Crypto Treasury Trend Shows Signs of Collapse as Companies Pivot to Share Buybacks

The Rise and Fall of Corporate Cryptocurrency Strategies

In a dramatic shift that signals potential trouble for the “crypto treasury” business model, companies that recently pivoted to holding digital currencies are now borrowing money to repurchase their own shares. This reversal, occurring just months after many businesses from online gaming firms to golf cart manufacturers enthusiastically embraced cryptocurrency investments, suggests the strategy may be unraveling as stock prices fall below the value of their digital asset holdings.

The trend has caught the attention of market analysts who see these buybacks as a desperate attempt to shore up declining stock prices. “It’s probably the death rattle for a few of these companies,” observed Adam Morgan McCarthy, senior research analyst at cryptocurrency data firm Kaiko. The situation has created a peculiar market dynamic where at least five companies now trade at market capitalizations below the value of their cryptocurrency reserves, making them potential acquisition targets for investors seeking discounted access to digital assets.

This vulnerability was highlighted Monday when Vivek Ramaswamy’s Strive Asset Management acquired Semler Scientific, a healthcare technology company that had transitioned to bitcoin accumulation. The acquisition underscores how quickly these crypto-focused businesses can become takeover targets when their market valuations fail to reflect their digital holdings. This development comes after dozens of companies rushed earlier this year to raise capital through debt or equity offerings specifically to purchase cryptocurrencies like Bitcoin, Ether, and Solana – sometimes with endorsements from high-profile figures including members of the Trump family.

The Crypto Treasury Model Under Pressure

The inspiration for this business approach traces back to Michael Saylor’s MicroStrategy, which began acquiring bitcoin in 2020 and subsequently saw its market value soar beyond $100 billion this year. This spectacular growth prompted numerous imitators, despite fundamental differences in their business prospects. Unlike MicroStrategy, which maintained its core software operations, many of the new crypto treasury companies are either unprofitable enterprises or essentially shell companies with little substantive business activity beyond cryptocurrency speculation.

Take ETHZilla, formerly known as 180 Life Sciences, which rebranded last month to focus on accumulating ether tokens. Since reaching its peak in August, the company’s stock has plummeted 76 percent, creating the unusual situation where its market capitalization of $416 million sits below the approximately $460 million value of its ether holdings. In response to this disparity, ETHZilla recently secured an $80 million loan from Cumberland DRW, using its ether as collateral, to fund part of a planned $250 million share repurchase program.

ETHZilla CEO McAndrew Rudisill defended the buyback strategy, stating: “We continue to view repurchasing shares as opportunistic and an accretive use of capital.” However, industry experts see these moves as evidence that the crypto treasury model may be fundamentally flawed. “It’s only been six months and we’re already talking about their demise,” noted Elliot Chun, partner at cryptocurrency advisory firm Architect Partners. “A very small percentage are going to succeed.”

When Business Models Collide: Buybacks versus Crypto Accumulation

The contradiction between the original crypto treasury strategy and current buyback activities reveals a fundamental tension in these companies’ business models. While share repurchases are a common practice among public companies that believe their stock is undervalued – particularly among real estate investment trusts trading below their net asset value – the premise of crypto treasury companies was that their stock would appreciate faster than their digital asset holdings.

For companies now implementing buyback programs, this core assumption no longer holds true. The decision to use borrowed funds to repurchase shares rather than acquire additional digital assets represents a significant departure from their stated business focus. Chun emphasized this contradiction, pointing out that diverting capital to share buybacks instead of cryptocurrency acquisition undermines the entire rationale behind the crypto treasury strategy.

This circular financial engineering has raised red flags among market observers. McCarthy characterized the buyback operations as attempts to “buy time, sustain things, tide things over until they can capitalize on that next wave of crypto prices rising.” His assessment of these companies’ prospects was blunt: “A lot of these companies are like a house of cards and are going to collapse very quickly.”

The Broader Implications for Digital Asset Investment

The apparent unraveling of the crypto treasury trend carries significant implications for how public markets value digital asset exposure. While companies like MicroStrategy succeeded in creating a premium valuation relative to their bitcoin holdings, later entrants have struggled to replicate this success. The current wave of buybacks indicates investors may be less willing to pay a premium for indirect cryptocurrency exposure through public equities than crypto enthusiasts had hoped.

Seven companies have announced share repurchase programs in recent weeks, with five of them currently trading below the value of their cryptocurrency reserves. This persistent discount suggests that investors remain skeptical about the sustainability of business models centered primarily on cryptocurrency speculation. The situation creates a paradox where companies claim their shares are undervalued while simultaneously acknowledging that their core strategy of cryptocurrency accumulation has failed to generate the expected premium valuations.

Industry analysts point to several factors contributing to this skepticism, including concerns about corporate governance, questions about management’s cryptocurrency expertise, and broader market fatigue with companies making abrupt strategic pivots to capitalize on digital asset enthusiasm. The limited operating history of many of these businesses in the cryptocurrency space further compounds investor uncertainty about their long-term viability as investment vehicles for digital asset exposure.

What Lies Ahead for Crypto Treasury Companies

The future for companies that reoriented their business around cryptocurrency holdings appears increasingly uncertain. The current wave of buybacks funded by borrowed money suggests a recognition that the market is not valuing these enterprises as cryptocurrency proxies in the way their executives had anticipated. This realization may force a reassessment of the entire crypto treasury concept as a viable business strategy for public companies.

For investors who bought into these companies at higher valuations, the path forward looks challenging. As McCarthy observed, many of these businesses lack substantive operations beyond their cryptocurrency holdings, making them particularly vulnerable to market sentiment shifts or regulatory changes affecting digital assets. The acquisition of Semler Scientific by Strive Asset Management may represent the beginning of a consolidation phase where undervalued crypto treasury companies become acquisition targets.

The crypto treasury experiment, while not entirely concluded, appears to be entering a critical phase that will test the resilience of its business model. Companies that can develop meaningful operational capabilities beyond cryptocurrency accumulation may survive, while those relying solely on digital asset appreciation may find themselves increasingly vulnerable to takeovers or market devaluation. As this story continues to unfold, it serves as a cautionary tale about the risks of building business strategies around speculative asset accumulation rather than productive economic activity – a lesson that investors and corporate executives alike may soon be forced to confront.