There's a new kind of company in town, and it's built around the premise that stock prices sometimes go up when you buy and hold a ton of crypto on the balance sheet. These so-called crypto treasury companies then raise more capital to buy more coins, and, if the coin's price goes up, the shareholders get the returns they're looking for.
In practice, this approach is both ingenious and risky. Before assuming these businesses are interchangeable with the underlying coins, it is worth being clear about what they are, how they work, and where the edge actually is today. So let's look at three things that investors need to know about them.
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1. One company sparked the trend
In short, crypto treasury companies are public companies whose main purpose is to give investors exposure to a cryptocurrency via corporate holdings. That typically means accumulating coins, disclosing them, and using corporate finance tools to buy more over time.
Strategy (MSTR -1.25%), formerly MicroStrategy, pioneered this model for Bitcoin (BTC 0.16%). The company issues multiple rounds of convertible notes and uses at-the-market (ATM) equity programs specifically to fund its purchases.
As a result, Strategy is the largest corporate holder of Bitcoin, with roughly 632,457 coins reported in mid-August. This is the template others are following because it can scale up, it's easy for investors to buy, and it turns corporate finance into a coin-accumulation engine.
2. They're similar to using leverage
The equity of a treasury company often trades at a premium or discount to the value of its coins per share. That premium can widen or shrink, amplifying both gains and losses for shareholders relative to simply holding the coin.
That equity also is affected by the company's financing choices. If management sells stock or issues convertible debt to buy coins, shareholders get embedded leverage, along with some dilution risk and refinancing risk during downturns.
In other words, a treasury stock can outperform its underlying coin in bull markets due to premiums, capital raises, and balance sheet gearing, and underperform it sharply when sentiment turns negative. So, buying these stocks is a lot like making a levered bet on the underlying coin.
But there are other risks involved. Companies can have governance issues or be subject to new and different regulations than their underlying cryptocurrencies.
For long-term investors, that means position sizes should be conservative at most, and that expectations should reflect the added stock-specific risks on top of crypto's inherent volatility.
3. These operators probably don't have any edge
The crypto treasury concept is spreading rapidly. Now, dedicated companies are accumulating crypto assets including Ethereum, Solana, and XRP in meaningful amounts, not to mention other coins like Dogecoin.
But outside of Strategy's well-known brand, large scale, and repeatable funding engine, it is not obvious what would create a durable competitive advantage for any treasury company that would make it preferable to buying any one of its peers with the same underlying target crypto. Nor is it obvious whether Strategy itself actually has an enduring competitive advantage, or only a situational one stemming from being a first mover and getting a lot of press coverage back when its approach was unique.
The issue is that the underlying assets are the same ones anyone can buy, and capital is mobile. A newcomer can issue stock or convertible notes tomorrow and run the same playbook, and many are. Until someone layers in a true economic moat -- like perhaps privileged staking economics, proprietary deal flow for token grants, unique governance rights, or consistent coin-per-share targets with teeth -- differentiation among these companies will be very thin, and competition for investor equity will be a highly subjective popularity contest.
Therefore, for now, if you want long-term exposure to a coin without taking on any added risk from these companies, holding the coin directly remains the better bet.
