The Funding: Why VCs are backing bitcoin and altcoin treasury companies

Strategy (formerly MicroStrategy) copycats are on the rise, and venture capital is backing the trend. These are firms set up to hold bitcoin, ether, Solana, XRP, or other crypto on their balance sheets, in addition to — or, sometimes, in place of — their original business models. Some investors see room to outperform the assets themselves. Others warn the model could fall apart if markets turn.

Markets are rewarding these companies for now, and that's fueling the surge. While Strategy has followed this playbook since 2020, a fresh wave of firms has emerged this year. Many now trade above the value of their crypto holdings, creating a premium that investors are chasing.

Strategy and Metaplanet, for instance, are trading at sharp premiums to their crypto reserves. Strategy trades at 1.69 times the value of its bitcoin holdings; Metaplanet trades at 4.24 times. These are known as MNAV multiples — short for market cap divided by net asset value (NAV), or the total worth of the crypto they hold. VCs and analysts I spoke to say that premium is now the core pitch. The higher a firm trades above NAV, the easier it is to raise capital and buy more crypto, creating a self-reinforcing loop.

"The treasury strategies are inherently reflexive," said Ravi Kaza, partner and CIO at Arrington Capital. "The higher their MNAV valuation sustains at levels far greater than 1, the more accretion ('BTC yield' as Strategy calls it) they generate when they raise capital to buy the specific treasury asset." Arrington has already backed four such crypto treasury companies this year: SharpLink Gaming (ETH), Nakamoto/KindlyMD (BTC), DeFi Development Corp (SOL) (formerly Janover), and Matador Technologies (BTC).

Premiums like these are keeping both founders and investors engaged. "For now, investors and issuers alike believe that these companies are relatively risk-free investments — until that stops, they will continue to pop up and get funded," said Rob Hadick, general partner at Dragonfly.

Why markets are assigning a premium

These companies are trading above the value of their crypto because the model lets them grow faster. Investors see a way to get more than just direct exposure.

Cosmo Jiang, general partner at Pantera Capital, said it had historically been hard for him to understand why the Strategy premium persisted, but the thesis became clearer over time as he saw a fundamental case for investing in crypto treasury companies.

That fundamental bull case is that it is possible to own more bitcoin per share over time through a company like Strategy than by buying spot. If an investor buys Strategy at 2x NAV, they're effectively getting 0.5 BTC. But if Strategy raises capital and grows bitcoin per share by 50% annually (it grew 74% last year), by year two, that stake could be worth 1.1 BTC — more than buying and holding 1 bitcoin directly, Jiang said.

"With that conviction, I started to look for asymmetric opportunities to capitalize on the digital asset treasury trend to generate outsized returns for our limited partners," he said. Pantera has invested in three such companies: Bitcoin-focused Twenty One Capital, Solana-focused DeFi Development Corp, and Ethereum-focused SharpLink Gaming.

Some of the premium also comes from access. Institutional funds that can't hold crypto directly are turning to these public equities as a proxy. "It's extremely similar to the GBTC [Grayscale Bitcoin Trust] trades that we saw years ago and which eventually blew up some funds — except in a much more liquid manner and with more retail exposure," said Hadick of Dragonfly.

From bitcoin to altcoin treasuries

Bitcoin was the original play, but newer treasury companies are adding ether, Solana, XRP, and other crypto assets to their balance sheets. The shift is driven by factors including access, new ways to earn, and more volatility.

Since there are no Solana or XRP exchange-traded funds, investors who are unable to buy these assets directly are using altcoin treasury companies for exposure, said Hadick.

Altcoins also offer new ways to earn. "Altcoin treasuries can generate compounding returns in ways bitcoin can't," said Quynh Ho, head of venture investment at GSR, citing staking, locked-token discounts, and DeFi yield strategies. But she added: "The underlying token must have sufficient liquidity and market cap to support a scalable and responsible public company treasury strategy." GSR has invested in SharpLink Gaming and Solana-focused Upexi. "We're currently working with a couple of others," Ho said.

Altcoins are also more volatile than Bitcoin, and that's a feature, as greater price swings can make it cheaper for these companies to raise funds. "The convertible debt markets pay more for higher realized volatility and thus effectively lower the cost of capital for these strategies," said Kaza of Arrington Capital.

While many VCs are backing these companies to capture the premium, not everyone is convinced. Thomas Klocanas, managing partner at Strobe Ventures (formerly of BlockTower), and Hadick of Dragonfly both said they haven't and aren't planning to invest in crypto treasury companies, as they view these as trades rather than long-term, fundamentals-driven venture bets. "These do not fit within our investment thesis and, in most cases, I believe are simply a speculative trade on the sustainability of the premium continuing to exist for long enough for investors to trade out of them," Hadick said.

Risks and challenges

These companies look like big winners when markets are up, but cracks may show in a downturn. Most VCs agree that only a handful of these companies will endure.

One of the biggest concerns is leverage. Several companies use convertible debt or other forms of financing to buy crypto, which can backfire if token prices fall. "In the cases of convertibles, [they] will massively dilute shareholders in any case where there has to be forced liquidations," said Hadick. In a sharp correction, companies may be forced to sell assets, triggering a downward spiral in both token prices and stock prices.

The risk isn't just market-related — it's structural. If a crypto treasury company trades below the value of its holdings (NAV), confidence can erode fast. That could dry up capital, push the stock further down, and unravel the whole model. "That could cause issues and potentially a death spiral," said Jed Breed, founder and general partner of Breed VC. "To pay convertible debt, companies will need to sell their underlying treasury crypto assets, which causes the price to go down."

Still, some believe strong teams and disciplined execution can withstand a downturn. "The key to surviving a prolonged market downturn is betting on management teams that have a plan for the inevitable next crypto bear market," said Kaza. That includes raising capital on accretive terms, avoiding mark-to-market debt, and preparing for stress scenarios while times are still good.

Upexi, for example, has "minimal debt and a pristine capital structure" and is "well positioned to weather any market environment," said the firm's chief strategy officer, Brian Rudick, who joined Upexi last month from GSR.

But some warn that the entire trend is showing signs of overcrowding and hype. "We hope not to see any blowups," said Klocanas of Strobe Ventures. But when a trade at a premium becomes too crowded, we have to acknowledge the risks. Too much leverage, poorer-quality assets where there is insufficient institutional demand, overmarketing… It's easy to see these things go wrong and be this cycle's Luna or GBTC."

Hadick reiterated that the crypto treasury boom mirrors past manias: "This will die a relatively quick death."

"There will be another crypto bear market, whether it starts tomorrow or in five years," said financial analyst Charles Archer. "I expect it will be similar to the dot-com bubble burst, where most companies fail and the survivors go on to enjoy significant success."

Most agree that while more companies will try this strategy, only a few tokens — and even fewer teams — will emerge as long-term winners. 

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