Expansion of Cryptocurrency Treasury Holdings Among Public Companies

According to PANews, the trend of public companies establishing cryptocurrency treasuries is expanding beyond Bitcoin to include a wider range of digital tokens, with the scale of allocations continuing to grow. Recently, two publicly listed companies announced plans to acquire XRP for their treasury holdings, while another company is purchasing ETH as a reserve. Throughout the year, Bitcoin treasury companies have frequently made headlines, with Strategy (formerly Microstrategy) leading the charge. VivoPower and Nasdaq-listed Webus have declared intentions to initiate $100 million and $300 million XRP treasuries, respectively, while SharpLink is establishing a $425 million ETH treasury. Galaxy Research has identified 28 cryptocurrency treasury companies, including 20 focused on BTC, 4 on SOL, 2 on ETH, and 2 on XRP. Despite the momentum and market interest in funding these companies with substantial assets, skepticism persists, particularly regarding the source of funds for some purchases: debt. Several companies rely on borrowed funds, primarily zero-interest and low-interest convertible notes, to acquire treasury assets. These notes can be converted into company equity by investors if they are 'in-the-money' at maturity, meaning the company's stock price exceeds the conversion price. However, if the notes are 'out-of-the-money' at maturity, additional funds are needed to cover liabilities, raising concerns about treasury company strategies. Moreover, there is a risk that these companies may lack sufficient cash to pay interest on their debts. Treasury companies have four main options: selling cryptocurrency reserves to raise cash, issuing new debt to refinance old liabilities, issuing new shares to cover liabilities, or defaulting if reserves do not fully cover liabilities. In the worst-case scenario, the path each company takes will depend on specific circumstances and market conditions, such as the feasibility of refinancing. Unlike debt-driven strategies, equity sales for asset purchases pose fewer concerns, as they do not create liabilities or default obligations. A recent report on the crypto leverage landscape examined the scale and maturity schedules of debts issued by Bitcoin treasury companies. Findings suggest that the perceived imminent threat is overstated, as most debts mature between June 2027 and September 2028. While concerns about debt-driven strategies are not unfounded given the industry's history with leverage, current methods appear to carry no significant risk. However, as debts mature and more companies adopt this strategy, higher-risk approaches may emerge, potentially involving shorter-term debt issuance. Even in adverse scenarios, companies have traditional financial options to navigate challenges without resorting to asset sales.