Author: Jeff Dorman, CFA
Translated by: Deep Tide TechFlow
Crypto Treasury Companies: Facts and Misunderstandings
After six consecutive weeks of gains, the Bloomberg Galaxy Crypto Index (BGCI) finally pulled back last week, while stocks and U.S. Treasuries both rose. Despite ongoing discussions about the 'malfunction' of the U.S. Treasury market, it is worth noting that the yield on U.S. 10-year Treasuries has actually fluctuated within a 100 basis point range over the past two years, which is yet another typical example of a narrative-driven fact.
When it comes to narratives, the increasing number of U.S. publicly traded companies purchasing Bitcoin and other digital assets has undoubtedly become a market hotspot. But, as always, this trend is accompanied by many misunderstandings. Therefore, we will strive to clarify the facts and misconceptions behind these new digital asset buyers.
Some people refer to these companies as 'Bitcoin Treasury Companies,' while others call them DATs (Digital Asset Treasury Companies). Regardless of the name, these companies are essentially a new type of shell company for holding digital assets. This is different from the original Bitcoin treasury companies. For more than five years, we have been discussing the phenomenon of some publicly listed companies incorporating Bitcoin into their balance sheets for various reasons.
These companies can be categorized into several types:
Some are ordinary companies that tentatively hold Bitcoin, such as Tesla and Block (formerly Square);
Some are crypto-native companies like Coinbase and Galaxy, which naturally hold these assets through their core businesses;
And some are Bitcoin mining companies whose core business is to hold Bitcoin.
The growth of Bitcoin on these companies' balance sheets is easy to track and sometimes even drives stock prices up. However, in most cases, Bitcoin holdings do not overshadow their core businesses. Furthermore, until recently, the accounting standards set by the Financial Accounting Standards Board (FASB) regarding holding Bitcoin posed significantly more downside risk to earnings per share (EPS) than upside reward.
In contrast, these companies usually have a limited impact on Bitcoin prices because they often do not purchase significant amounts of Bitcoin through public markets. Most companies accumulate Bitcoin through daily operations, and for those that do buy Bitcoin, the amounts are relatively small.
Source: BitcoinTreasuries.net
At the same time, MicroStrategy (stock code: MSTR) is gradually becoming the first true 'Bitcoin company,' with its sole purpose as a publicly traded company being to purchase Bitcoin. Five years ago, we first took notice of MSTR when it announced its initial Bitcoin purchase plan, which caused its stock price to surge by 20% instantly, attracting widespread market attention. As we wrote in August 2020:
'MSTR's stock price rose by 20% after last week's announcement, likely leading junior employees in global corporate finance departments to have a busy weekend frantically researching Bitcoin. Remember 2017? When companies went to great lengths to mention 'blockchain' in their earnings calls even though they had no idea how to actually use it and had no plans, simply because the market would reward those companies that seemed to be ahead of the technology curve? Now, get ready for a repeat of Bitcoin.'
MSTR's initial Bitcoin purchases were made with cash on the balance sheet, but over the past five years, its real 'brilliance' has been how easily and frequently it has leveraged the capital markets. While MSTR also has a core business—generating $50 million to $150 million in annual EBITDA (earnings before interest, taxes, depreciation, and amortization) through business intelligence and enterprise software analytics services—this business has quickly been overshadowed by its Bitcoin purchasing activities.
Unlike other publicly traded companies attempting to imitate, MSTR's existing cash flow comes from its subsidiary (formerly core) business lines, which can be used to pay company expenses and debt interest. This sets it apart significantly from other publicly traded companies.
Source: ChatGPT and Microstrategy financial reports.
By leveraging debt, convertible bonds, preferred stock, and equity markets for a new round of financing to purchase Bitcoin, MSTR has opened the door for a completely new group of investors, allowing them access to previously unavailable crypto asset investment opportunities.
Although I am too lazy to delve into the specific details of each financing round (these details are not important to my argument, after all, this is content generated by ChatGPT), MSTR's 'magic' in the capital markets is truly impressive: over the past five years, it has demonstrated the pure brilliance of how capital markets operate.
Source: ChatGPT
Each new round of financing and Bitcoin purchases further drove up the price of Bitcoin (BTC) due to their trading scale and future purchase signaling effects. At the same time, this also pushed up the stock price of MicroStrategy (MSTR) as the market began to focus on new metrics that previously did not exist, such as 'Bitcoin per share' and 'Bitcoin yield.' Essentially, the only goal of MicroStrategy as a 'company' has shifted to increasing its Bitcoin reserves, benefiting all participants in the process.
Holders of convertible bonds and preferred shares are essentially playing a 'cheap volatility' game, profiting from the volatility of MSTR stock and Bitcoin prices. Direct debt holders, on the other hand, are only concerned with fixed income returns, which seems easy given the EBITDA that MSTR can still generate through its old core business. Meanwhile, equity investors profit from the premium on MSTR stock, which is significantly higher than the net asset value (NAV) of Bitcoin on its balance sheet.
Everyone wins! Of course, when everyone profits, two things usually happen:
The voices of skeptics are becoming increasingly intense.
Critics are starting to post angrily online, trying to find ways to question the viability of this strategy. We began responding to these absurd accusations as early as 2021. At that time, many market participants were convinced that MSTR would be forced to sell Bitcoin, completely misunderstanding how debt covenants operate, not to mention their confusion between directly holding Bitcoin and holding leveraged futures positions with liquidation prices.
To this day, we still often have to deal with claims that MSTR poses systemic risk to Bitcoin, although we have basically given up on countering this endless debate. We wish Jim Chanos good luck in his recent 'long Bitcoin, short MSTR' trade (even though, based on the reasons we list here, this strategy may not work either). 'Shorting MSTR' has become the new 'shorting Tether,' a tantalizing trade that appears low risk and high reward, but the actual probability of success is quite low.
Imitators are emerging in droves.
Welcome to the crazy new era of the crypto space. Let's delve deeper into this phenomenon.
Source: Bloomberg and Arca internal calculations.
If 2024 is the year of 'crypto ETFs,' then 2025 will be the year of 'SPACs and reverse mergers.' We once described crypto ETFs as 'two steps forward, one step back':
'Many people believe that ETFs are a victory for real-time settlement assets, but the reality is quite the opposite. Bitcoin ETFs are, in fact, stuffing a real-time settlement system (blockchain) into an outdated T+1 settlement product (ETF). Isn't this a regression? As an industry, we should strive to bring global assets into the blockchain rather than forcefully cramming on-chain assets into Wall Street's old systems.'
While we acknowledge that this is a necessary step to drive adoption and interest, this perspective still holds. There is a significant difference between 'blockchain technology' and 'crypto assets.' We are more focused on bringing the world's most popular assets (such as stocks, bonds, real estate) into the blockchain rather than cramming low-quality crypto assets into outdated systems. However, the trend of stuffing crypto assets into stock shells will not stop. Let's take a look at what is currently happening.
SPACs (Special Purpose Acquisition Companies) and reverse mergers have existed for a long time but have rarely been comprehensively adopted for single purposes. However, that is the current situation. If you have a publicly traded stock shell, it can be used to acquire crypto assets and aims to trade at a significant premium to net asset value (NAV). These new structures are often slightly different from MicroStrategy. Some companies only hold Bitcoin, attempting to fully replicate MSTR's model (although their brand recognition and capital market expertise are far inferior to MSTR); while others have acquired new assets—some hold Ethereum (ETH), others hold Solana (SOL), and others hold TAO, with more new assets emerging. Arca currently receives 3 to 5 new proposal ideas from investment banks each week.
Here are some examples of recent transactions that have been announced and are in financing (this may not be exhaustive):
SharpLink Gaming (SBET)
Recent activity: May 2025
Financing method: $425 million private investment (PIPE)
Acquisition of crypto assets: Ethereum (ETH)
Trump Media & Technology Group (DJT)
Recent activity: May 2025
Financing method: Raised $2.3 billion through stock and convertible bond sales
Acquisition of crypto assets: Bitcoin (BTC)
GameStop Corp. (GME)
Recent activity: May 2025
Financing method: $1.5 billion convertible bond
Acquisition of crypto assets: 4,710 Bitcoins (BTC)
Jetking Infotrain (India)
Recent activity: May 2025
Financing method: Raised 6.1 million rupees through equity sales
Acquisition of crypto assets: Bitcoin (BTC)
Meliuz (CASH3.SA - Brazil)
Recent activity: May 2025
Financing method: Raised 150 million reais through stock issuance
Acquisition of crypto assets: Bitcoin (BTC)
Details: Brazilian fintech company Meliuz announced its initial public offering, aiming to raise 150 million reais (approximately $26.45 million) for the acquisition of Bitcoin. The company plans to distribute 17,006,803 shares of common stock as the initial batch.
Sol Strategies Inc. (CSE: HODL, OTCQX: CYFRF)
Initial investment: January 2025
Financing method:
Chairman Antanas Guoga provided a C$25 million unsecured revolving credit facility;
ParaFi Capital provided C$27.5 million (approximately $20 million) in convertible bonds;
Up to $500 million convertible bond facility from ATW Partners, with the first $20 million completed in May 2025.
Acquisition of crypto assets: Solana (SOL)
Cantor Equity Partners / Twenty One Capital (CEP)
Recent activity: May 2025
Financing method: Added $100 million to its crypto business Twenty One Capital, bringing total financing to $685 million. Meanwhile, existing shareholders (including Tether, Bitfinex, and SoftBank) have committed to Bitcoin in-kind through the existing equity structure.
Acquisition of crypto assets: Bitcoin (BTC)
Upexi Inc.
Recent activity: April 2025
Financing method: Raised $100 million to establish a Solana reserve.
Acquisition of crypto assets: Solana (SOL)
Details: Purchased SOL through a $100 million PIPE (private equity investment) and plans to further increase 'Solana per share' through equity and debt issuance.
DeFi Development Corp (formerly Janover)
Recent activity: April 2025
Financing method: Raised $42 million to establish a Solana reserve fund and plans to raise an additional $1 billion.
Acquisition of crypto assets: Solana (SOL)
These cases indicate that more and more publicly traded companies are integrating crypto assets into their financial strategies, typically funding these acquisitions through proceeds from debt or equity issuance.
But who made money from these transactions?
Investment Bank
Investment banks earn fees by underwriting PIPEs or executing reverse mergers, a strategy that involves almost no risk; regardless of the outcome of the transaction, investment banks make a profit. Therefore, they will not stop facilitating such transactions.
Shell company owners/management.
Assuming $100 million is raised through a new PIPE issuance, with $85 million earmarked for purchasing crypto assets and the remaining $15 million for 'operational expenses.' These 'operational expenses' include higher salaries—a substantial income for the management team.
Stockholders before reverse mergers or SPAC announcements.
Most of these shell companies typically had a market capitalization of less than $20 million before being transformed into crypto stock shells. Among the investors holding these stocks, some may have learned in advance through insider information that the stocks would be transformed into crypto companies, while others were simply lucky. But there is no doubt that the real profits come from these stocks surging by 500%-1000% or even more after the announcement.
Who hasn't made money? — New investors.
Unlike MicroStrategy, we have five years of historical data proving that its debt, convertible bonds, preferred stock, and equity holders can profit. For these new investors in these new transactions (those providing funding for PIPEs or SPACs), there is currently no evidence that they will profit. These transactions are relatively new, and most private investors have not yet converted their private shares into public ones (which typically requires at least 90 days). Therefore, these transactions are still ongoing, and investors are still buying.
If these stocks continue to trade at a significant premium to net asset value (NAV) after new investors unlock, then we will see a surge of similar transactions. But if these stocks start to plummet, even falling below NAV, then the game will be over.
We may need a few more months to find out how the market will react when these shares unlock.
However, there is currently a misconception spreading in the market: these unlocks pose a risk to shell company equity investors, rather than to the underlying crypto assets they hold. There are almost no mechanisms that would force the sale of underlying crypto assets unless they cannot pay interest through debt financing (i.e., default). Moreover, these new shell companies are currently too small to enter the debt market. This operation is currently limited to MicroStrategy (MSTR) and a few other large players.
For equity and preferred shareholders, they have no right to demand the sale of underlying assets unless the stock price is significantly below net asset value (NAV) such that a radical investor begins buying shares in large quantities and attempts to take over the board with the aim of selling the underlying crypto assets to repurchase stock. This scenario may occur in the future but is not a significant risk today. Once such an event happens for the first time, most stocks will quickly narrow the gap with NAV as the market realizes that this operational model can be reused.
This situation is very similar to that of the Grayscale trust before the ETF launch. At that time, Grayscale was not at risk of being forced to sell its underlying crypto assets... The real risk was that the trust (stock) traded at a price below its net asset value (NAV). Ultimately, this did happen, harming equity investors but having no effect on crypto asset holders.
Today, every cryptocurrency venture capitalist holding large amounts of high-inflation, low-demand junk tokens is discussing how to stuff these tokens into a shell company. But this does not automatically create demand, just as most newly launched ETFs have failed to attract investors. Creating an investment tool and creating demand are two different things. While these investment tools will continue to be created, it remains uncertain whether these stocks will truly attract market demand.
Is there a possibility that these shell companies can maintain a premium above NAV in the long run? The answer is yes, but the conditions are stringent.
Perhaps one day, MicroStrategy (MSTR) will become the 'Berkshire Hathaway' of the crypto space. At that time, Bitcoin could become an extremely scarce and sought-after asset, with the company even willing to accept lower acquisition offers from Michael Saylor simply because he can pay with precious Bitcoin.
Another potential way for shell companies to maintain a premium above NAV is to become more creative in selecting underlying assets. For example, they could hold high-quality tokens like HYPE, which are currently not listed on any centralized exchange, thus providing new investor groups with access to HYPE. This scarcity and uniqueness may attract investors willing to pay a premium. However, these scenarios are merely long-term possibilities.
In any case, just like ETFs, some shell companies will succeed while others will not. But if bankers want to keep the 'profit train' rolling, they will have to start becoming more creative. If they simply stuff crypto assets into a shell company, then continuous innovation within the shell is necessary—making it valuable and difficult to obtain through other means.
However, I believe these equity shell companies will not have a negative impact on the crypto assets themselves, at least not in the short term. Without debt in the capital structure, there is no forced sale mechanism. Moreover, I think we may still long-term try to eliminate misunderstandings about these shell companies, just as we have done with many crypto topics.
Tokens can still serve as a tool for capital formation.
The recent trend of shifting from token financing to shell company equity financing can be seen as 'two steps forward, one step back.' However, this does not mean that token sales have stopped; rather, related discussions have decreased.
We often say: 'Tokens are the greatest capital formation and user onboarding mechanism in history, capable of uniting all stakeholders and creating lifelong brand advocates and core users.' The idea is simple: Instead of issuing equity or debt, which prevents investors from becoming users of the product and customers from benefiting from the company's growth, why not directly issue tokens to customers to unify all stakeholders at once? This is precisely the direction attempted by the ICO (Initial Coin Offering) in 2017, until U.S. regulators halted it completely.
The good news is that regulatory pressure is easing, which allows some token financing to return. The bad news is that most token financing is still limited to the 'pure crypto' space—namely, those crypto and blockchain-native companies that could not exist without blockchain technology. What is missing is a world where non-crypto-native companies (such as regular gyms, restaurants, and small businesses) can also start issuing tokens to finance their operations and unify stakeholders.
'Internet Capital Markets' is a term used to describe this emerging theme. This idea is not new (in fact, we have been writing about this for seven years—my first blog about crypto involved this concept when Arca didn't even have a website). But now, this idea has finally been adopted to some extent.
Launchcoin is one of the important platforms driving the issuance of a new generation of tokens. Launchcoin (which also has its own token) supports Believe, a token issuance platform that is leading the emerging narrative of 'Internet Capital Markets.' On the Believe platform, tokens first appear through bonding curves and then move to the Meteora platform to enhance liquidity. This platform is highly attractive, as many trusted Web2 companies have already achieved tokenization (creating tokens) through Believe. Although direct token value accumulation has not yet been realized, its potential is enormous, making Launchcoin a pioneering force in this narrative.
In other words, Launchcoin and Believe are working to realize a vision: to allow every municipal institution, university, small business owner, sports team, and celebrity to issue their own tokens.
We have already seen many instances indicating that tokens can be used to fill gaps in company balance sheets or for restructuring. For example, Bitfinex successfully raised funds through its LEO token, and Thorchain did so through its debt token. This type of token financing model is what makes the crypto industry exciting, rather than mere equity shell companies.
However, two models coexist at present, and understanding the differences is crucial.