Bitcoin and altcoin treasury companies are witnessing a sudden influx of venture capital backing. In essence, these are organizations that hold cryptocurrencies like Bitcoin, Ether, Solana, and XRP on their balance sheets, often as a supplement to or even a replacement for their original business models. The trend is fueled by the belief that these firms could potentially outperform the assets themselves. However, skeptics argue that this model could unravel should the markets take a downturn.
The current market climate seems to favor these companies, encouraging their proliferation. Companies like Strategy and Metaplanet are trading at significant premiums compared to their cryptocurrency reserves. The ‘MNAV multiples’ – market cap divided by net asset value (NAV) – of these firms is a major selling point for VCs and analysts. This premium enables firms to raise capital more easily and acquire more cryptocurrency, creating a positive feedback loop.
Arrington Capital’s partner and CIO, Ravi Kaza, argues that these treasury strategies are inherently reflexive. The higher their MNAV valuation sustains, the more capital they can raise to purchase specific treasury assets. Arrington Capital has already backed four such crypto treasury companies this year including SharpLink Gaming (ETH), Nakamoto/KindlyMD (BTC), DeFi Development Corp (SOL), and Matador Technologies (BTC).
But not all investors are sold on this model. Thomas Klocanas, managing partner at Strobe Ventures, and Rob Hadick, general partner at Dragonfly, are avoiding crypto treasury companies. They see these as speculative trades rather than long-term, fundamentals-driven venture bets. This skepticism is further amplified by the potential risks and challenges these companies could face in a market downturn.
Many agree that while more companies will adopt this strategy, only a handful will prove to be long-term winners. The key to survival in a market downturn is betting on management teams that have a solid plan for the inevitable next crypto bear market. This includes raising capital on accretive terms, avoiding mark-to-market debt, and preparing for stress scenarios while times are good.
Despite warnings of overcrowding and hype, the crypto treasury trend continues to draw interest. But as with any investment, the risks must be acknowledged. Excessive leverage, poorer-quality assets with insufficient institutional demand, and overmarketing could lead to potential pitfalls, making it vital for investors to tread cautiously.
