Crypto treasury companies add a new layer of risk
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Every time there is a bull market in crypto, there is a new wrinkle, and this time that wrinkle is that you can buy exposure to altcoins in your brokerage account, through publicly traded companies that have gone all in on some cryptocurrencies.
The big picture: You might know that Tesla has some bitcoin and Strategy (formerly MicroStrategy) has all the bitcoin, but did you know that publicly traded companies are swiftly pivoting to buying and holding lots of other cryptocurrencies?
Catch up quick: There are crypto treasury firms, such as Sharplink Gaming for ether and DeFi Development Corp. for solana, and companies betting on extremely new cryptocurrencies, like the fitness firm Interactive Strength, which is buying the artificial intelligence coin from Fetch.ai.
- Many of these companies are issuing large amounts of new shares to sell to the public in order to buy more of their target cryptocurrency.
- The market has been rewarding them in a very meme stock-like way.
Between the lines: The big selling point of these coins is access. Folks who want to keep their investments in a familiar stock portfolio can just buy companies that are actually stand-ins for a favorite token.
Case in point: Once upon a time, litecoin was seen as the silver to bitcoin's gold, but in recent years it hasn't had a strong reason to continue existing.
- MEI Pharma, a company devoted to developing cancer therapies, will buy $100 million worth of litecoin, funded through a private placement.
- The company, which lost money for the nine months ending in March, has typically traded in the $3 range for the last year. The deal fueled a 100% jump in price, with the stock now trading at $6.86.
Reality check: James Butterfill, the head of research at CoinShares, a digital asset-focused investment firm, tells Axios this crypto treasury theme could be the real altcoin season in this cycle.
- Butterfill calls the situation a "liquidity shift." There's plenty of money sloshing around, looking to go to work, some of it in a very meme stock mood, he notes.
What they're saying: Butterfill sees merit in the bitcoin treasury strategy, though he adds the theme might be running out of steam.
- "At least in some ways bitcoin is regarded as an emerging store of value," he says. Other cryptocurrencies are more like tech stocks, if they are even that, he cautions.
The bottom line: "Who's buying these companies?" Butterfill says. "It's the same people buying altcoins."
