Bloomberg Chief Financial Writer: The underlying logic of US listed companies buying cryptocurrencies in a crazy way

Original title: "Sell Your Crypto on the Stock Exchange"

Author: Matt Levine

Compiled by: Odaily Planet Daily jk

Crypto Treasury Companies

Last Tuesday, SharpLink Gaming Inc. was also a company focusing on online sports lottery marketing, with a share price of about $2.91 per share and a market capitalization of only about $2 million. Although it is still listed on the Nasdaq, it is actually in danger. It had just conducted a reverse split a few weeks ago to maintain the share price not below the $1 minimum standard required by Nasdaq, and it also failed to meet the basic requirements of Nasdaq for shareholder equity of at least $2.5 million.

So, SharpLink announced a round of additional stock issuance on the same day, raising $4.5 million at a price of $2.94 per share. Officially, the funds will be used to "restore compliance with minimum requirements for Nasdaq shareholder equity." But the company added: "We may use some of the funds to buy cryptocurrencies to match a treasure trove strategy we are considering."

To be honest, it's not surprising to do so. SharpLink is of course a listed company, but by realistic standards, it is more like a "listed shell" - the market value of US$2 million and annual revenue is only a few million US dollars, and such a scale is difficult to support the various operating and compliance costs of a listed company. In the past, this was a problem.

But in 2025, this becomes an opportunity. SharpLink has two very popular but relatively scarce assets in the market today:

• It has a shell of a publicly traded American company;
• And basically I didn't do anything with this shell.

This makes it an ideal target company for "transforming and cryptocurrency". As I used to say, the U.S. stock market is willing to pay more than $2 for $1 in crypto assets. This phenomenon has been discovered by entrepreneurs in the encryption circle. If you have a large sum of Bitcoin, Ethereum, Solana, Dogecoin, or even TRUMP on your hands, the best way is to put them into a publicly listed company in the United States and sell them to investors in the secondary market at a higher price.

But if you want to do this, you must first have a listed company. However, there are not many shell resources like this, and most high-quality companies are already very busy. If you call Apple Inc. and say, "We want to merge the Dogecoins in our hands with you so that they can be more valuable", Apple will definitely reject you.

The real opportunity is with those marginal listed companies: they are still in the market, but they are barely holding the sign. The phone calls of these companies are now being blew up every day.

So we saw a news release like this:

SharpLink Gaming announced a private equity financing of US$425 million and officially launched the Ethereum vault strategy...

SharpLink continues to operate as a company focused on providing results-oriented online marketing services to the U.S. sports lottery industry.

According to the announcement:

• After the private placement is completed, SharpLink will officially launch its Ethereum Treasury Strategy;
• Joseph Lubin, founder and CEO of Consensys and co-founder of Ethereum, will serve as chairman of the board of directors of SharpLink after the private placement transaction is completed;
• Investors in this round of private equity financing include several well-known crypto venture capital and infrastructure companies, such as ParaFi Capital, Electric Capital, Pantera Capital, Arrington Capital, Galaxy Digital, Ondo, White Star Capital, GSR, Hivemind Capital, Hypersphere, Primitive Ventures and Republic Digital.

In other words, Consensys, a blockchain software company led by Ethereum co-founder, hopes to run a $425 million pool of Ethereum assets that capital markets value the asset far higher than its actual value. SharpLink happens to be the ideal “shell resource” to achieve this goal. Consensys and its joint investors will therefore invest $425 million to buy SharpLink's shares at $6.15 per share, and SharpLink will use this fund to buy Ethereum (ETH).

At the opening of today, SharpLink's stock price was $33.93, trading at about $35 as of 1:30 pm, with a market capitalization of $2.5 billion. In other words, the $425 million Ethereum asset received a valuation of $2.5 billion in the U.S. stock market.

It should be noted that SharpLink does not actually hold any Ethereum at present. Investors provide US dollars, not Ethereum. This is not "We already have a lot of ETH in our hands, so it's better to go public", but "Since the US stock market is willing to buy $1 ETH for $2 or even $6, we of course have to take advantage of this arbitrage opportunity."

From a certain point of view, this is almost an open arbitrage opportunity. In theory, if anyone has hundreds of millions of dollars in cash in hand, he can go to the market to buy cryptocurrency and then put it into a shell of a listed company, and the US stock market will immediately give more than 5 times the book profit. What you really need is to find a small listed company that can "load coins".

Remember that New Jersey snack bar? It once had a fully diluted market value of $2 billion. It just came a little earlier. In fact, this snack bar (or the shell company behind it) exists for a similar "transaction model": a listed shell company with a transitional small business (such as opening a snack bar), whose real purpose is to complete a reverse merger with a private company - most likely a foreign company - and thus go public through a backdoor listing. As for why the people in the snack bar still manipulate stock prices and are now in jail, I have never fully understood it, but this has nothing to do with the trading logic itself. The core of this gameplay is to find a suitable acquisition target.

Unfortunately, that snack bar was seized before the model of "crypto vault company" really became popular, but my goodness, if it could survive to this day, it would definitely be an amazing deal. Imagine that if that New Jersey snack bar could merge with a $425 million Ethereum asset pool, its $2 billion market value was actually reasonable. Now only hundreds of millions of dollars of cryptocurrency, plus a micro-listed company, can combine it and get billions of dollars in the capital market.

Back to SharpLink: Its stock price rose 35% last Thursday and another 79% last Friday, and the related transactions were officially announced today. I guess there may be news leaks or internal transactions, but I won't make such a judgment easily. After all, SharpLink has long publicly stated that it is considering the crypto vault strategy, and it is itself an ideal "candidate shell" company (it is listed, but it doesn't have much business). Even if there is no insider information, it is completely reasonable to speculate: "This small company will probably issue an encryption-related announcement soon, and the stock price may soar by hundreds of points, so I might as well buy a little first." Of course, this is not investment advice, and what I said is "reasonable" is not "rational" in the traditional sense.

The whole incident was very outrageous, but I want to focus on three particularly outrageous things.

First: Is this trick still working?

I have written a lot of articles about "crypto vault companies" in the past few months - MicroStrategy Inc. is basically the first to do this gameplay, and it has been doing it for many years. Recently, this model suddenly exploded in full swing. Intuitively speaking, it shouldn't be successful.

After all, MicroStrategy is a large listed company with a mature investor relationship team, a particularly effective publicity strategy for retail investors, and indeed holds a large amount of Bitcoin in its hands. It also has natural advantages such as first-mover advantage, diversified financing channels, inclusion in leveraged ETFs and some indexes. If some investors (such as mutual fund managers, some retail investors) want Bitcoin exposure but cannot buy coins or ETFs directly, then MicroStrategy may indeed be worth a certain valuation premium.

But the problem is that a lot of "small version of MicroStrategy" that have followed the trend are also being treated crazy at a premium by the market. The market's preference for such "newly promoted crypto vault companies" is simply endless. I can't explain this phenomenon at all.

I wrote a sentence a month ago: "The current situation is like the encryption circle constantly playing around with the US stock market, and the US stock market is deceived again and again." Now it seems that this feeling is even stronger.

Second point: Are you still doing this?

This is actually not that surprising: I wrote last month, "If you run a crypto investment fund and don't acquire a US listed company with a shutdown or thin business to play this arbitrage, it's simply mismanagement."

For all companies involved in the crypto field, the lowest capital cost in the world is to acquire a listed company and transform it into a crypto treasure model. Therefore, we have seen players such as Tether, SoftBank, Bitfinex, Nakamoto Holdings join the battle one after another. The Financial Times even reported that Trump Media & Technology Group was coming to play too—it wasn't surprising, to be honest, it would be strange if it didn't join.

However, for this reason, most of the listed companies involved in the game (except MicroStrategy) are almost small, semi-deprecated companies. For example, companies like Apple that have real industries, cash flow and business will certainly not get involved in this way of playing "relying on a strange operation to make the stock price soar."

For some entrepreneurs in the crypto field, it may be similar. We have reason to believe that Vitalik Buterin, founder of Ethereum, is more concerned with how to optimize the Ethereum protocol than thinking about how to package ETH at a high price to stock investors. But for many people, such a valuation premium is too tempting and irresistible.

The third point: How to cash out?

SharpLink created $2 billion in book profit "out of thin air" this morning. So what to do next?

In theory, this profit was created by investors involved in private equity, such as Consensys and its joint investment institutions. But the problem is that they are likely to not be able to cash out immediately: usually such private equity transactions will have a lockup period, and their shares will need to be officially registered before they can be sold. Moreover, they hold a total of 97% of SharpLink shares. If they sell them all, the stock price will definitely collapse.

SharpLink had an average daily volume of only about 75,000 shares a year before the deal was announced. Based on today's circulation, it will take about three years to sell out their shares.

Although the stock market now valued their $425 million ETH at $2.5 billion, they couldn't "take out" the $2.5 billion. This book profit is locked in the stock market valuation and cannot be released.

However, this is indeed a question worth studying. Modern finance seems to have found a way to stabilize the market value of billions of dollars, and basically no need to spend too much effort. Although it is not said that "anyone can do it in an hour", it is obvious that many people have found that the operating threshold is not high.

However, if you can't turn your book value into real money, then it's just a "showing magic". You became a billionaire in name because you own 97% of SharpLink Gaming, but don't forget that the company was valued at 100% of $2 million a week ago, and you will also worry about how long the bubble will last.

Of course you will want to "put your pockets" part of it, but selling directly in the market doesn't seem to be a feasible way.

Of course, there are some "boring but realistic" answers: for example - "They now own a company with a market value of billions of dollars and an extremely low cost of capital; they can continue to issue new shares to the public to buy more Ethereum, thereby continuously expanding their "empire" and influence; when you control a company of this size, you can give yourself a high salary."

It sounds OK, but the problem is: these people originally had hundreds of millions of dollars in their hands, and they didn't do this just to find a good job.

The real question is - how can they "cash" that $2 billion?

I don't have a particularly good answer either - if I had, I'd probably do it. But what I want to point out is that this problem is very "crypto-encrypted": it was originally a typical dilemma in the crypto industry, but is now being brought into the stock market by a new generation of "crypto-gold companies".

This is a classic crypto circle wealth story template:

• You create some "magic beans" - like a new token - and you hold most of them;
• There are not many beans actually traded on the market, but the transaction price is very high, so the market value of the entire project looks very large;
• On the surface, you become a billionaire, but once you really sell these beans, the market will collapse and you can’t get anything;
• Having "wealth on the books" can indeed bring some benefits, such as reputation, resources and superiority, but you also understand in your heart that this "magic bean market" may not last long, so you especially want to cash out.

The most famous case of this problem is probably the FTX crash:

The FTX exchange and Alameda Research investment firm controlled by Sam Bankman-Fried (SBF) are worth tens of billions of dollars on paper, but a large part of these valuations are supported by crypto assets they create themselves. In November 2022, as the market lost confidence in FTX, these tokens quickly returned to zero, and the company's valuation evaporated.

I wrote an article at the time, which also quoted a conversation I had with SBF on the podcast. He said about a crypto token and the "box" model built around it:

" If everyone now thinks that the market value of this Box Token is about $1 billion, then it basically has this valuation. Everyone will do the accounting based on this market value. In fact, you can even use it to raise funds: mortgage the token in a loan agreement to exchange for US dollars. If you think its real value may not exceed two-thirds, you can also pay a portion of it, take out the money, and never return it - it will be just liquidated in the end. In a sense, this is already something that can be cashed out."

In the crypto circle, if you have a bunch of "magic beans" with a market valuation of $1 billion, maybe someone is willing to lend you $500 million of "real money" and these loans may not have no recourse.

But in the stock market...even if you control a crypto vault company whose market value has increased by 100,000% and your shareholding ratio is as high as 97%, it will be difficult to raise 50% or even 10% based on its market value on the books.

But seriously, I'll give it a try.

Applied game theory: Someone really successfully cashed out, and...

In the crypto world, there is another well-known case, which tells the story of someone who successfully "monetizes" a batch of "magic beans".

In October 2022, Avi Eisenberg, a trader who calls himself an "Applied Game Theorist", applied game theory to a decentralized crypto-perpetual contract exchange called Mango Markets, successfully executed a controversial arbitrage operation.

Mango Markets offers perpetual contract trading for a variety of crypto assets, including futures for its own token MNGO. The contract price is settled through the price oracle of multiple other crypto exchanges: your contract profit or loss on Mango depends on the price fluctuations of the corresponding spot assets on these external platforms.

In addition, Mango allows users to borrow and borrow cryptocurrency based on the floating profits of their positions. For example, if you make $100 in a contract transaction, the platform may allow you to mortgage this portion of the floating profit and lend $50 in cryptocurrency - and it is a non-recourse loan, which means that if you can't pay it back, you are not obliged to repay it.

Eisenberg's operations are as follows:

1. He bought million-dollar MNGO perpetual long positions on Mango Markets;
2. At the same time, he opened an equal amount of short positions, making the net position zero (flat);
3. Then, he went to the "reference exchange" corresponding to these contracts to buy large amounts of MNGO spot;
4. Due to the low liquidity of MNGO, his buying significantly pushed up the market price of MNGO;
5. This led to a rapid increase in value in his long contract positions on Mango;
6. He then used the "book profit" of these long positions as collateral to lend a large amount of cryptocurrency and withdraw it on Mango;
7. Then, he sold MNGO on the reference exchange and lowered the spot price;
8. This makes his short contract positions more valuable;
9. He once again used the floating profits of this short position as collateral to lend cryptocurrency from Mango again.

Finally, according to official disclosure, Eisenberg borrowed and quickly withdrawn more than $100 million in crypto assets from Mango Markets.

In layman's terms, it's almost like Eisenberg "stole" $100 million from Mango Markets. By manipulating the price of MNGO, he artificially pushed up the market value of his contract positions, and then used these inflated market value as collateral to lend a large amount of funds. Since these loans are non-recourse—which is almost industry practice in decentralized financial platforms—he doesn’t need to repay at all.

Of course, he was eventually arrested.

We have discussed this case several times before, including:

• When he just finished the deal;
• He then posted a statement on Twitter on his “Statement on Recent Events”, explaining that he did do it, but there was no problem because “all our actions were legal operations in the open market and in accordance with the agreement design, although the agreement development team may not have fully foreseeed the possible consequences of setting these parameters”;
• And when he was arrested, U.S. federal prosecutors clearly disagreed with his explanation.

Eisenberg was eventually found guilty by a jury last April. But last Friday, the judge overturned the conviction.

According to Bloomberg:

U.S. District Judge Arun Subramanian dropped Avraham Eisenberg's conviction on Friday for alleged fraud and market manipulation, while declaring him not guilty in the third charge. The judge found that the evidence provided during the trial was insufficient to support the jury's finding that Eisenberg had made false statements to Mango Markets. Mango Markets is a decentralized financial platform powered by smart contracts.

(This is the source of the original text of the judgment.)

This case exposed two key issues:

First, jurisdictional issues: Eisenberg was sued in New York, but his so-called "applied game theory operation" occurred in Puerto Rico, and the target was some technically "borderless" crypto trading platforms.

The three reference exchanges he uses to manipulate MNGO prices are:

• FTX, headquartered in the Bahamas;
• AscendEX, headquartered in Romania;
• Serum, a decentralized exchange, may not have a headquarters at all.

The Mango Markets platform itself has no evidence that it has direct connection with New York.

There has always been a consensus: "If you do financial crimes, 80% of them will be involved in New York," so the federal prosecutors in New York can almost control the world. But the case shows that cryptocurrencies have approached the limit of this judicial boundary.

In the crypto circle, there is a "stereotype" belief: as long as you put things on the chain, you can circumvent the jurisdiction of laws of various countries. But the truth is not that simple.

For example, in Eisenberg's case: Although he was sentenced in New York, he could theoretically be prosecuted in Puerto Rico and even Romania. However, putting things on the blockchain can indeed allow you to escape the judicial tentacles of the US Attorney’s Office of the Southern District of New York (SDNY). In the encryption circle, this is already a very clever "operation".

In any case, this is the first key issue in the case: Eisenberg's alleged "commodity manipulation charge" was overturned because the prosecution chose the wrong place of prosecution. The U.S. Department of Justice may consider re-proposing the allegations in Puerto Rico if it wishes.

But in addition to commodity manipulation, he was also convicted of Wire Fraud, a crime that was completely revoked by the judge and the prosecutor has no right to prosecute again.

The second core issue involved is that although Eisenberg's behavior constitutes market manipulation, it is not clear whether it constitutes "fraud".

According to the US Commodity Law (which applies to crypto tokens including MNGO), you can be convicted of commodity manipulation as long as you use "any means of manipulation" in derivatives trading, and Eisenberg was prosecuted for this. But "telecom fraud" is more stringent, requiring the perpetrator to make false statements through computers or communication systems to obtain monetary benefits.

The court's judgment states:

"To find fraud valid, it is necessary to prove that material misrepresentation exists." The judge concluded that no matter what Eisenberg did, he did not lie to anyone.

During the trial, the government argued that Eisenberg's "fraud" is mainly reflected in two aspects (cited from the judgment, omitted):

• He made Mango Markets mistakenly think that he was applying for a legitimate cryptocurrency loan, but in fact he wanted to steal funds;
• He falsely reported the value of his collateral and made the platform believe that it is valuable, but in fact this value was artificially hyped and without actual support.

But none of these constitutes lying.

Clicking the "Loan" button when you have never intended to repay the loan may seem like fraud at first glance, but it does not actually hold true in the context of an encryption platform offering a loan without recourse.

Under the operating mechanism of this platform, the borrower has no personal repayment obligation: the platform can only use collateral as a means of recycling. If the collateral value falls below the borrowing amount, it is very common to give up the position directly. As the judge said:

"What happens if a user borrows money but his collateral value plummets? The system liquidates it. There is no evidence that the 'borrow' feature on Mango Markets means that the user is obliged to repay - not even any other obligations - although the word may have that meaning in the traditional context."

Therefore, in other contexts, it may be considered fraud if someone deliberately conceals or misrepresents important information related to the terms or negotiations when signing a loan agreement. But here, there are neither terms nor negotiation processes. There is only one word that exists: "borrow".

Or to quote SBF, it is: "You never need to pay back the money, you end up just being liquidated."

As for "false reporting of collateral value", Eisenberg actually did not do this: Mango Markets calculates the value of his collateral based on market prices (although these market prices were manipulated by him).

Interestingly, this does not constitute fraud, as there was an earlier case of LIBOR manipulation that provided jurisprudence support:

Of course, Eisenberg is very clear that the value of his asset portfolio is obtained through market manipulation, and also knows that this valuation will not last for too long. So, while his portfolio valuation when he collateralized his borrowing might be technically "accurate" (calculated at the market price at that moment), the government considers his statement of the value of the collateral to be deceptive. ...

The government argued that when Eisenberg borrowed, he expressed two points to Mango Markets in a sensible way:

First, the value of the collateral in his account has not been manipulated;

Second, these collaterals are indeed valuable.

These two points are false statements in the eyes of the government.

But this logic conflicts with the decision of the U.S. Court of Appeals for the Second Circuit in United States v. Connolly.

In the Connolly case, Deutsche Bank (DB) reported to the British Bankers Association (BBA) daily "DB's borrowing interest rate in the interbank market".

And the defendants - DB traders - sometimes ask LIBOR quoters to submit quotes that are beneficial to their positions. The trial evidence showed that other DB employees and LIBOR quoters themselves admitted that "it seemed 'incorrect' to adjust LIBOR quotes for the benefit of traders."

But the court did not buy it. The court rejected the government's claim that these quotes are in the implicit sense that "confirmation that the quotes are not intervened by traders."

Even if market participants generally believe that traders’ intervention in LIBOR quotations is an inappropriate act, it is decisive because there are no provisions or guidelines expressly prohibiting the conduct at that time. The court noted that although the BBA did later introduce relevant prohibition rules (just like Mango Markets also updated the agreement after Eisenberg operations), “there was no such rule or injunction in the early stages of the case.”

We also discussed the Connolly case in 2022: LIBOR itself is a "smacking" number, so Deutsche Bank traders are unlikely to commit a crime by "producing this number wrongly." It can now be seen that this has a similar logical analogy to the price of MNGO tokens.

In short, it is important to emphasize here that at least at the level of telecom fraud, the terms and conditions of the platform are indeed key. If Mango Markets has clearly told users: "If you want to mortgage your loan with your position, you have to promise that you have not done any market manipulation", then Eisenberg's transactions constitute fraud. But it didn't say that, and even said nothing, so his actions did not constitute fraud.

There is also a typical creed in the encryption circle: "Code is law": as long as an encryption system allows you to do something, you have the right to do it, even if the development team does not fully anticipate the consequences when setting parameters. Under this concept, traditional legal norms, background agreements or user agreements are not important. The only important thing is what code is written in the system.

But the verdict in this case does not mean exactly this. What it actually means is: code can become law. If you run an encryption platform and tell the user "please don't manipulate, attack or other vandalism", then when someone actually manipulates, they may get into trouble. But if you run a platform without saying these words at all, just say "this is how the platform runs, you can do it yourself", then even if someone finds a system vulnerability and manipulates it, it is legal, or at least it does not constitute telecommunications fraud.

This actually makes sense. I once wrote in an article discussing Eisenberg operations: "You can imagine two different market systems and let users choose to join one of them by themselves": one is called "Nice Market", which has clear rules and prohibits manipulation and insider trading; the other is called "Fun Market", which is, as long as you can find ways to make profits, even if you have the ability, the gameplay is completely open. I have also suggested that given the relative lack of real-world financial system relevance (although this situation is changing), perhaps it can become a test field for "Fun Market", of course, provided that participation is completely voluntary. This may be the little bit of "actual rules" conveyed by this case.

However, all this actually didn't help Eisenberg myself. As Bloomberg noted, when he was arrested for the crypto case, U.S. law enforcement officers found he downloaded 1,274 images and videos of child pornography between 2017 and 2022, so he was sentenced to about four years in May for possessing child pornography.