Original | Odaily Planet Daily (@OdailyChina)
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On July 17, SharpLink Gaming (SBET) announced in an updated prospectus submitted to the SEC that it plans to issue an additional $5 billion in common stock on top of the originally planned $1 billion to further purchase ETH. Following the news, SBET's stock price peaked at $38.91 that day, but subsequently began to decline, closing at $28.98 on July 19, and opening lower again on Monday, closing at $25.25.
This is puzzling—referring to the script of Strategy, SharpLink Gaming, as the leading "ETH version of Strategy," should see its stock price spiral upwards whether it actually increases its ETH holdings or announces actions beneficial to increasing ETH. Moreover, with ETH continuously breaking through, there should be no reason for a decline. But the "strange" thing is that investors who added to SBET last week found themselves trapped at the peak. Has the Strategy approach lost its effectiveness?
Market opinions generally summarize that SBET's decline has two main reasons:
First, last week, BitMine's ETH reserves (300,657 coins) briefly surpassed SharpLink, becoming the entity with the most ETH holdings, threatening SharpLink's title of "ETH version of Strategy." However, on July 19, according to public information, SharpLink continued to increase its ETH holdings, reaching a total of 345,158 coins, valued at over $1.2 billion, regaining its status as the entity with the most ETH reserves.
Second, the combination of private equity financing (PIPE) and at-the-market (ATM) issuance that SharpLink Gaming adopted to purchase ETH has begun to face market skepticism. The additional $5 billion equity limit from SharpLink is not a stimulant for price increases; rather, it has become a trigger for market panic.
SharpLink's financing method raises market concerns
Before understanding what investors are worried about, we need to clarify the financing method SharpLink has adopted, which combines PIPE and ATM. The funding for Strategy's BTC purchases comes from convertible bond financing, which carries risks such as debt maturity pressure and interest payments, but does not cause significant equity dilution or market sell pressure, making it a good strategy for achieving "left foot stepping on the right foot to the sky" during BTC's upward phase.
However, the private equity financing (PIPE) that SharpLink has adopted directly dilutes equity and exerts sell pressure on the stock price. At the end of May, SharpLink Gaming completed a $425 million private equity investment, after which the stock price rose from a few dollars to $80. But on June 12, due to market rumors that "PIPE investors have begun to apply for exits," SBET's stock price plummeted over 70% in a single day, returning to single digits. Although SharpLink's board chairman, Consensys CEO Joseph Lubin, later clarified that no PIPE investors had actually sold, it reflects that if a sell-off occurs, it would deal a fatal blow to SBET's price.
The mere $425 million in financing does not support SharpLink's purchase of more ETH, so it also adopted the ATM method to raise funds by issuing stock at market price. ATM refers to a financing method where a listed company sells stock directly to the secondary public market at the current market price. ATM is not completed in one go but is a continuous sale until the target is reached; SharpLink's total $6 billion equity issuance may require most of it to be completed through this method. According to the SEC documents and announcements disclosed by the company, as of July 11, SharpLink had raised $608.1 million through ATM.
SharpLink's ATM issuance after PIPE
Understanding SharpLink's financing model makes it easy to grasp the market's concerns. The combination of PIPE and ATM financing not only causes immediate equity dilution for SEBT but also brings ongoing stock increment pressure. Although PIPE investors have not yet sold, they remain a thorn hanging over retail investors' heads, and they may have already been secretly selling SBET shares purchased at low prices, cleverly avoiding disclosure.
Furthermore, ATM is essentially a legal arbitrage behavior for the company, continuously bringing sell pressure to the market. Compared to SharpLink's current market capitalization of about $2.9 billion, the future $5 billion issuance limit seems to drain market liquidity. The market inevitably begins to question whether SharpLink is genuinely focused on the long-term value of ETH or merely treating it as a reusable narrative lever.
SharpLink's ideal script may be: leveraging the current wave of crypto treasury to accumulate ETH and boost stock prices, then using ATM to directly extract investor funds from the market to increase ETH holdings, thereby reinforcing the ETH version of the Strategy narrative to drive stock prices up, and then selling the stock at a higher point, repeating this cycle. Additionally, ETH is an income-generating asset; according to SharpLink's latest disclosure, as of July 8, its ETH staking income reached 322 coins (approximately valued at $1.22 million). This means SharpLink not only cashes out high-priced stocks into ETH through this left foot stepping on the right foot method but also enjoys capital appreciation benefits, leaving retail investors who sell ETH to chase high SBET with losses.
BTCS's innovative TraFi + DeFi hybrid financing structure
In addition to SharpLink, several other publicly listed companies that also use equity financing to reserve ETH (such as BitMine, Bit Digital, and GameSquare) face equity dilution risks.
However, there is one ETH-reserving listed company in the market that has not adopted equity financing to raise funds but instead uses a convertible bond financing + revolving loan financing model, also known as the "TraFi + DeFi hybrid financing structure," which is BTCS. As of July 21, BTCS holds a total of 55,788 ETH, ranking 10th among listed companies.
BTCS's "TraFi + DeFi hybrid financing structure" means that on one hand, the company raises funds through convertible bonds and ATM in traditional finance to purchase ETH; on the other hand, BTCS uses ETH as collateral to borrow stablecoins in DeFi protocols like Aave to buy ETH.
According to official documents disclosed, as of July 21, BTCS has raised $132 million through ATM (including $28.4 million in pending settlement at $7.9 per share ATM sales and $10 million in pending convertible note funding), raised $17 million through convertible bonds, and borrowed $40 million in stablecoins from Aave (with a loan-to-value ratio below 40%).
BTCS currently has a market capitalization of $144 million. Although it also uses ATM financing, the scale is not as massive as SharpLink's, resulting in less dilution pressure on shareholders. Additionally, BTCS does not use all ETH for staking but further utilizes on-chain leverage to increase ETH holdings. If ETH continues to rise, it will create a larger yield flywheel.
Because ETH itself has income-generating properties and a well-developed DeFi ecosystem, unlike BTC reserve companies that can only hold BTC as digital gold in custodial wallets, ETH reserve companies can utilize more financial tools to repeatedly discount ETH.
But this also raises investor concerns; if all returns are based on the rise of ETH, which financing model will be the first to collapse if ETH weakens again?
The ETH version of Strategy has yet to be determined
Although SharpLink currently holds the most ETH and has the strongest background, the ETH version of Strategy has yet to emerge. SharpLink's left foot stepping on the right foot model does not rely on the continuous rise of ETH but rather on investor trust. When investors realize that SharpLink's continuous arbitrage of stock reserves of ETH is not based on the long-term value of ETH but merely a means to achieve balance sheet growth (the income from reserving ETH does not benefit shareholders), SharpLink's narrative will collapse.
BTCS's "TraFi + DeFi hybrid financing structure" may control the degree of equity dilution, but actively introducing on-chain lending also carries greater risks. If the upward momentum of ETH weakens and begins to decline, BTCS will have to face risks such as reduction or liquidation, which will inevitably negatively impact the stock price.
As investors gradually gain clarity and realize that reserving ETH is not as simple as directly purchasing BTC and holding it in a wallet, the market will no longer measure the value of an ETH-reserving listed company solely by "ETH reserves." Nevertheless, the current heat of ETH reserves has indeed brought real buying pressure and capital speculation hype to ETH, so rather than cross-border speculation in crypto stocks, directly purchasing or going long on ETH is what we "distinguished crypto investors" should do.
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