Businesses Are Bingeing on Crypto, Dialing Up the Market's Risks — WSJ

By Vicky Ge Huang

Buying bitcoin is becoming a fad for a growing list of companies that have nothing to do with crypto but believe digital assets can boost their stocks.

The problem, some industry insiders say: This could expose crypto to new risks, amplifying selloffs in moments of turbulence.

The approach has been pioneered by executives such as bitcoin evangelist Michael Saylor, who has turned his software company Strategy into a warehouse for the digital currency. Other companies are following suit.

About 60 companies with no previous ties to the market are now pursuing the "bitcoin treasury strategy," according to Standard Chartered Bank, citing data from BitcoinTreasuries.net. They make software, and offer marketing and healthcare services. Some aren't just buying bitcoin, but are piling into smaller tokens such as ether, solana and XRP.

Some industry players argue these companies are courting disaster. For one, they say, digital assets have a history of volatility. If the price of bitcoin or another crypto token were to fall sharply, the selloff might also pull down the value of a company's stock. More troubling, though, is that a steep decline might also compel companies to sell their tokens — accelerating the selloff — especially if they borrowed heavily to acquire their crypto in the first place. For students of financial history, it is a familiar refrain.

"We haven't seen this type of capital activity in any crypto-related strategy within this short amount of time potentially in the history of our industry," said Elliot Chun, a partner at advisory firm Architect Partners. "We just have to be careful because it is great on the way up, but when it is on the way down, it's going to be violent."

These purchases (or, for many, the mere announcement of these plans) often send the companies' share prices flying. At least half a dozen companies laid out their crypto treasury plans last week alone. And with bitcoin trading near its record high and President Trump's emergence as one of the crypto industry's staunchest supporters, the numbers should continue to grow, bankers and analysts say.

All of this newfound interest in loading up on crypto has Wall Street's attention, with bankers now racing to help finance companies' purchases of tokens.

On June 2, a sports-betting marketing company called SharpLink Gaming said it had closed a $425 million private placement led by blockchain company Consensys Software, to become the largest public corporate holder of ether. The announcement, however, sent shares of Nasdaq-listed SharpLink, which is based in Minneapolis, down 28%.

The next day, a Canadian renewable-energy company called SolarBank fared better. Its stock closed up more than 1% after announcing its bitcoin treasury strategy. Then, on Wednesday, shares of K-pop media firm K Wave Media surged more than 130% after the company revealed plans to sell up to $500 million worth of stock to acquire bitcoin.

Last week's announcements bring the total capital intended for the crypto treasury strategy to about $11.3 billion since the start of April, according to data from Architect Partners. That includes the plans by President Trump's media company to raise $2.5 billion from investors to buy bitcoin and the debut of Twenty One Capital — a bitcoin-accumulation company backed by Tether and SoftBank.

Trump Media and Technology Group, the social-media firm controlled by the president's family, said last week it sold more than $1.4 billion worth of shares and $1 billion of zero-coupon convertible debt to finance its bitcoin purchases in what it called the "one of the largest bitcoin-treasury deals for any public company." The company also filed a registration statement with regulators, which would allow it to issue up to $12 billion of stock, debt and other securities.

World Liberty Financial, the Trump family-backed crypto venture, also revealed plans on Friday to buy "a substantial position" in the president's memecoin for the company's "long-term treasury," according to the president's son Eric Trump.

Their timing matters. The recently converted are likely to buy bitcoin and other tokens at much higher prices than earlier adopters such as Strategy. For instance, if bitcoin were to fall below $90,000 (just 15% below its current price of $106,000), the crypto holdings of some 30 public companies would be underwater, according to Geoff Kendrick, global head of digital assets research at Standard Chartered Bank.

Companies adopting a crypto treasury strategy solely to boost share prices face even greater peril. Many stock investors are seeking quick gains and are likely to flee if prices plunge after a macroeconomic event, or if cybercriminals strike, said Architect Partners' Chun.

"The moment things start getting ugly, they don't have an incentive to stay," he said.

Still, some analysts contend that not all crypto treasury companies are the same. Enterprises led by prominent industry figures are better positioned to withstand a downturn than businesses merely trying to ride bitcoin's momentum, according to Brett Knoblauch, head of digital asset research at Cantor Fitzgerald.

He pointed to Strategy's Saylor and Twenty One Capital's Jack Mallers as the type of personalities that could continue to drive interest into their bitcoin treasury companies.

"With interest comes trading volume, with trading volume comes the ability to raise money, with the ability to raise money comes the ability to buy more bitcoin, that is the flywheel," said Knoblauch. "There's a lot of zombie companies that might be buying bitcoin and trying to do the same thing, but it is going to be tough without the flywheel."