Innovation in US Cryptocurrency Reserves: Wall Street’s New Strategy

For the first 15 years after the advent of cryptocurrencies, US institutional investors could only watch helplessly as the market wobbled through wild swings of boom and bust. Strict regulatory scrutiny and technical barriers prevented these institutions from venturing into the market and capturing its potential upside, forcing them to remain ruthlessly locked out. Our previous analyses, "How the CLARITY and GENIUS Acts Will Reshape American AI" and "The American DePIN Revolution," have explained how pro-cryptocurrency legislation paved the way for institutional capital to enter the market. Now, we'll focus on the latest developments in US crypto asset reserves and the central role that cryptocurrency exchange-traded funds (ETFs) play in Wall Street's financial landscape. In this article, we'll first explore exchange-traded funds (ETFs) and the crucial role they play. We'll then delve into the value and significance of crypto asset management and explore why Wall Street is so enthusiastic about using them. We will then analyze real-world examples from several companies currently involved in crypto fund management to gain a detailed understanding of industry practices. Finally, we will summarize and provide an outlook on the future of institutional asset management. What are ETFs, and how do they provide investment channels for institutional investors? Exchange-traded funds (ETFs) are securities investment vehicles that enable investors to access underlying assets that would otherwise be difficult to access. Unlike mutual funds, ETFs can be traded directly on stock exchanges, making them an ideal choice for institutional investors seeking public market investment opportunities. However, gaining access to crypto ETFs hasn't been easy for institutional investors. As early as 2013, the Winklevoss twins were the first to submit an application for a Bitcoin ETF. However, due to the immaturity of the market at the time and strict oversight from the U.S. Securities and Exchange Commission (SEC), particularly during Gary Gensler's tenure as chairman, the first Bitcoin ETFs weren't successfully launched until a decade later. Until Bitcoin ETFs are approved in 2024, publicly traded companies can still list cryptocurrencies on their balance sheets through institutional-grade custodians like Coinbase and Fidelity. However, due to the lack of a clear regulatory framework, these companies still face potential unnecessary legal and regulatory scrutiny from regulators, creating constant uncertainty. Given companies' fiduciary responsibilities to their stakeholders, this risk clearly outweighs the potential rewards. With the approval of a Bitcoin ETF in 2024, Wall Street finally gained a tool that allows institutional investors to smoothly enter the crypto market and public companies to confidently add Bitcoin to their balance sheets without worrying about potential negative consequences. The first company to experiment with a crypto reserve strategy was Michael Saylor's Microstrategy (later renamed Strategy). Strategy's innovative strategy involved borrowing against the stock price of its parent company (the underlying company) and then using the borrowed funds to purchase Bitcoin. As Bitcoin's price continued to rise, the value of the parent company's stock also increased. The higher the stock price, the more funds Strategy could borrow, allowing it to purchase more Bitcoin. This cycle continues, creating a virtuous cycle. Over time, Strategy has demonstrated strong resilience to market declines. This is due to their consistent, regular purchases of Bitcoin at lower prices, a practice similar to dollar-cost averaging, but implemented only at the institutional level. Since adopting the Bitcoin asset reserve strategy, Strategy's stock price has soared. On August 11, 2020, when the company first purchased Bitcoin, the stock price was only $13.49. Today, its share price has risen to $328.53, an increase of over 2,335%. Many companies have followed Michael Saylor's lead and adopted a Bitcoin reserve fund strategy, achieving significant success. With the launch of other cryptocurrency ETFs and exchange-traded products (ETPs), and with government regulation increasingly supportive of cryptocurrencies, companies are turning their attention to a wider range of cryptocurrencies, intending to adopt similar strategies. Recently, US President Trump's media and technology group announced the acquisition of $6.4 billion worth of Crypto.com's native CRO token (approximately 20% of its circulating supply) to build a strategic reserve fund. After the news broke, the price of CRO doubled within 48 hours.

Other blue-chip crypto asset reserves

In July 2024, the U.S. Securities and Exchange Commission (SEC) approved nine spot Ethereum ETF products for listing and trading on Nasdaq, NYSE Arca, and the Chicago Board Options Exchange (Cboe), further relaxing relevant restrictions and providing additional access to reserve funds for companies seeking more diversified crypto strategies. SharpLink Gaming has implemented one of the largest cryptocurrency fund management strategies in public market history. The company announced the completion of a $425 million private placement led by Consensys Software Inc. and other investors, which will fund SharpLink's large-scale Ethereum reserve strategy. Compared to Bitcoin reserve strategies, Ethereum reserve strategies offer a unique advantage: purchased Ethereum can be staked, re-staked, or loaned out to generate additional returns. While rising Ethereum prices will also drive the company's stock price upward over time, the additional Ethereum acquired through staking will further accelerate the growth of reserve funds.

The Future of Institutional Asset Reserves

In 2020, Microstrategy initially viewed cryptocurrency as a fringe investment strategy, but now, this strategy has quickly evolved into a fierce competition among US companies to use corporate funds to invest in the crypto industry.

As a result, we are witnessing a wave of US listed companies applying crypto fund management strategies to various tokens. This trend not only generates sustained institutional demand for US crypto protocols but also allows traditional investors to access regulated cryptocurrency investment channels through established financial markets. All of this fully demonstrates the powerful persuasiveness of the "Made in America" ​​cryptocurrency thesis.

Wall Street's acceptance of cryptocurrencies has created unprecedented opportunities for retail investors who hope to gain returns through indirect investment in the cryptocurrency industry. These investors no longer need to understand the technical difficulties that once hindered their entry. Now, they can participate in cryptocurrency investment through ETF products, purchase stocks of companies that hold cryptocurrencies as reserves, or, when the time is right, include these companies in larger index funds.