Source: Galaxy Research
Compiled by: BitpushNews
Crypto Treasury Trends
The trend of publicly listed companies establishing crypto currency Treasury is expanding from Bitcoin to more crypto tokens, with the scale of allocation continuously growing.
In just the past week, two publicly listed companies announced they will purchase XRP as their Treasury holdings, and another company stated they are buying ETH as reserves.
Bitcoin Treasury companies have been headline news for most of this year, with Strategy (formerly Microstrategy) leading the way. VivoPower and Nasdaq-listed Webus announced intentions to launch XRP Treasuries of $100 million and $300 million respectively, while SharpLink announced establishing a $425 million ETH Treasury.
Including these companies, Galaxy Research has compiled a list of 28 crypto currency Treasury companies:
20 focused on BTC, 4 focused on SOL, 2 focused on ETH, 2 focused on XRP.
Crypto Currency Treasury Company Overview
Our Perspective
Given the momentum of existing companies, and the market's apparent strong interest in funding these companies at a significant scale and with multiple assets, the trend of crypto currency Treasuries is expected to continue developing.
However, as more crypto currency Treasury companies come online, skepticism continues to rise.
The primary concern is the source of funding for partial purchases: debt.
Some companies rely on borrowed funds, mainly zero-interest and low-interest convertible notes, to purchase Treasury assets.
At maturity, these notes can be converted into company equity by investors, provided the notes are "in the money" (when the company's stock price exceeds the conversion price, making equity conversion economically advantageous). However, if the maturity date arrives and the notes are "out of the money", additional funds will be needed to cover the liability - the root of concerns about Treasury company strategies.
Additionally, though less mentioned, there is a risk that these companies may lack sufficient cash to pay their debt interest.
Regardless of the scenario, Treasury companies have four main options. They can:
- Sell their crypto currency reserves to supplement cash, which could potentially harm asset prices and impact other Treasury companies holding the same assets.
- Issue new debt to cover old liabilities, effectively refinancing debt.
- Issue new stocks to cover liabilities, which is similar to how they are currently funding Treasury asset purchases through equity financing.
If their crypto currency reserves' value does not fully cover liabilities, they will enter default.
In the worst-case scenario, each company's path will depend on the specific circumstances and market conditions at the time; for example, Treasury companies can only refinance when market conditions permit.
Contrary to Treasury fund sources is equity sales, where Treasury companies issue stocks to fund asset purchases. Equity sales used to supplement asset purchases are less concerning from a broader perspective, as in this method, the company has no default obligation and does not incur liabilities for asset purchases.
In our recent report on the crypto leverage landscape, we examined the scale and maturity timeline of debt issued by some Bitcoin Treasury companies.
Based on our findings, we believe that there is not an imminent threat as widely perceived by the market, because most debt matures between June 2027 and September 2028 (as shown in the chart below).
The chart above tallies the debt issued by Bitcoin Treasury companies to purchase Bitcoin, listing the earliest dates these debts might be required to be repaid (maturity/redemption/exercise dates), along with their corresponding nominal debt amounts.
Considering the industry's past history with leverage, concerns about Treasury companies' debt-driven strategies are not unreasonable, but currently, we believe this approach poses no significant risks.
However, as debt matures and more companies adopt this strategy, potentially taking higher-risk approaches and issuing shorter-term debt, this situation may not remain unchanged.
Even in the worst-case scenario, these companies will have a range of traditional financial options to navigate out of difficulties, which may not necessarily end with selling Treasury assets.
– Galaxy On-chain Analyst @ZackPokorny_
