Article Author: Nikou Asgari
Article Translation: Block unicorn
Three months ago, George Calame had never considered that his semiconductor company would start buying Bitcoin.
With his New York-listed company's stock price long depressed, Calame became interested in Bitcoin after reading news about a healthcare company's stock soaring after purchasing digital currency. He said, "I was looking for ways to unlock the company's value" after a failed transaction scared off investors.
After consulting with the board and some investors, Calame decided to launch a Bitcoin strategy. Sequans Communications raised $384 million from debt and equity markets to purchase the world's most popular cryptocurrency. Its stock price surged 160% after the announcement.
Calame said, "I wouldn't have said this last year, but today I completely believe... I am 100% certain that Bitcoin will continue to exist."
This crypto newcomer owes much of his transformation to Bitcoin evangelist Michael Saylor. Since 2020, this American crypto tycoon has been spending billions of dollars buying Bitcoin almost weekly and hosting conferences to encourage others to follow suit. Saylor's software company, which has turned into a Bitcoin hodler, Strategy, is now valued at approximately $115 billion, almost twice the value of its Bitcoin holdings, as investors flock in. Last week, Strategy purchased $2.5 billion in Bitcoin, its third-largest purchase. Its stock price has soared over 3000% in five years.
This success, coupled with former US President Donald Trump's full support for the digital asset industry, has inspired a surge in so-called "crypto treasury companies" globally.
Biotech companies, mining companies, hoteliers, electric vehicle companies, and e-cigarette manufacturers are all rushing to buy cryptocurrencies, supported by investors who want to share in the crypto market dividends without directly touching digital assets.
According to crypto consulting firm Architect Partners, in the year up to August 5th, approximately 154 listed companies have raised or committed to raising a total of $98.4 billion for cryptocurrency purchases. Previously, only 10 companies had raised $33.6 billion.
Some companies are mimicking Strategy, changing their website colors to Bitcoin's orange tone and providing data showing how much cryptocurrency they hold, its value, and other metrics important to investors.
Even Trump himself joined the action - his family media company raised $2 billion in July to buy Bitcoin and related assets.
In a year where Bitcoin and benchmark stock indices have repeatedly hit new highs, traditional investment institutions are struggling to find the best way to participate in the new digital asset world, giving rise to a crypto hoarding trend.
But many doubt whether this trend can be sustained. Rapid growth has made some investors worry about market overheating. Brian Estes, CEO of Off The Chain Capital, who has invested in multiple Bitcoin treasury companies, stated: "This is similar to the internet bubble of 1998" when companies raced to reposition themselves as web-first enterprises to attract attention.
The surge of new companies has also raised concerns about cryptocurrency price drops and their chain reaction. Companies that have borrowed billions to buy cryptocurrencies might soon find themselves unable to repay creditors.
Eric Benoist, investment banking technology and data expert at Natixis CIB, said: "The risk is a Bitcoin crash." In such a scenario, stock prices would also fall, and if companies cannot pay bondholders, investors would suffer losses. "This could cause a systemic impact on the Bitcoin ecosystem," he added. "Every time there's a small market panic, the entire market drops."
Kevin de Patoul, CEO of crypto market maker Keyrock, said investors should maintain a realistic attitude. "You're injecting massive risk into a system that ultimately has almost no support, except for the continued appreciation of assets."
For struggling companies, buying cryptocurrencies seems to be a foolproof method to attract investor attention and boost stock prices - at least temporarily.
Aidan Bishop, founder of London-listed Bluebird Mining Ventures, said: "If we hadn't gone down this path, we would have struggled to raise future funds; we were like a dying company." The company raised £2 million in June to buy Bitcoin. Previously, "to raise funds, I had to go knocking on doors," he added.
Most new entrants are ordinary businesses with no prior crypto experience, but their digital asset holdings far exceed the company's actual revenue.
For example, US thermal technology company KULR Technology has a market value of around $211 million, despite operating at a loss of $9.4 million in the first three months of the year. However, it holds Bitcoin worth approximately $118 million.
In the UK, web design company The Smarter Web Company only achieved a net profit of £93,000 in the six months ending April, but its market value is around £560 million due to its Bitcoin holdings worth £238 million.
The premium investors are willing to pay highlights their recognition of these crypto-holding companies' value.
Companies that prove their commitment to continuing to raise funds to buy cryptocurrencies are rewarded by investors, whose stock valuations are higher than the value of their Bitcoin holdings. To actually purchase these tokens, companies typically raise funds by issuing debt or equity, then use exchanges like Coinbase to invest in buying cryptocurrencies.
Speed is crucial. Estes said: "Ultimately, it's a speed issue. The goal is to increase the number of Bitcoins per share, and companies that can do this fastest will get high premiums."
For investors, "Bitcoin per share" - the amount of Bitcoin each company holds per share - is a measure of success. If a company quickly buys more tokens, equity investors indirectly hold more cryptocurrency per share, which is why investors are willing to pay premiums early, hoping to hold more Bitcoin per share in the future.
Most companies buying Bitcoin are also operating other businesses, but a new wave of transactions involves shell companies that are buying or promising to buy cryptocurrencies. These companies operate as Special Purpose Acquisition Companies (SPACs), raising funds to buy or merge with existing enterprises.
Rob Hardik, general partner at venture capital firm Dragonfly Capital, said that when a company with actual business buys Bitcoin, operational risks are "often actually higher": "You have an existing management team whose goals may change over time and might conflict with operational business priorities."
Executives are now starting to buy other tokens as the trend has expanded beyond Bitcoin. These tools also provide ways for those holding large amounts of cryptocurrencies to extract value without selling.
ReserveOne is a $1 billion transaction funded by investors including exchanges Kraken and Blockchain.com, planning to buy Bitcoin and other crypto tokens like Ethereum and Solana. Ether Machine raised $1.5 billion, planning to use it to buy Ethereum. Former Barclays CEO Bob Diamond raised $888 million through a SPAC transaction with a biotech company to buy HYPE tokens. The venture capital firm led by crypto billionaire CZ completed a $500 million transaction helping a Canadian e-cigarette manufacturer buy BNB, the token of the Binance exchange co-founded by CZ.
Hardik said: "We are clearly witnessing an somewhat irrational gold rush. It feels unnecessary to establish (investment vehicles) for all these different tokens."
For retail and institutional investors, cryptocurrency vault companies offer an alternative way to gain token exposure without directly holding tokens.
Some investors choose to achieve this through U.S. exchange-traded funds (ETFs) launched by large asset management companies like BlackRock, Fidelity, and Invesco, with these regulated products accumulating over $100 billion in investments.
However, other investors cannot do this. In countries like the UK and Japan, cryptocurrency ETFs have been banned as regulators try to protect investors from digital asset volatility risks. Therefore, vault companies serve as a proxy tool, providing investors with an indirect way to access cryptocurrencies through tradable instruments.
Tyler Evans, co-founder of UTXO Management, stated: "Many institutions (investors) simply cannot invest in ETFs or directly hold (cryptocurrencies)." He added: "We believe Bitcoin vault companies fill this gap by issuing securities that comply with investment permissions." His company, with $430 million in assets, has 95% of its investments in Bitcoin asset management companies.
Investors are also exploiting tax arbitrage opportunities between holding crypto assets and stocks in some countries. In Japan, cryptocurrency gains are taxed up to 55%, while stock tax rates are 20%. In Brazil, cryptocurrency gains are taxed at 17.5%, compared to 15% for stocks traded on exchanges.
Source: Full support from U.S. President Donald Trump for the digital asset industry has stimulated the robust development of "cryptocurrency vault companies" globally.
Therefore, investing in companies holding large amounts of cryptocurrencies may be more tax-efficient than directly holding cryptocurrencies.
Eager investors are searching globally for countries with similar tax structures to generate profits. Evans stated: "The U.S. market is now saturated... we are looking for opportunities outside the U.S."
The new alliance between cryptocurrencies and capital markets is ironically contrary to their original mission of disrupting traditional financial markets and staying away from the prying eyes of large institutions. Raising debt and equity from investors is core to the strategy and a necessary condition for maintaining operations. Stock prices of companies not purchasing cryptocurrencies quickly enough have begun to decline.
Although Sequans Communications' stock soared 160% after starting to buy Bitcoin, its stock has now fallen to pre-purchase levels, reflecting investor dissatisfaction with its purchase pace.
Evans says: "When you combine Wall Street and cryptocurrencies, you need a market that can support this harvest."
To expand, many such companies are planning to go beyond merely being cryptocurrency pools listed on global securities exchanges.
Diamond stated that his investment tool focused on HYPE tokens might acquire other cryptocurrency vault companies. "If they struggle, we can acquire and rebuild them," he said. "This will create opportunities for the strongest, frankly, by buying companies that are poorly managed or underfunded."
Meanwhile, Japan's Metaplanet, the fifth-largest corporate Bitcoin purchaser globally, plans to borrow against its massive token reserves and transform into a cryptocurrency financial services company.
U.S. thermal company KULR is also exploring "Bitcoin-backed financial services" like lending, and Panther Metals' CEO Darren Hazlewood says they plan to use their Bitcoin holdings to fund future exploration projects.
Benoist from Natixis CIB stated: "The natural evolution is financial services, because you can use a pile of Bitcoin to support your financial commitments."
Source: Attendees pose for a group photo after U.S. Vice President JD Vance delivered a keynote speech at the Bitcoin conference in Las Vegas. Stock prices of companies not purchasing cryptocurrencies quickly enough have begun to decline.
However, cryptocurrency lending is a high-risk business. In 2022, the lending market collapsed due to a series of defaults triggered by price drops, leading to the bankruptcy of exchange FTX.
Benoist added: "My main concern with this strategy is that I'm not sure how it will end. Companies get caught in a cycle where they must continuously purchase more to maintain the cycle, then return to the market to buy more—this cycle must continue to justify the premium."
The biggest risk is how deep the damage will be if—or when—cryptocurrency prices crash. Inevitably, a cryptocurrency market downturn means stock prices of companies tied to tokens will also decline.
Companies with debt face greater risks, as they need to pay interest to investors and may be forced to raise more funds or sell their cryptocurrency holdings to meet debt obligations. A cryptocurrency hedge fund manager stated: "If you're borrowing to repay existing debt, this structure is very unhealthy and makes me very uneasy." He added: "You might face systemic risks because too many such fragile structures need to be fully or partially unwound, which will put pressure on the market."
He also said: "I hope regulators will regulate this, rather than everyone assuming the market will always rise and establishing vaults."
Investors acknowledge the risks but are eager to make money during boom periods. Evans from UTXO Management, who serves on the board of multiple cryptocurrency vault companies, says he is pushing CEOs to "generate cash through operational business during market downturns and earn returns from Bitcoin through means other than raising capital".
However, even industry stakeholders are becoming increasingly skeptical. Evans says: "This will end with a bubble burst. They can rise as quickly as they can fall."
