Strategy has enjoyed a booming stock since it began its Bitcoin plan.More companies are following the same path.But how early investors make money is causing alarm bells to ring.<\/p>\n
Bitcoin treasuries are having a moment, but the buzz is hiding how insiders are quietly cashing in while retail investors foot the bill, according to some market stakeholders.<\/p>\n
Rob Hadick, general partner at crypto venture capital firm Dragonfly, reckons that the sudden wave of companies launching corporate Bitcoin vehicles is a sign of trouble, not triumph.<\/p>\n
\u201cThe crypto treasury trend is complicated,\u201d Hadick said<\/a> in a July 21 interview with Coinage Media. \u201cI got six calls about new treasury vehicles over the weekend. That tells you the froth.\u201d<\/p>\n And it\u2019s precisely that fervour that\u2019s creating distorted incentives, he argued.<\/p>\n Bitcoin treasury companies have just one overarching business model and it\u2019s to raise money, buy Bitcoin, and hope the stock trades at a premium.<\/p>\n It\u2019s a playbook popularised by Michael Saylor. The stock of his software company<\/a>, Strategy, has soared more than tenfold since it began swapping cash for crypto at the end of 2020. <\/p>\n That success has triggered crypto\u2019s latest gold rush \u2014 drawing in everyone from hotel chains<\/a> to US President Donald Trump\u2019s Trump Media<\/a> to stock up on Bitcoin. <\/p>\n More than 150 public companies now hold<\/a> Bitcoin on their balance sheets, with 24 new firms joining the trend in the past 30 days. <\/p>\n Buying a dollar for $1.20<\/p>\n It\u2019s not just the volume of deals \u2014 it\u2019s also how they\u2019re structured.<\/p>\n Many of these vehicles include \u201cpromotes,\u201d the cut taken by asset managers or early investors before any gains reach shareholders, Hadick said.<\/p>\n \u201cTraditionally, a promote is 10%,\u201d he said. \u201cI\u2019ve seen some now where they\u2019re up to 20% or more. That\u2019s dilution \u2014 you\u2019re paying $1.20 for $1 of Bitcoin.\u201d<\/p>\n Even if Bitcoin performs well, investors could still lag because a sizable chunk of the upside is carved out for insiders. <\/p>\n A high promote rewards hype and fundraising over long term value creation, because it lets insiders lock in upside before the asset even performs. The more capital they raise, and the more buzz they generate, the more they earn, regardless of whether the Bitcoin bet actually pays off. <\/p>\n Hadick isn\u2019t a fan of the model.<\/p>\n \u201cSome of them look like they\u2019re just meant to extract value,\u201d he said.<\/p>\n Unsustainable valuations<\/p>\n He\u2019s not the only one concerned. <\/p>\n Eliezer Ndinga, head of research at 21.co, says that while Bitcoin treasuries are becoming more common, the quality varies widely.<\/p>\n \u201cSome of these companies lack products or a vision to support the broader Bitcoin network,\u201d he told DL News on July 17. <\/p>\n \u201cThose firms risk unsustainable valuations and won\u2019t trade at significant premiums in the future.\u201d<\/p>\n \u2018Me too\u2019 <\/p>\n Famed short seller Jim Chanos, who called Enron\u2019s collapse in 2001, recently said<\/a> the crypto market is reliving the 2021 SPAC boom \u2014 only this time, it\u2019s Bitcoin on the balance sheet instead of blank-check mergers.<\/p>\n \u201cWe are seeing SPAC-like 2021 numbers in the Bitcoin treasury market right now,\u201d Chanos said on the Bitcoin Fundamentals podcast last week. \u201cHundreds and hundreds of millions of dollars a night.\u201d<\/p>\n