(Bloomberg) - The trade was simple — and worked until it didn’t. Wrap crypto in a stock ticker. Call it innovation. Ride the wave.
This week, with the crypto complex buckling alongside a tech-stock selloff, that wave is crashing. And some of its biggest promoters — including President Donald Trump ally David Bailey, Ethereum bull Tom Lee and Bitcoin evangelist Michael Saylor — must now deal with the fallout.
Bitcoin’s slide below $100,000 for the first time since June has ratcheted up pressure on shares in digital-asset treasury firms, or DATs — Wednesday’s tentative bounce around $103,000 notwithstanding. The average value of tokens held by treasury firms now barely equals their combined market capitalization and debt — down sharply from earlier this year, when the holdings offered a much larger cushion. Retail investors seeking exposure through public companies like Metaplanet Inc., KindlyMD Inc., and Strategy Inc. have lost billions of dollars in value. And that was before the latest selloff.
An oversupply of DATs, waning retail and institutional buying, and fierce competition for day-trader capital are breaking what had been the virtuous cycle of this year’s crypto rally.
Now, some firms built to hoard tokens are selling into weakness — exerting the very pressure they were meant to offset.
To make the model work, crypto hoarders deployed charismatic executives to sell shares and raise debt to buy Bitcoin, Ether and Solana. These frontmen “built products that rely as much on their projected confidence as on fundamentals,” said Rich Rosenblum, co-founder and former co-chief executive officer of GSR, a crypto market maker. “When the technicals crack and the crowd senses doubt, that confidence loop reverses fast.”
Bailey, once dubbed crypto’s Trump whisperer, rode the trade to viral fame this spring. Shares in his Bitcoin-buying company, Nakamoto Holdings Inc., soared to as much as $35 after a merger with healthcare services firm KindlyMD in May. They now trade under a dollar.
Not content simply to run a DAT, Bailey’s group doubled down by investing in other companies focused on accumulating Bitcoin, including Japanese hotelier Metaplanet — which is run by former Goldman Sachs derivatives trader Simon Gerovich — and The Smarter Web Co. in the UK. After dramatic rises, both stocks are down sharply in recent months.
Metaplanet in late October announced plans to start buying back its shares, borrowing up to half a billion dollars to do so via a credit facility secured against its Bitcoin holdings. A growing number of firms whose stated aim is to stockpile tokens are taking even more drastic steps. Sequans Communications S.A. just sold 970 Bitcoin to redeem some of its convertible debt. ETHZilla recently dumped $40 million worth of Ether to shore up its shares.
Lee, Wall Street strategist turned Ethereum booster, modeled BitMine Immersion Technologies Inc. after Saylor’s Bitcoin-heavy playbook. The firm bought 3.4 million Ether at an average price of nearly $4,000 apiece, according a recent statement. It’s now staring at an estimated $1.3 billion in paper losses, according to 10x Research.
Saylor himself, the architect of the DAT model, is feeling the pinch. Shares of Strategy, formerly MicroStrategy, have dropped 46% since this year’s high in mid-July. Its once-lofty premium to net asset value has nearly disappeared. To revive interest, Saylor has offered substantial yield on a new euro-denominated preferred stock offering as he turns to international markets for capital to power his buying spree.
Even the Trumps’ beloved crypto showpiece, the WLFI token, has fallen, dragging down its corporate backer. Its accumulator, Alt5 Sigma Corp., has seen its share price drop by more than half since Sept. 2, when WLFI became tradable on centralized exchanges.
Nakamoto Holdings, Strategy, BitMine, Metaplanet and Alt5 didn’t respond to requests for comment.
All told, a slew of financiers from hedge-fund managers to political insiders have hitched their wagons to crypto treasury firms. The list also features Anthony Scaramucci, founder of investment firm SkyBridge Capital, and former US Commerce Secretary Wilbur Ross.
“We just witnessed the genesis of a whole new industry. Naturally when that happens there’s a lot of whitespace and a surplus of entrepreneurs and teams that want to tackle that whitespace,” said Cosmo Jiang, general partner at Pantera Capital. “As with any industry, there will only be so many winners and the vast majority will be relatively unremarkable outcomes.”
Still, the DAT launches keep coming — and continue to drag high-profile players into their orbit. October brought news of fresh efforts to raise hundreds of millions of dollars for vehicles focused on the Canton Network’s tokens and BNB, a token with ties to Binance Holdings Ltd. In the spotlight for those deals were heavy-hitters such as Bao Fan, former chairman of China Renaissance Holdings Ltd., and Don Wilson, founder of trading powerhouse DRW Holdings.
The model isn’t necessarily dead. If token prices rally, treasury firms could regain their appeal as high-beta proxies for crypto exposure. Add in renewed retail appetite, debt markets willing to finance token accumulation, and a few headline-grabbing wins, and the confidence loop could reboot just as fast as it broke.
Investors haven’t entirely lost hope, either. Leon Foong, managing partner at Mythos Venture Partners, said that while the market has clearly become saturated, he remains “bullish on backing local DAT champions in their respective capital markets.”
By Suvashree Ghosh and Alice French
With assistance from Olga Kharif and Dave Liedtka
