Listed companies are buying crypto assets, who is making money?

Original title:Facts vs. Myths: The Truth About Crypto Treasury Companies

Original author: Jeff Dorman, CFA

Original translation: TechFlow

Crypto vault company: 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. Treasury bonds both rose. Although there are endless discussions about the "failure" of the US Treasury market, it is worth noting that the yield on the US 10-year Treasury bond has actually been fluctuating in the 100 basis point range over the past two years, which is another example of the narrative-dominated fact.

Speaking of narratives, more and more American listed companies are undoubtedly becoming a hot spot in the market. But as always, this trend is accompanied by many misunderstandings. Therefore, we will try our best to clarify the facts and misunderstandings behind these new digital asset buyers.

Some call these companies "Bitcoin Treasury Companies" while others call them DATs. Regardless of the name, these companies are essentially just new shell companies used to hold digital assets. This is different from the original Bitcoin library company. For over five years, we have been discussing the phenomenon of some publicly listed companies bringing Bitcoin into their balance sheets for various reasons.

These companies can be divided into several categories:

Some are ordinary companies that try to hold Bitcoin, such as Tesla and Block (formerly Square);

Some are crypto-native companies such as Coinbase and Galaxy, which naturally hold these assets through their main business;

Some are Bitcoin mining companies whose core business is holding Bitcoin.

The growth of Bitcoin on these companies' balance sheets is easy to track and sometimes even drives stock prices up. But for the most part, Bitcoin’s holdings have not concealed its core business. Furthermore, until recently, the U.S. Financial Accounting Standards Board (FASB) accounting standards for holding Bitcoin pose a significantly higher downside risk to earnings per share (EPS).

Instead, these companies often have limited driving effects on Bitcoin prices, as they often do not buy Bitcoin in large quantities through the open market. Most companies only accumulate bitcoin through their daily business, and for those that do buy bitcoin, the purchase volume is also relatively small.

Source: BitcoinTreasuries.net

At the same time, MicroStrategy (stock code: MSTR) has gradually become the first truly "bitcoin company", and its only goal as a listed company is to buy Bitcoin. We first watched MSTR five years ago when it announced its first Bitcoin purchase plans, which prompted its share price to rise by 20% instantly, attracting widespread attention from the market. As we wrote in August 2020:

"MSTR's stock price rose 20% after the announcement last week, which is likely to have caused a busy weekend for junior employees in the global corporate finance department to study bitcoin frantically. Remember 2017? The company spared no effort to mention "blockchain" during the earnings call, even if they knew nothing about how to actually use it, they had no plans, just because the market would reward companies that seem to be leading the technology curve? Now, get ready to re-enact the Bitcoin."

MSTR’s initial bitcoin purchases were done with cash on the balance sheet, but over the past five years, its true “subtlety” is how to use the capital market easily and frequently. While MSTR also has a core business, generating $50 million to $150 million in EBITDA (earnings before interest, taxes, depreciation and amortization) through business intelligence and enterprise software analytics services, this business is quickly overshadowed by Bitcoin purchases.

Unlike other publicly traded companies that attempt to emulate, MSTR's existing cash flow comes from its affiliated (formerly core) business lines that can be used to pay for company expenses and interest on debt. This makes it significantly different from other listed companies.

Source: ChatGPT and Microstrategy Financial Reports

By leveraging debt, convertible bonds, preferred stocks and equity markets for a new round of financing to buy Bitcoin, MSTR opens the door to a completely new investment community that allows them to access previously unavailable crypto asset investment opportunities.

Although I was too lazy to dig into the specific details of each round of financing (the details are not important to my argument, after all, this is generated through ChatGPT), MSTR's "magic" in the capital market is truly amazing: it has demonstrated the sheer subtlety of capital market operations over the past five years.

Source: ChatGPT

Each new round of financing and Bitcoin purchases further pushes up the price of Bitcoin (BTC) due to its transaction size and the signal effects of future purchases. At the same time, this has also driven the rise of MicroStrategy (MSTR) stock price as the market began to focus on new indicators that did not exist before, such as "bitcoin per share" and "bitcoin yield". Essentially, MicroStrategy's "company"'s sole goal has shifted to increasing its Bitcoin reserves, and all participants benefit from it.

Holders of convertible bonds and preferred stocks are actually playing the game of "cheap volatility", and they take advantage of the volatility of MSTR stocks and Bitcoin prices to make profits. Direct debt holders are concerned only with the return on fixed income, which is a breeze with the support of EBITDA that MSTR can still generate through its old core business. Meanwhile, equity investors profit from the premium of MSTR stock, which is much higher than the net asset value of Bitcoin (NAV) on their balance sheet.

Everyone won! Of course, when everyone makes a profit, two things usually happen:

The voices of doubters are getting more intense

Critics began posting angrily online, trying to find ways to question the feasibility of the strategy. We started responding to these ridiculous allegations as early as 2021. At the time, many market participants firmly believed that MSTR would be forced to sell Bitcoin, completely misunderstanding how the debt contract works, not to mention that they confused the difference between holding Bitcoin directly and holding leveraged futures positions with liquidation prices.

To this day, we still often need to deal with the claim that MSTR poses a systemic risk to Bitcoin, although we have largely abandoned the confrontation with this never-ending debate. We wish Jim Chanos good luck in his recent “Long Bitcoin, Short MSTR” transaction (although this strategy may not work for the reasons we listed here). "Short MSTR" has become the new "Short Tether", a mouth-watering trade because it seems to be low risk and high returns, but the actual probability of success is very low.

Imitators emerge

Welcome to a crazy new era in the crypto space. Let us further explore this phenomenon.

Source: Bloomberg and Arca Internal Computing

If 2024 is the year of "crypto ETF", then 2025 will become the year of "SPAC and reverse mergers and acquisitions". We once described encrypted ETFs as "two steps forward and one step back":

"Many people think that ETFs are a win for real-time settlement assets, but the opposite is true. Bitcoin ETFs are actually stuffing a real-time settlement system (blockchain) into an outdated T+1 settlement product (ETF). Isn't this a step back? As an industry, we should work hard to bring global assets into blockchain, rather than forcing on-chain assets into old systems on Wall Street."

Although we acknowledge that this is a necessary move to promote adoption and interest, this view remains true. There is a big difference between "blockchain technology" and "crypto assets". We are more concerned with introducing the world's most popular assets (such as stocks, bonds, real estate) into blockchain, rather than forcing crypto assets with worrying quality into outdated systems. However, the trend of stuffing crypto assets into the stock shell will not stop. Let's take a look at what's going on right now.

SPAC (Special Purpose Acquisition Company) and reverse mergers have been around for a long time, but are rarely fully adopted by a single purpose. However, this is exactly what is happening now. If you own a listed stock shell, it can be used to acquire crypto assets and want to trade at a significant premium of Net Asset Value (NAV). These new structures are usually slightly different from MicroStrategy. Some companies only hold Bitcoin, trying to completely replicate the MSTR model (although brand awareness and capital market expertise are far less than MSTR); while others buy new assets—some hold Ethereum (ETH), some hold Solana (SOL), and some hold TAO, and more new assets are emerging. Arca currently receives 3 to 5 new idea proposals from investment banks every week.

Here are some examples of transactions recently announced and are being funded (may not quite):

SharpLink Gaming (SBET)

· Recent Events: May 2025

· Financing method: US$425 million in private equity investment (PIPE)

· Acquisition of crypto assets: Ethereum (ETH)

Trump Media & Technology Group (DJT)

· Recent Events: May 2025

· Financing method: Raise US$2.3 billion through stock and convertible bond sales

· Acquisition of crypto assets: Bitcoin (BTC)

GameStop Corp. (GME)

· Recent Events: May 2025

· Financing method: US$1.5 billion convertible bonds

· Acquisition of crypto assets: 4,710 Bitcoins (BTC)

Jetking Infotrain (India)

· Recent Events: May 2025

· Financing method: Raise Rs 61 lakh through equity sale

· Acquisition of crypto assets: Bitcoin (BTC)

Meliuz (CASH3.SA - Brazil)

· Recent Events: May 2025

· Financing method: Raise 150 million reais through stock issuance

· Acquisition of crypto assets: Bitcoin (BTC)

· Details: Brazilian fintech company Meliuz announced its initial stock offering, planning to raise 150 million reais (about 26.45 million US dollars) for the acquisition of Bitcoin. The company plans to distribute 17,006,803 common shares as the initial batch.

Sol Strategies Inc. (CSE: HODL, OTCQX: CYFRF)

· Initial Investment: January 2025

· Financing method:

Antanas Guoga, Chairman, unsecured revolving credit line of $25 million;

ParaFi Capital provides 27.5 million Canadian dollars (approximately US$20 million) convertible bonds;

The first batch of convertible bonds from ATW Partners was completed in May 2025.

· Acquisition of crypto assets: Solana (SOL)

Cantor Equity Partners / Twenty One Capital (CEP)

· Recent Events: May 2025

· Financing method: Added $100 million to its crypto business, Twenty One Capital, with a total financing of $685 million. Meanwhile, existing shareholders (including Tether, Bitfinex and SoftBank) promise Bitcoin in physical form through their existing equity structure.

· Acquisition of crypto assets: Bitcoin (BTC)

Upexi Inc.

· Recent Events: April 2025

· Financing method: Raise $100 million to build Solana reserves

· Acquisition of crypto assets: Solana (SOL)

· Details: Purchase SOL through US$100 million PIPE (private equity investment) and plans to further increase "Solana per share" (Sol-per-share) through equity and debt issuance.

DeFi Development Corp (formerly Janover)

· Recent Events: April 2025

· Financing method: Raise $42 million to build a Solana reserve vault and plans to raise $1 billion further

· Acquisition of crypto assets: Solana (SOL)

These cases show that more and more public companies are integrating crypto assets into their financial strategies, often funding these acquisitions through proceeds from debt or equity issuances. But who made money from these transactions?

Investment Banking

Investment banks earn fees by underwriting PIPE or performing reverse mergers and acquisitions. This strategy has little risk and investment banks can make profits regardless of the success or failure of the transaction. Therefore, they will not stop facilitating such transactions.

Shell owner/management

Suppose that $100 million is raised through a new PIPE offering, of which $85 million is used to purchase crypto assets and the remaining $15 million is used to "operating expenses." These "operating expenses" include higher salaries - a huge amount of income for the management team.

Stock holders before reverse merger or SPAC announcement

Most of these shell companies usually have a stock market capitalization of less than $20 million before being transformed into crypto stock shells. Some of the investors holding these stocks may learn in advance through insider information that the stocks will be transformed into crypto companies, while others are purely lucky. But there is no doubt that the real profit comes from these stocks soaring 500%-1000% after the announcement, and even more.

Who didn't make money? ——New investors.

Unlike MicroStrategy, we have 5 years of historical data that its debt, convertible bonds, preferred stocks and equity holders can make profits. And for new investors in these new types of deals (those who fund PIPE or SPAC), there is currently no evidence that they will make money. These transactions are relatively new and most private investors have not converted their private shares into public shares (usually at least 90 days). Therefore, these transactions continue and investors are still buying.

If these stocks are still trading above Net Asset Value (NAV) at a significant premium after new investors unlock, we will see more similar trades emerging. But if these stocks start to fall sharply, or even fall below NAV, the game will end. It may take several months before we know how the market will react when these shares are unlocked.

However, there is a misunderstanding spreading in the market: these unlocks pose risks to shell equity investors, rather than to the underlying crypto assets they hold. Unless interest is not paid through debt financing (i.e. default), there is little mechanism to force the sale of underlying crypto assets. Moreover, these new shell companies are still small in scale and cannot enter the debt market. This operation is currently limited to MicroStrategy (MSTR) and a few other large players.

For equity and preferred stock holders, they have no right to claim the sale of underlying assets unless the stock price is so much lower than the net asset value (NAV), that a radical investor starts buying shares in large quantities and attempts to take over the board of directors with the aim of selling underlying crypto assets to buy back the shares. This may happen in the future, but it is not a significant risk today. Once such events occur for the first time, most stocks will quickly close the gap with NAV, as the market will realize that this operating mode can be reused.

This situation is very similar to the situation that the Grayscale Trust had before the launch of the ETF. At the time, Grayscale did not have the risk of being forced to sell its underlying crypto assets…the real risk was that trust funds (stocks) traded at prices below their net asset value (NAV). Ultimately, this did happen, causing damage to equity investors, but had no effect on crypto asset holders.

Today, every crypto venture investor holding a large number of junk tokens with high inflation and insufficient demand is discussing how to stuff these tokens into an equity shell. But this doesn’t automatically create demand, just like most newly launched ETFs fail to attract investors. Creating an investment tool and creating demand are two different things. Although these investment tools will continue to be created, it is still impossible to determine whether these stocks will truly attract market demand.

Is there a possibility that these shell companies can maintain a premium above NAV over the long term? The answer is possible, but the conditions are harsh. Perhaps one day, MicroStrategy (MSTR) will become the "Berkshire Hathaway" in the crypto field. By then, Bitcoin could become an extremely scarce and highly sought-after asset, and even the company is willing to accept lower acquisition offers from Michael Saylor only because he can pay with precious bitcoins.

Another way that might keep the shell company’s premium is that these companies become more creative when choosing underlying assets. For example, they can hold high-quality tokens like HYPE that are not currently listed on any centralized trading platform, thus providing new investor groups with opportunities to access HYPE. This scarcity and uniqueness may attract investors to be willing to pay a premium. However, these situations are only long-term possibilities.

Anyway, like ETFs, some shell companies will succeed, and some will not. But if bankers want to keep the "profit train" moving forward, they must start to become more creative. If you simply stuff crypto assets into an equity shell company, you need to constantly innovate what’s inside the shell company – making it valuable and difficult to obtain in other ways.

However, I don't think these equity shells will have a negative impact on crypto assets themselves, at least not in the short term. Without debts in the capital structure, there is no compulsory sale mechanism. And, I think we may also be trying to dispel misunderstandings about these shell companies for a long time, as we have done on many crypto topics.

Tokens can still be used as a tool for capital formation

The recent trend of shifting from token financing to shell equity financing can be seen as "two steps forward and one step backward". But this does not mean that token sales have stopped, it is just that there is less discussion.

We often say, "Tokens are the greatest capital formation and user guidance mechanism ever. They can unify all stakeholders and create lifelong brand advocates and core users." The concept is simple: instead of issuing equity or debt, so that investors cannot become users of the product, and customers cannot benefit from the company's growth, why not issue tokens directly to customers and thus unify all stakeholders at once? This is exactly the direction the ICO (initial token issuance) tried in 2017 until the US regulators completely stopped it.

The good news is that regulatory pressure is weakening, which has allowed some token financing to return. The bad news is that most token financing is still limited to the "pure encryption" field - crypto and blockchain native companies that cannot exist without blockchain technology. And the missing part is a world where non-crypto-native companies (such as regular gyms, restaurants, and small businesses) can also start issuing tokens to finance their businesses and unify stakeholders.

"Internet capital market" is a term used to describe this emerging topic. This concept is not new (in fact, we have been writing about this for seven years – the concept I first wrote about my crypto blog, when Arca didn’t even have a website yet). But now, this concept has finally been adopted to a certain extent.

Launchcoin is one of the important platforms to promote the issuance of a new generation of tokens. Launchcoin (which also has tokens) supports Believe, a token issuing platform that is leading the emerging narrative of the "Internet capital market". On the Believe platform, tokens debut through bonding curves and then enter the Meteora platform to enhance liquidity. This platform is very attractive because many trusted Web2 companies have already implemented tokenization (creating tokens) through Believe. Although the direct accumulation of token value has not yet been achieved, its potential has made Launchcoin a pioneer in this narrative.

In other words, Launchcoin and Believe are working to achieve a vision that enables every municipal institution, university, small business owner, sports team, and celebrities to issue their own tokens. We have seen many examples that tokens can be used to fill gaps in a company's balance sheet, or to reorganize. For example, Bitfinex successfully achieved financing through its LEO tokens and Thorchain through its debt tokens. This type of token financing model is exactly what the crypto industry is exciting, not just equity shell companies.

However, the two models coexist at present, and understanding the differences is crucial.