Listed companies are raising billions of dollars to accumulate digital assets such as Bitcoin, Ethereum, Solana, and Ripple, rapidly transforming into cryptocurrency treasury instruments, which has raised concerns about corporate value surge and potential bubbles.
According to The Block on the 19th (local time), Peter Chung, Research Director at Presto, stated in a Thursday report that "the recent surge in public institutions adopting cryptocurrency asset treasury operations signifies the beginning of a new era of financial engineering comparable to leveraged buyouts (LBO) in the 1980s or exchange-traded funds (ETF) in the 1990s".
Chung added that "this phenomenon is not well understood outside a small part of the cryptocurrency industry and is often oversimplified as merely 'leveraged ETF trading'".
These companies are raising or attempting to raise funds to purchase Bitcoin and other cryptocurrencies to maximize shareholder value. Chung noted that this model, inspired by a Strategy playbook, has gained particular traction in the United States, benefiting from deep capital markets and sophisticated institutional investors.
He explained that they are typically structured through previous operating companies, special purpose acquisition companies (SPAC), or paper companies repurposed as means for cryptocurrency accumulation. The funding methods they choose, such as private placements for listed companies, market sales, convertible bonds, or perpetual preferred shares, are tailored to maturity and investor base, aiming to efficiently utilize cryptocurrency market volatility without providing assets as collateral.
Chung stated, "While some cryptocurrency treasury companies may not be diamond hands, this doesn't mean the cryptocurrency market has become riskier. Such risk management entirely depends on each company's ability to predict cash flow needs and structure capital to maintain and increase cryptocurrency holdings. The market will reward successful companies with higher net asset value (NAV) multiples and punish failing ones, which is no different from allocating higher multiples to companies providing stronger earnings growth".
The rapid rise of cryptocurrency treasury companies has raised concerns that their leveraged positions could trigger a new wave of forced liquidations if the cryptocurrency market turns bearish. Chung mentioned two main risks: collateral liquidation risk and activist-driven liquidation. However, he argued that these risks are more limited compared to those that triggered past cryptocurrency cycle collapses like the Terra ecosystem or Three Arrows Capital.
In terms of collateral, Chung said most cryptocurrency treasury companies are avoiding setting cryptocurrencies as collateral for loans. According to Presto, out of $44 billion raised or pending among 12 major companies, only one-third was funded by debt, and 87% of that debt is unsecured. Even in the worst-case scenario, the potentially collateralized portion is much smaller than the leverage levels seen in the 2021 cycle, so as long as this discipline is maintained, the systemic liquidation risk from margin calls is unlikely, Chung argued.
Chung noted, "However, this doesn't mean cryptocurrency treasury companies will never sell their cryptocurrency holdings. In unexpected situations requiring urgent cash and without alternative funding sources, they may rely on liquidating cryptocurrency assets".
The second concern, as Chung explained, is that cryptocurrency treasury companies trading at a discount to net asset value could become targets of activist investors seeking to force asset sales. However, in reality, activists generally prefer less extreme tactics like share buybacks, public offerings, or market sentiment changes to reduce NAV gaps, and especially in the early stages of a company's lifecycle, they use liquidation only as a last resort due to costs and complexity.
Chung wrote that comparisons with Grayscale's past GBTC premium during the 2021 bull market overlook key differences. "While an excessively expanded premium might indicate a bubble, the limited historical data for most cryptocurrency treasury companies makes it difficult to determine what premium level would be classified as 'excessively expanded'. The repetitive nature of cryptocurrency asset accumulation suggests that some premium is somewhat justified". Moreover, unlike closed-end funds, cryptocurrency treasury companies can use capital markets to increase per-share cryptocurrency assets through innovative funding.
Currently, 228 companies have adopted some form of cryptocurrency treasury strategy specifically for Bitcoin, including Tether-supported Twenty One, Nakamoto, Trump Media, GameStop, and recently Metaplanet, Semler Scientific, and KULR, along with the Bitcoin acquisition model pioneered by Strategy co-founder Michael Saylor.
Last week, analysts from digital asset bank Sygnum argued that the increasing holdings of Strategy and other corporate accumulators risk undermining Bitcoin's safe-asset characteristics by making it "inappropriate" for central bank reserves. David Duong, Global Research Head at Coinbase Institutional, also warned that corporate cryptocurrency purchases using leverage could ultimately pose a "systemic risk". However, he said the pressure appears limited in the short term.
In contrast, Saylor remains confident in Strategy's resilience. In a recent interview with Financial Times, he said Strategy's capital structure is designed to withstand a 90% Bitcoin decline lasting 4-5 years, thanks to a mix of stocks, convertible bonds, and preferred shares. However, he admitted that shareholders would still "suffer" in such a scenario.
The sailor's use of public capital markets to accumulate Bitcoin has since triggered a broader movement, with more companies exploring similar treasury strategies for other cryptocurrency assets. Jeong said that Proof-of-Stake tokens could be particularly attractive, as staking rewards can promote asset growth and support higher valuations for companies focusing on altcoins. "While it's still in the early stages and valuations can fluctuate significantly, the initial signs of this trend are already apparent," he mentioned.
However, managing these strategies is a complex task. Jeong warned that some new and inexperienced entrants might struggle during an economic downturn, especially if they mismanage liquidity or excessively expand their balance sheets. But he said this does not make the cryptocurrency market as a whole more risky, adding that cryptocurrency treasury companies do not introduce new systemic threats. They reflect liquidity issues similar to those faced by large individual holders. Ultimately, the core risk is not the market itself, but how well each player plans for unpredictable funding needs, Jeong concluded.
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