profit of £93,000 over the six months ending in April, yet due to its holding of Bitcoin valued at £238 million, its market capitalization is about £560 million.
The premium investors are willing to pay highlights their recognition of the value of these companies holding cryptocurrencies.
Companies that prove their commitment to continue raising funds to purchase cryptocurrencies will be rewarded by investors, with their stock valuations exceeding the value of Bitcoin they hold. To actually purchase these tokens, companies typically raise funds through debt or equity issuance and then invest the funds in buying cryptocurrencies through exchanges like Coinbase.
Speed is crucial. Estes stated, 'Ultimately, it's a matter of speed. The goal is to increase the number of Bitcoins per share, and those who can do this the fastest will get a premium.'
For investors, 'Bitcoin per share'—the number of Bitcoins held per share by the company—is the measure of success. If a company quickly buys more tokens, the number of cryptocurrencies indirectly held per share by equity investors increases—this is also why investors are willing to pay premiums early on, as they hope to hold more Bitcoin per share in the future.
Most companies purchasing Bitcoin are simultaneously operating other businesses, but the new wave of deals involves shell companies that are massively buying or committing to buy cryptocurrencies. These companies operate as special purpose acquisition companies (Spacs), raising funds to buy or merge with existing businesses.
Rob Hardick, a general partner at venture capital firm Dragonfly Capital, stated, 'When a company with an actual business buys Bitcoin, the operational risks are often higher: you have an existing management team whose goals may change over time, which may conflict with operational priorities.'
Executives are now starting to buy other tokens as this trend has expanded beyond Bitcoin. These tools also provide those holding a large amount of cryptocurrency a way to gain value without selling.
ReserveOne is a $1 billion deal funded by investors including exchanges Kraken and Blockchain.com, which plans to purchase Bitcoin as well as other crypto tokens like Ethereum and Solana. Ether Machine raised $1.5 billion to plan its purchase of Ethereum. Former Barclays CEO Bob Diamond raised $888 million through a SPAC deal with a biotechnology company to purchase HYPE tokens. Cryptocurrency billionaire Zhao Changpeng's venture capital firm led a $500 million deal to help a Canadian e-cigarette manufacturer purchase BNB, the token of the Binance exchange co-founded by Zhao.
Hardick stated, 'We are clearly witnessing a somewhat unreasonable gold rush. There seems to be no need to set up (investment tools) for all these different tokens.'
For retail and institutional investors, cryptocurrency treasury companies provide an alternative way to gain exposure to tokens without holding them directly.
Some investors choose to achieve this goal through U.S. exchange-traded funds (ETFs) launched by large asset management firms such as BlackRock, Fidelity, and Invesco, which have accumulated over $100 billion in investments.
But other investors cannot do this. In countries like the UK and Japan, cryptocurrency ETFs have been banned as regulators try to protect investors from the volatility risks of digital assets. Thus, treasury companies serve as an agency tool, providing investors with a way to indirectly access cryptocurrencies through tradable instruments.
Tyler Evans, co-founder of UTXO Management, stated, 'Many institutions (investors) simply cannot invest in ETFs or hold (cryptocurrencies) directly.' He added, 'We think Bitcoin treasury companies fill this gap, as they issue securities that comply with investment permissions.' His company has a size of $430 million, with 95% of investments going into Bitcoin fund management companies.
Investors are also taking advantage of tax arbitrage opportunities between holding crypto assets and stocks in some countries. In Japan, the tax rate on cryptocurrency gains can be as high as 55%, while the tax rate on stocks is 20%. In Brazil, the tax rate on cryptocurrency gains is 17.5%, while the tax rate on stocks traded on exchanges is 15%.
Source: The full support of U.S. President Donald Trump for the digital asset industry has inspired the thriving development of 'cryptocurrency treasury companies' globally.
Therefore, investing in companies holding large amounts of cryptocurrency may be more tax-efficient than directly holding cryptocurrencies.
Eager investors are looking for new countries with similar tax structures worldwide to make profits. Estes stated, 'The U.S. market is now saturated... we are looking for opportunities outside the U.S.'
The new alliance between cryptocurrency and capital markets is quite ironic, as its initial mission was to disrupt traditional financial markets, away from the prying eyes of large institutions.
Raising debt and equity from investors is the core of the strategy and a necessary condition for maintaining operations. Companies that do not buy cryptocurrencies quickly have begun to see their stock prices decline.
Although Sequans Communications saw its stock price soar 160% after it began purchasing Bitcoin, its stock price has now fallen back to pre-purchase levels, reflecting investor dissatisfaction with its buying speed.
Estes said, 'When you combine Wall Street with cryptocurrency, you need the market to support this harvest.'
To scale, many such companies are planning to go beyond merely being a cryptocurrency pool listed on global stock exchanges.
Diamond stated that his focus on investment tools for HYPE tokens may lead to the acquisition of other cryptocurrency treasury companies. 'If they get into trouble, we can acquire and rebuild them,' he said. 'This will create opportunities for the strongest, and frankly, it's about buying those companies that are poorly managed or underfunded.'
Meanwhile, Japan's Metaplanet, the fifth largest corporate Bitcoin buyer globally, plans to borrow against its massive token reserves and transition into a cryptocurrency financial services company.
The American thermal company KULR is also exploring 'Bitcoin-backed financial services' such as lending, while the CEO of mining company Panther Metals, Darren Hazelwood, stated plans to fund future exploration projects using its Bitcoin holdings.
Benoist of Natixis CIB stated, 'The natural evolution is financial services, as you can support your financial commitments with a pile of Bitcoin.'
However, cryptocurrency lending is a high-risk business. In 2022, the lending market collapsed due to a series of defaults triggered by price declines, leading to the collapse of the exchange FTX.
Benoist added, 'My main concern with this strategy is that I don't quite understand how it will end. Companies get caught in a cycle where they must constantly maintain this cycle by making additional purchases and then returning to the market to buy more—this cycle must continue to justify the premium.'
The biggest risk is how deep the damage will be if—when—the cryptocurrency prices crash. Inevitably, a downturn in the cryptocurrency market means that companies linked to tokens will also see their stock prices decline.
Companies that have taken on debt face greater risks because they need to pay interest to investors and may be forced to raise more funds or sell their cryptocurrency holdings to meet debt obligations.
A cryptocurrency hedge fund manager stated, 'If you are using debt to pay off existing debts, this structure is very unhealthy and makes me very uneasy.' He added, 'You may face systemic risk because there are too many of these fragile structures that need to be fully or partially unwound, which will pressure the market.'
He also stated, 'I hope regulators will oversee this instead of everyone assuming the market will always rise and establishing treasuries.'
Investors say they are aware of the risks but are eager to make money during prosperous times. Evans of UTXO Management, a board member of several cryptocurrency treasury companies, said he is pushing CEOs to 'have ways to generate cash during market downturns through operating the business, and obtain returns from Bitcoin through means other than raising capital.'
However, even industry stakeholders are increasingly skeptical. Estes said, 'This will end with a bubble burst. It can rise as fast as it can fall.'
