From the current $8 billion to $24 billion, the next wealth myth of crypto assets is rising.
Author: kevin
Compiled by: Deep Tide TechFlow
While the cryptocurrency community has long been enthusiastic about tokenization and on-chain assets as a means to enhance accessibility, the most significant progress has actually come from integrating cryptocurrencies with traditional securities. Recently, the public market's interest in Digital Asset Treasury strategies has surged, perfectly embodying this trend.
Michael Saylor, through MicroStrategy (note: now renamed "Strategy"), was the first to implement this strategy, transforming his company into one with a market capitalization exceeding $100 billion, surpassing even Nvidia. We have conducted a detailed analysis of this blueprint in our article on MicroStrategy (a great reference resource for those new to asset management). The core argument of these financial strategies is that publicly issued stock can obtain cheaper, unsecured leverage, which ordinary traders cannot access.
Recently, attention has expanded beyond Bitcoin, with Ethereum-based asset management platforms, such as Sharplink Gaming ($SBET, led by Joseph Lubin) and BitMine ($BMNR, led by Thomas Lee), gaining increasing attention. But do ETH asset management platforms really make sense? As we noted in our analysis of MicroStrategy, asset management companies are essentially trying to arbitrage the long-term compound annual growth rate (CAGR) of the underlying assets against their capital costs. In a previous article, we outlined the following argument: ETH's long-term compound annual growth rate. It is a scarce programmable reserve asset that plays a foundational role in securing on-chain economic safety as more assets migrate to blockchain networks. This article will explain why ETH assets have a directional bullish trend and provide operational advice for companies adopting this asset management strategy.
Acquiring Liquidity: The Cornerstone of Asset Management Companies
One of the main reasons tokens and protocols seek to create these asset management companies is to provide a pathway for tokens to access traditional finance (TradFi) liquidity, especially in the context of declining liquidity in cryptocurrency altcoins. Typically, these asset management companies acquire liquidity through three main methods to gain more assets. Importantly, this liquidity/debt is unsecured, meaning it is non-redeemable:
Convertible Bonds: Raising funds by issuing debt, which lenders can convert into equity and use the proceeds to purchase more Bitcoin.
Preferred Stock: Raising funds by issuing preferred stock that pays fixed annual dividends to investors.
At-the-Market (ATM) Issuance: Directly selling new shares in the public market to raise flexible, real-time funds for purchasing Bitcoin.
Why ETH Convertible Bonds Are Superior to BTC Convertible Bonds
In our previous article on MicroStrategy, we pointed out that convertible bonds offer two main advantages for institutional investors:
Downside protection with upside risk exposure: Convertible bonds allow institutions to gain exposure to underlying assets (such as BTC or ETH) while protecting their principal investment through the inherent protective features of the bonds.
Volatility-driven arbitrage opportunities: Hedge funds purchase convertible bonds not only to gain exposure but also to execute gamma trading strategies (note: a type of options trading strategy primarily based on the "gamma" value in options Greek letters to make trading decisions. Gamma measures the sensitivity of an option's delta to changes in the price of the underlying asset), profiting from the volatility of the underlying asset and its securities.
Among them, gamma traders (hedge funds) are currently the main market participants in convertible bonds.
With this in mind, Ethereum's higher historical volatility and implied volatility become its key differentiators compared to Bitcoin. ETH asset management companies reflect this higher volatility in their capital structure by issuing ETH convertible bonds (CB). This dynamic makes ETH-backed CB particularly attractive to arbitrageurs and hedge funds. Crucially, this volatility also allows ETH asset management companies to obtain more favorable financing conditions by selling CB at higher valuations.
Figure 1: Comparison of Historical Volatility of ETH and BTC
Source: Artemis
For convertible bondholders, increased volatility enhances the opportunity to profit through gamma trading strategies. In short, the greater the volatility of the underlying asset, the higher the profits from gamma trading, making ETH asset convertible bonds significantly more advantageous than BTC asset convertible bonds.
Figure 2: Comparison of Historical Volatility of SBET, BMNR, and MSTR
Source: Artemis
However, there is an important caveat: if ETH cannot maintain its long-term compound annual growth rate (CAGR), the appreciation of the underlying asset may not justify the conversion before maturity. In this case, ETH asset management companies would face the risk of full bond repayment. In contrast, BTC convertible bonds—backed by Bitcoin's more mature long-term performance record—are less likely to encounter this downside risk, as historically, most convertible bonds under this strategy have been converted into equity.
Figure 3: Comparison of Four-Year Compound Annual Growth Rate (CAGR) of ETH and BTC Over Time
Source: Artemis
Why ETH Preferred Stock Can Provide Differentiated Value?
Unlike convertible bonds, the structure of preferred stock issuance targets fixed income asset classes. While some convertible preferred stocks offer mixed upside potential, yield remains the primary consideration for many institutional investors. The pricing of these instruments is based on the underwritten credit risk, i.e., whether the asset management company can reliably pay interest.
The key advantage of the MicroStrategy approach lies in using ATM issuance to fund these payments. Since this typically only accounts for 1-3% of the total market capitalization, dilution and risk are minimal. However, this model still relies on the market liquidity and volatility of BTC and MicroStrategy's underlying securities.
Ethereum adds another layer of value: generating native yield through staking, re-staking, and lending. This built-in yield provides greater certainty for preferred allocations, theoretically improving credit ratings. Unlike Bitcoin, which relies solely on price appreciation, Ethereum's return characteristics combine CAGR with native yield from the protocol layer.
Figure 4: Annualized Native Staking Yield of ETH
Source: Artemis
I believe a compelling innovation of ETH preferred stock is its potential to become a non-directional investment tool, allowing institutional investors to participate in network security without taking on directional risk of ETH prices. As we emphasized in our ETH report, maintaining at least 67% honest validators is crucial for securing Ethereum. As more assets migrate on-chain, it becomes increasingly important for institutional investors to actively support Ethereum's decentralization and security.
However, many institutions may not want to hold a long position in ETH directly. ETH asset management companies can act as intermediaries, absorbing directional risk while providing institutions with fixed-income-like returns. The preferred stock issued by the following institutions, $SBET and $BMNR, is specifically designed as on-chain fixed income staking products for this purpose. They can enhance their appeal to investors seeking stable returns without taking on full market risk by bundling advantages such as priority inclusion and protocol layer incentives.
Why ATM Issuance is More Beneficial for ETH Assets
One of the most commonly used valuation metrics by financial companies is mNAV (market multiple to net asset value ratio). Conceptually, mNAV functions similarly to the price-to-earnings ratio: it reflects how the market prices future per-share asset growth.
Due to Ethereum's native yield rate mechanism, ETH assets inherently guarantee a higher net asset value premium. These activities generate recurring "yields" or enhancements in per-share ETH value without incremental capital. In contrast, BTC asset management companies (BTC assets) must rely on synthetic yield strategies, such as issuing convertible bonds or preferred stock. Without these institutional products, it becomes challenging to justify yields when the market premium of BTC assets approaches their net asset value (NAV).
Most importantly, mNAV is reflexive: a higher mNAV enables asset management companies to raise funds more effectively through ATM issuance. They issue shares at a premium and use the proceeds to purchase more underlying assets, thereby increasing per-share assets and reinforcing the cycle. The higher the mNAV, the greater the value obtained, making ATM issuance particularly effective for ETH asset management companies.
Acquiring capital is another key factor. Companies with stronger liquidity and broader financing capabilities naturally have higher mNAV, while companies with limited market access often trade at a discount. Therefore, mNAV typically reflects a liquidity premium—the market's confidence in a company's ability to effectively acquire more liquidity.
How to Filter Asset Management Companies from First Principles
A useful mental model is to view ATM issuance as a way to raise funds from retail investors, while convertible bonds and preferred stock are typically designed for institutional investors. Therefore, the key to a successful ATM strategy lies in building strong retail influence, which often depends on having a trustworthy and charismatic leader, as well as a consistently transparent strategy that allows retail investors to believe in its long-term vision. In contrast, successfully executing convertible bonds and preferred stock requires strong institutional sales channels and relationships with capital markets. Based on this logic, I believe $SBET is a stronger retail-driven company, primarily due to Joe Lubin's leadership and the team's consistent transparency in increasing per-share ETH. Meanwhile, under Tom Lee's leadership, $BMNR seems more capable of leveraging institutional liquidity due to its close ties with traditional finance.
Why Are ETH Assets So Important to the Ecosystem and Competitive Landscape?
One of the biggest challenges facing Ethereum is the increasing centralization of validators and staked ETH, particularly within liquid staking protocols like Lido and centralized exchanges like Coinbase. ETH asset management companies can help balance this trend and promote validator decentralization. To support Ethereum's long-term resilience, these companies should diversify their ETH across multiple staking providers and operate their own validators whenever possible.
Figure 5: Staking Distribution by Category
Source: Artemis
In this context, I believe the competitive landscape for ETH asset management companies will be distinctly different from that of BTC asset management companies. In the Bitcoin ecosystem, the market has evolved into a winner-takes-all scenario, with MicroStrategy holding more than ten times the amount of BTC than the second-largest holder. With its first-mover advantage and strong narrative control, MicroStrategy dominates the convertible bond and preferred stock markets.
In contrast, Ethereum's assets are starting from scratch. No single entity currently dominates; instead, multiple ETH assets are being launched simultaneously. This lack of first-mover advantage is not only beneficial for the network but also fosters a more competitive and rapidly developing market environment. Given the relatively close ETH holdings among major participants, I believe we are likely to see a duopoly emerge between the two giants: $SBET and $BMNR.
Figure 6: ETH Asset Holdings
Source: strategicethreserve.xyz
Valuation: MSTR + Lido Comp
Broadly speaking, the ETH financial model can be seen as a fusion of MicroStrategy and Lido, designed for TradFi. Unlike Lido, ETH asset management companies have the potential to capture a larger share of asset appreciation due to their underlying assets, giving this model an advantage in value accumulation.
A rough valuation perspective: Lido currently manages about 30% of the total ETH staked, with an implied valuation exceeding $30 billion. We believe that over a market cycle (4 years), $SBET and $BMNR are very likely to, as indicated by MicroStrategy's growth strategy, surpass Lido's scale in total market capitalization, driven by the speed, depth, and reflexivity of capital flows in TradFi.
Background: The market capitalization of BTC is $2.47 trillion, while ETH's market capitalization is $428 billion (accounting for 17-20% of BTC). If $SBET and $BMNR scale to about 20% of MicroStrategy's $120 billion valuation, this implies a long-term value of approximately $24 billion. Currently, the total valuation of the two companies is slightly below $8 billion, indicating significant growth potential as ETH assets mature.
Conclusion
The integration of cryptocurrency with traditional finance through digital asset management strategies represents a significant transformation, with ETH assets now becoming a powerful force. Ethereum's unique advantages, including higher volatility of convertible bonds and native yield from preferred issuances, enable ETH asset management companies to achieve unique growth. Their potential to promote validator decentralization and foster competition further distinguishes them in the BTC asset space. Combining MicroStrategy's capital efficiency with Ethereum's inherent yields can unlock tremendous value and drive the on-chain economy deeper into TradFi. Rapid expansion and growing institutional interest signal a transformative impact on cryptocurrency and capital markets in the coming years.
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