Listed companies follow the trend to buy coins. What are the potential returns and risks?

Author: kushagra

Compiled by: Luffy, Foresight News

Every day we can see the birth of new cryptocurrency treasury strategy tools. This article will analyze the performance of Bitcoin as a corporate treasury strategy and the key trends in crypto strategies based on private equity investment (PIPE).

Each region will launch its own "Bitcoin" strategy, but what I worry about is Right Tail Assets that may adopt similar strategies. Bitcoin is good as a reserve asset, but what if it is your favorite L1 or L2? This makes no sense. After all, who will be the marginal buyer of the 50th zkEVM L2? Not to mention, tail assets have low circulation issues, and the book returns seen by market participants may not be truly realized. So, friends, be careful.

Operation mechanism

There are three main paths to building such treasury tools:

• Business Transformation: Businesses on the verge of bankruptcy turn to crypto financial services companies and implement encryption strategies (such as Solana stake);
• Mergers and Acquisitions: Incorporating private enterprises into small and medium-sized companies listed on the Nasdaq/NYSE;
• SPAC Merger: Redevelop business and treasury strategies through a special purpose acquisition company (SPAC) merger.

Regardless of the path adopted, all strategies require financing through private equity investment (PIPE) and convertible bonds. The following are typical operations of PIPE:

1. Targeting shell companies: usually a small and medium-sized company that is failing publicly traded on the Nasdaq or the New York Stock Exchange
2. Work with the company to create reserves for Bitcoin or any other crypto assets
3. Requires investment banks to issue/build two tools: i) traditional PIPE and ii) convertible bonds
4. Traditional PIPE: Selling common or preferred shares directly to qualified investors at a fixed price (usually discounted price)
5. Convertible Bonds: A convertible bond or convertible preferred shares are issued, and investors can convert themselves into common shares of the issuing company within a certain period of time or if certain conditions are met. These usually provide downside protection and partially reduce upside gains.

For example, the Trump Media & Technology Group (DJT) adopts the following structure:

• raising $1.44 billion through the sale of nearly 56 million shares ($2.572 per share);
• Issue $1 billion of 0% convertible senior secured bonds due in 2028 (conversion price is $34.72 per share).
• This is a mixed structure of stock dilution and advanced convertible debt, with the characteristics of PIPE and convertible bonds.

Note: Compared with other issuance methods, PIPE is less regulated by the SEC, but may lead to dilution of existing shareholder equity. These shares are accompanied by the right of registration, i.e. the company is required to submit a registration statement to the SEC, allowing PIPE investors to resell shares to the public after the lockdown period.

Investor Framework

You might ask, why are investors willing to participate in such issuances? The reasons can be summarized into three points:

• Team Intellectual Property: The industry influence of the chairman or core team is crucial. For example, the ETH strategy launched by Joe Lubin (co-founder of Ethereum) is easily compared to "Ethereum version of Microstrategy". After witnessing the success of MSTR (Microstrategy), investors actively participated in the ETH strategy because of Joe's industry status. After all, ConsenSys has always been crucial to the development of the Ethereum ecosystem.
• Asset quality: The choice of reserve assets is crucial. A wave of tail assets (such as the top 50 tokens in market capitalization) are expected to be included in the small business treasury. But these tail asset strategies are more risky because their volatility is usually higher than Bitcoin.
• Crypto Premium: The reason why such PIPE tools can raise funds on a large scale is not because the value of Bitcoin or Ethereum "spinned by 3-4 times overnight" in corporate strategies, but because traditional hedge funds and crypto-native institutions are influxed by fear of missing out on (FOMO) the current primary/secondary market arbitrage opportunities. Admittedly, these strategies may achieve earnings or leverage effects through pledges and borrowing, but can this support a premium of 3 times the net asset value? I'm afraid not.

Overview of corporate crypto treasury transactions in the past two months

By far, the most controversial treasury transaction is the case of Trump Media. This has also sparked doubts about "strategic Bitcoin (or digital asset) reserves" - how to deal with potential conflicts of interest? In the short term, both private and public investors expect such financing to bring high returns in the short term, in the short term, and inspire by Microstrategy (MSTR) and Metaplanet (3350.T).

MSTR initially used Bitcoin as a store of value and anti-inflation tool; today's crypto PIPE achieves more active management and revenue generation through staking and lending. Private investors have almost crazy demand for crypto PIPE because once such transactions are announced, stock prices tend to rise 2-10 times at start.

Performance of enterprise crypto treasury strategy

Although history cannot predict the future, Bitcoin strategy already has a lot of data for analysis. The following is a performance study of the pure Bitcoin treasury strategy of enterprises. I have studied 17 listed companies:

17 listed companies with Bitcoin holdings accounting for more than 30% of the company 's market value and holding more than 300 BTC were selected in the list.

By far, the most successful company with this strategy is Microstrategy, the first to get involved in corporate Bitcoin strategies. But with the launch of Bitcoin ETFs and new treasury strategies, its "Bitcoin/market capitalization" premium may fade. In the short term, announcements of Bitcoin funding strategies often increase the possibility of short-term or even long-term returns. Return rates vary widely, even over different time frames. However, performance will decline over time:

• 1-year average rate of return: 526% (59% of the company's profit);
• 3-year average rate of return: 119% (only 13.64% of the company's profit);
• Historical average rate of return: 515% (59% of company profit).

Note: The median return is significantly lower than the mean, indicating that the extreme value pulls up the overall average. Bitcoin outperformed most asset classes in 2020-2025, and was the core driver of these companies' high returns.

Bitcoin strategy performance heat map

• Successful cases: Companies with strong community consensus, able to increase "bitcoin holdings per share" and create financial engineering opportunities performed well.
• Failure cases: For example, SOS Limited (formerly crypto mining company transformed into commodity trading), lagged behind due to the difficulties in main business and the poor execution of Bitcoin strategy. It can be seen that "pure Bitcoin strategy" companies are more recognized by the market than "small allocation" companies.
• Risk warning: Bitcoin-related companies may face extreme volatility and drawdowns, but when the company's net asset value (NAV) exceeds its market value, there may be opportunities for a difficult reversal. Note: For companies on the verge of bankruptcy, holding a small amount of Bitcoin on their balance sheet cannot reverse the decline.

in conclusion

With the success of Circle's IPO as a pure stablecoin company, the stock market and the crypto market are accelerating its integration. It is expected that more high-quality crypto companies will be listed in the future, and more encryption strategy tools will emerge. Given the recent market enthusiasm for crypto strategies, investors can capture opportunities through the following frameworks: team influence, asset quality, sustainability of crypto premiums, and in-depth analysis of specific projects.

However, be sure to be highly cautious when the strategy involves tokens outside of the top 20 market capitalization. These tokens not only lack the hard asset attributes of Bitcoin, but often lack continuous net buying demand. Structurally, investors must be clear: 1) what the underlying business strategy the company is implementing is; 2) the capital structure of the transaction (debt, convertible bonds, PIPE); and 3) the net asset value per share.