More than just BTC: The battle for crypto treasury begins, 28 listed companies have entered the market

Source: Galaxy Research; Compiled by: BitpushNews

Crypto Treasury Trend

The trend of listed companies setting up cryptocurrency treasuries is expanding from Bitcoin to more crypto tokens, and the scale of configuration is also continuing to expand.

In the past week alone, two listed companies announced that they would purchase XRP as their treasury holdings, and another company said it was purchasing ETH as a reserve.

Bitcoin treasury companies have been in the headlines for most of this year, with Strategy (formerly Microstrategy) leading the way. VivoPower and Nasdaq-listed Webus announced their intention to launch XRP treasuries of $100 million and $300 million, respectively, while SharpLink announced the establishment of a $425 million ETH treasury.

Including these companies, Galaxy Research has compiled 28 cryptocurrency treasury companies:

20 focus on BTC, 4 focus on SOL, 2 focus on ETH, and 2 focus on XRP.

Overview of Cryptocurrency Treasury Companies

Our View

Given the momentum of existing companies, and the market's seemingly strong appetite to fund these companies at a sizable scale and across multiple assets, the trend toward cryptocurrency treasuries is expected to continue.

However, as more and more cryptocurrency treasury companies come online, skepticism continues to grow.

The main concern is the source of funding for some of the purchases: debt.

Some companies rely on borrowed funds, mainly zero- and low-interest convertible notes, to purchase treasury assets.

At maturity, these notes can be converted into company equity at the investor's discretion, provided that the notes are "in the money" (that is, when the company's stock price exceeds the conversion price, making conversion equity economically favorable). However, if the maturity date arrives and the notes are "out of the money", additional funds will be needed to cover the liabilities - this is the root of the concern about the treasury company's strategy.

Also, although less often mentioned, there is the risk that these companies may lack sufficient cash to pay the interest on their debt.

Whether or not, treasury companies have four main options. They can:

• Sell their cryptocurrency reserves to replenish cash, which could hurt asset prices, a move that could affect other treasury companies holding the same assets.

• Issue new debt to cover old liabilities, effectively refinancing debt.

• Issue new equity to cover liabilities, similar in nature to how they currently fund treasury asset purchases through equity financing.

• Enter default if the value of their cryptocurrency reserves does not fully cover liabilities.

Under the worst-case scenario, the path each company will take will depend on the specific circumstances and market conditions at the time; for example, a treasury company can only refinance when market conditions allow.

The opposite of a treasury funding source is an equity sale, where a treasury company issues shares to fund asset purchases. Equity sales used to supplement asset purchases are less worrisome in the grand scheme of things, as under this approach, the company has no default obligations and does not incur liabilities for asset purchases.

In our recent report on the crypto leverage landscape, we looked at the size and maturity schedule of debt issued by some Bitcoin treasury companies.

Based on our findings, we believe that there is not as imminent a threat as the market generally believes, as most of the debt matures between June 2027 and September 2028 (as shown in the chart below).

The above chart counts the debt issued by Bitcoin Treasury to purchase Bitcoin, and lists the earliest date (maturity/redemption/exercise date) when these debts may be required to be repaid, as well as the corresponding nominal amount of debt.

Given the industry's past history with leverage, concerns about Treasury companies' debt-driven strategies are not unreasonable, but at present, we believe that this approach has no significant risks.

However, as debt matures and more companies adopt this strategy, they may take a higher risk approach and issue debt with shorter maturities, which may not remain the same.

Even in the worst case, these companies will have a range of traditional financial options to get out of trouble, which may not end with the sale of treasury assets.

– Galaxy Chain Analyst @ZackPokorny_