Original title: What are the potential pitfalls in the surge of crypto reserve companies?
More and more listed companies are starting to reserve cryptocurrencies.
They are no longer just buying BTC or ETH, but are following MicroStrategys example and building a complete set of replicable treasury models: through traditional financial instruments such as PIPE, SPAC, ATM, convertible bonds, etc., large-scale financing, building positions, and creating momentum, and then adding the new narrative of on-chain treasury to incorporate cryptocurrencies such as Bitcoin, Ethereum, and SOL into the companys core balance sheet.
This is not only a change in asset allocation strategy, but also a new type of financial engineering: a market experiment driven by capital, narrative and regulatory gaps. UTXO Management, Sora Ventures, Consensys, Galaxy, Pantera and other institutions have entered the market one after another, pushing several marginal listed companies to complete their transformation and become crypto reserve monster stocks in the US or Hong Kong stock markets.
But this seemingly innovative capital feast is also arousing the vigilance of old-school financial people. On July 18, Jim Chanos, a well-known Wall Street short seller, warned that todays Bitcoin Treasury fever is repeating the 2021 SPAC bubble - companies rely on issuing convertible bonds and preferred stocks to buy coins, but there is no actual business support. There are hundreds of millions of announcements every day, exactly the same as the madness of the year, he said.
This article sorts out the four key tools and representative cases behind this trend, trying to answer a question: When traditional financial instruments meet encrypted assets, how can a company evolve from buying coins to setting up a game? And how can retail investors identify risk signals in this capital game?
How do financing tools build a coin buying company?
PIPE: Institutions enter the market at a discount, while retail investors take over at high prices
PIPE (Private Investment in Public Equity) refers to a listed company issuing stocks or convertible bonds at a discount to specific institutional investors to achieve rapid financing. Compared with traditional public offerings, PIPE does not require a cumbersome review process and can complete capital injection in a short period of time. Therefore, it is often regarded as a strategic transfusion tool during periods of tight financing windows or market uncertainty.
In the trend of crypto treasuries, PIPE has been given another function: to create a signal of institutional entry, drive stock prices up rapidly, and provide market certification for project narratives. Many listed companies that were originally unrelated to cryptocurrencies introduced funds through PIPE, purchased large amounts of BTC, ETH or SOL, and quickly reshaped themselves into a new identity of strategic reserve companies. For example, SharpLink Gaming (SBET) saw its stock price soar more than tenfold in a short period of time after announcing the establishment of an ETH treasury with $425 million in PIPE financing.
But the impact of PIPE is far more than just a superficial benefit. In terms of structural design, PIPE investors usually have better entry prices, unlocking arrangements and liquidity channels. Once a company submits an S-3 registration statement, the relevant shares can be listed and circulated, and institutional investors can choose to cash out. Although S-3 is essentially just a technical operation and does not directly mean that a sell-off has occurred, in a highly emotional market, this action is often misinterpreted as institutions starting to cash out, triggering market panic.
SharpLinks experience is a typical case: On June 12, 2025, the company submitted an S-3 registration statement to allow PIPE shares to be listed for resale. Although Chairman and Ethereum co-founder Joseph Lubin publicly clarified that this is the standard PIPE follow-up process in tradfi and stated that he and Consensys did not sell any shares, market sentiment is difficult to recover. The stock price fell by 54.4% in the next five trading days, becoming a textbook interpretation of the structural risks of the PIPE model. Although the stock price rebounded later, the sharp fluctuations of surge and then plunge reflected the structural faults in the PIPE process.
In addition, BitMine Immersion Technologies (BMNR) also staged a surge and plunge script after announcing the PIPE structure. After announcing $2 billion in PIPE financing for the construction of the Ethereum treasury, the stock price soared and then collapsed, falling nearly 39% in a single day, becoming one of the four high-risk crypto treasury stocks mentioned in the Unchained report.
The fundamental risk of PIPE lies in information asymmetry and liquidity mismatch: institutional investors enter the market at a discount and enjoy a reserved exit mechanism; while ordinary investors often only enter the market with positive narratives such as successful financing and currency-based treasury, and passively bear risks before the lifting of the ban and selling pressure. In the traditional financial market, this first pull up, then harvest structure has long been controversial, and in the crypto field where supervision is still imperfect and speculation is more intense, this structural imbalance is further amplified, becoming another risk of the capital narrative driving the market.
SPAC: Put valuation in press releases, not financial reports
SPAC (Special Purpose Acquisition Company) was originally a tool used for backdoor listing in the traditional market: a group of promoters first set up a shell company, raised funds through IPO, and then found and acquired an unlisted company within a specified time, allowing the latter to bypass the regular IPO process and achieve quick listing.
In the crypto market, SPAC has been given a new purpose: to provide a financial container for strategic reserve companies, to securitize their digital asset treasuries such as Bitcoin and Ethereum, and to incorporate them into the exchange system, thereby achieving two-way convenience in financing and liquidity.
Such companies often do not have a clear business path, product model or revenue source. Their core strategy is to first purchase crypto assets through PIPE financing to build a currency-based balance sheet, and then use SPAC mergers to enter the public market and package an investment narrative of holding currency means growth for investors.
Typical representatives include Twenty One Capital, ProCap and ReserveOne. Most of these projects revolve around a simple model: raise funds to buy Bitcoin and put Bitcoin into a stock code. For example, Twenty One Capital holds more than 30,000 Bitcoins, merged with a SPAC backed by Cantor Fitzgerald, and raised $585 million through PIPE and convertible bond financing, part of which was used for on-chain yield strategies and Bitcoin financial product development. ProCap is supported by Pompliano and develops lending and staking businesses around Bitcoin treasury. ReserveOne is more diversified, holding assets such as BTC, ETH, SOL, and participating in institutional-level staking and over-the-counter lending.
In addition, such companies are usually not satisfied with hoarding coins for a rise. They often further issue convertible bonds and new shares to raise more funds to buy more Bitcoin, forming a structural leverage model similar to MicroStrategy. As long as the price of the currency rises, the companys valuation can be over-inflated.
The biggest advantage of the SPAC model is time and control. Compared with the 12-18 months required for a traditional IPO, a SPAC merger can theoretically be completed in 4-6 months, and the narrative space is more flexible. Founders can tell future stories, lead valuation negotiations, and retain more equity without disclosing existing revenue. Although in reality such crypto projects often face longer regulatory review cycles (such as Circles eventual abandonment of SPAC and IPO), the SPAC path is still popular, especially for currency-based companies that have not yet established revenue capabilities. It provides a shortcut to bypass products, users, and financial foundations.
More importantly, the listed company identity brought by SPAC has natural legitimacy in the perception of investors. Stock codes can be included in ETFs, traded by hedge funds, and listed on Robinhood. Even if the underlying is digital currency, the outer packaging conforms to the language system of traditional finance.
At the same time, such structures often carry strong signal value: once a large PIPE financing is announced, or cooperation is reached with a well-known financial institution, retail investor sentiment can be quickly activated. Twenty One Capital has attracted market attention precisely because it has the endorsement of Tether, Cantor, SoftBank and other parties, even though the companys actual operations have not yet begun.
However, SPAC brings not only convenience and halo, but also significant structural risks.
Business Idleness and Narrative Overdraft: Many SPAC-merged companies lack stable revenue, and their valuations are highly dependent on whether the Bitcoin Strategy can continue to attract attention. Once market sentiment reverses or regulation tightens, stock prices will quickly fall back.
Unequal institutional priority structure: Sponsors and PIPE investors usually enjoy privileges such as enhanced voting rights, early release, pricing advantages, etc., while ordinary investors are at a double disadvantage in terms of information and rights, and their equity is severely diluted.
Compliance operations and information disclosure challenges: After completing the merger and acquisition, the company must assume the obligations of a listed company, such as auditing, compliance, risk disclosure, etc. Especially in the context of incomplete digital asset accounting rules, financial reporting confusion and audit risks are very likely to occur.
Valuation bubble and redemption mechanism pressure: SPACs are often overvalued in the early stages of their listing due to narrative expectations, and if retail investors redeem on a large scale when sentiment reverses, it will lead to tight cash flow for the company, failure of expected financing, and even trigger the risk of secondary bankruptcy.
The more fundamental problem is that SPAC is a financial structure, not value creation. It is essentially a narrative container: it packages the vision of Bitcoins future, the signal of institutional endorsement, and the plan of capital leverage into a tradable stock code. When Bitcoin rises, it looks sexier than ETFs; but when the market reverses, its complex structure and fragile governance will be exposed more thoroughly.
Related reading: 2024 Crypto IPO Boom: SPAC Replaces Traditional Backdoor Listing, Bitcoin Companies Sprint Forward
ATM: Print money at any time, the more it falls, the more it will rise
ATM (At-the-Market Offering) was originally a flexible financing tool that allowed listed companies to sell stocks to the open market in stages and raise funds in real time based on market prices. In traditional capital markets, it is mostly used to hedge operational risks or supplement cash flow. In the crypto market, ATM has been given another function: to become a self-service financing channel for strategic reserve companies to increase their Bitcoin positions at any time and maintain liquidity.
The typical approach is: the company first builds a Bitcoin treasury narrative, then launches an ATM program, and continuously sells shares to the market in exchange for cash to purchase more Bitcoin without specifying pricing and time windows. It does not require the participation of specific investors like PIPE, nor does it need to disclose complex processes like IPOs, so it is more suitable for asset-addition companies with flexible pace and narrative-driven.
For example, LQWD Technologies, a Canadian listed company, announced the launch of an ATM program in July 2025, allowing it to sell up to 10 million Canadian dollars of common stock to the market from time to time. In the official statement, the ATM program enhances the companys Bitcoin reserve capacity and supports the expansion of its global lightning network infrastructure, clearly conveying its growth path with Bitcoin as its core asset. Another example is Bitcoin mining company BitFuFu, which signed an ATM agreement with several underwriting institutions in June, planning to raise up to US$150 million through this mechanism, and has officially filed it with the SEC. Its official documents point out that this will help companies raise funds based on market dynamics without setting financing windows or trigger conditions in advance.
Related reading: LQWD, a listed company, launches ATM plan to quickly increase its holdings of Bitcoin BitFuFu plans to launch $150 million ATM financing
However, the flexibility of ATM also means greater uncertainty. Although the company needs to submit a registration statement to the SEC (usually Form S-3) to explain the size and plan of the issuance and accept dual supervision by the SEC and FINRA, the issuance can be carried out at any time without disclosing the specific price and time in advance. This no warning issuance mechanism is particularly sensitive when the stock price goes down, and it is very easy to trigger a falling and rising dilution cycle, resulting in weakened market confidence and damage to shareholder rights. Due to the high degree of information asymmetry, retail investors are more likely to passively bear risks in this process.
In addition, ATM is not suitable for all companies. If a company does not have the status of a Well-Known Seasoned Issuer (WKSI), it must also comply with the one-third rule, that is, the funds raised through ATM within 12 months must not exceed one-third of the market value of its publicly traded shares. All transactions during the issuance process must be completed through regulated brokers, and the company must also disclose the progress of fundraising and the use of funds in its financial reports or through 8-K documents.
In general, ATMs are a means of centralizing financing power: companies do not need to rely on banks or raise funds externally, they can simply press a button to raise cash to increase their holdings of Bitcoin and Ethereum. For the founding team, this is an extremely attractive path; but for investors, it may mean passive dilution without warning. Therefore, behind flexibility is a long-term test of governance capabilities, transparency and market trust.
Convertible Bond: Financing + Arbitrage
Convertible Bond is a financing tool that has both debt and equity attributes, allowing investors to enjoy bond interest while retaining the right to convert bonds into company stocks, with a dual income path of fixed income protection and equity potential. In the crypto industry, this tool is widely used for strategic financing, especially for companies that want to raise funds to increase their Bitcoin holdings without immediately diluting their equity.
The appeal of convertible bonds is that for enterprises, convertible bonds can complete large-scale financing at a low coupon rate (even zero); for institutional investors, they have an arbitrage opportunity to protect principal at the bottom and fight for stock price increases at the top. Many mining companies, stablecoin platforms and on-chain infrastructure projects have introduced strategic funds through convertible bonds. However, this also lays the groundwork for dilution risk: once the stock price reaches the conversion conditions, the bonds will be quickly converted into stocks, releasing large-scale selling pressure and causing a sudden impact on the market.
MicroStrategy is a typical example of using convertible bonds for strategic reserve-type positions. Since 2020, the company has issued two convertible bonds, raising a total of US$1.7 billion, all of which were used to purchase Bitcoin. Its first bond issued in December 2020 was for 5 years, with a coupon of only 0.75% and a conversion price of US$398 (a premium of 37%); the second bond in February 2021 was even 0% interest, 6 years, and a conversion price of US$1,432 (a premium of 50%), and it still received an oversubscription of US$1.05 billion. MicroStrategy leveraged its holdings of more than 90,000 bitcoins at an extremely low cost of funds, achieving super-increases in Bitcoin positions at almost zero leverage cost. Its CEO Michael Saylor is therefore known as the biggest gambler in the crypto world.
However, this model is not without cost. MicroStrategys financial leverage has far exceeded traditional corporate standards. Once the price of Bitcoin falls sharply, the companys net assets may turn negative. As shown in the IDEG report, when BTC falls below $17,500, MicroStrategy will be insolvent on paper. In addition, since its convertible bonds are in the form of private placement, some mandatory redemption and conversion terms have not been disclosed, which has also exacerbated the markets uncertainty about the future dilution rhythm.
Related reading: Uncovering the number one gambler in the crypto world: Is MicroStrategys convertible bond strategy reliable?
In general, convertible bonds are a double-edged sword: they provide companies with a high degree of freedom between financing without dilution and strategic increase in holdings, but they may also trigger concentrated selling pressure at some point. Especially under conditions of information asymmetry, ordinary investors often find it difficult to perceive the specific triggering point of the conversion terms, and become the ones who are ultimately diluted.
Epilogue: Above narrative, structure is king
On July 18, Jim Chanos, a well-known Wall Street short seller, compared this wave of crypto treasury fever to the SPAC craze in 2021 in a podcast program. At that time, $90 billion was raised in three months, but it eventually collapsed collectively and blood flowed. He pointed out that the difference in this round is that companies purchase Bitcoin by issuing convertible bonds and preferred stocks, but there is no actual business support. We see announcements of hundreds of millions almost every day, he said, This is exactly the same as the SPAC craze of that year.
Related reading: Wall Street Big Short Warns: Corporate Bitcoin Treasury Craze Is Replaying SPAC-Style Bubble Risk
At the same time, a report from Unchained further pointed out that such crypto-treasury companies have serious structural risks. The report listed representative projects such as SATO, Metaplanet, and Core Scientific, pointing out that their real net asset value (mNAV) is far lower than the market valuation, coupled with unclear disclosure, insufficient treasury quality, and complex structure. Once the market sentiment reverses, it is very likely to turn from crypto-reserve to financial nuclear bomb.
Related reading: These 4 crypto treasury companies are ready for a price crash
For ordinary investors, company buying coins is much more complicated than it seems. What you see are announcements, daily limits, narratives and numbers, but what really drives price fluctuations is often not the coin price itself, but the design of the capital structure.
PIPE determines who can enter the market at a discount and who is responsible for taking over; SPAC determines whether a company can bypass financial quality inspections and tell its story directly; ATM determines whether the company is still selling while the stock price falls when the stock price falls; convertible bonds determine when someone suddenly converts bonds into stocks and sells them in a concentrated manner.
In these structures, retail investors are often placed at the last leg: there is no priority information and no liquidity guarantee. Although they seem to be optimistic about cryptocurrencies, they actually bear multiple risks of leverage, liquidity and governance structure.
Therefore, when financial engineering enters the narrative battlefield, investing in crypto companies is no longer just a matter of being bullish on BTC or ETH. The real risk does not lie in whether the company buys coins, but in whether you can understand how it sets up the game.
How the market value is inflated by the currency price, and how it is in turn released into selling pressure through the structure - the design of this process determines whether you are participating in the growth or taking the fuse of the next round of plunge.
