Author: Yueqi Yang

Compiled by: Block unicorn

The stock market for companies primarily holding cryptocurrencies like Bitcoin, such as Michael Saylor's Strategy, is showing signs of cracks. These stocks have become a very popular way for investors to speculate on Bitcoin and some of the more exotic cryptocurrencies recently.

The valuations of Strategy and other companies (including Bitcoin holder Semler Scientific and Solana holder Upexi) have declined, while companies holding more speculative tokens have seen their valuations plummet, with some even falling below the value of the cryptocurrencies they hold. The structure of these companies and the leverage used by some of them means that sell-offs could accelerate quickly.

Steve Kurz, head of global asset management at Galaxy Digital, stated, "The market shows some signs of fatigue. I don't think it has lost momentum. There will be differentiation in the future, and there will be winners-take-all situations in different verticals."

More than 160 global stocks like Strategy are now referred to as cryptocurrency stocks, allowing investors to gain exposure to cryptocurrencies without directly purchasing tokens. In this regard, they are similar to cryptocurrency exchange-traded funds (ETFs) that have become popular in the U.S. since their launch in early 2024.

Although Strategy has been buying Bitcoin for years, the soaring cryptocurrency prices have sparked a wave of new products. According to data from crypto consulting firm Architect Partners, U.S. publicly traded companies have announced plans to raise over $91 billion this year to purchase Bitcoin and other cryptocurrencies.

Data from Dealogic shows that this far exceeds the $38 billion raised by U.S. companies through initial public offerings this year. Meanwhile, fundraising activities in private equity and private credit have slowed down this year.

Cosmo Jiang, a general partner at crypto fund Pantera, said, "These digital asset tools have stolen the spotlight from all other areas. It's almost the only thing people are discussing." This year, Pantera has invested hundreds of millions of dollars in over 10 cryptocurrency stocks.

Large investors are still injecting funds into these tools. According to insiders, Citadel, the hedge fund founded by Ken Griffin, is one of the companies actively considering investing in select cryptocurrency stocks. Billionaire investors Stanley Druckenmiller and Cathie Wood's Ark Invest recently invested in Ethereum stock BitMine, as reflected in a filing and announcement.

Citadel representatives declined to comment.

Signs of a slowdown are evident when observing the stock of Strategy (formerly MicroStrategy). As a pioneer in the cryptocurrency stock market, Strategy currently holds $73 billion worth of Bitcoin. In May, its stock traded at twice the value of its Bitcoin holdings. Now, it trades at 1.75 times the value of its Bitcoin holdings.

According to data from Blockworks, the imitators of Strategy have also generally declined over the past two weeks, in some cases erasing premiums or causing stock prices to fall below the value of their held cryptocurrencies.

Josh Salisbury, vice president at ParaFi, stated that stock premiums have decreased due to reduced trading volumes in the summer and an increase in the number of products.

Hyperion DeFi (formerly Eyenovia's biopharmaceutical stock) began purchasing hyperliquid tokens in June. Hyperliquid is the namesake token of one of the fastest-growing cryptocurrency exchanges. Hyperion currently has a market capitalization of $30.5 million, although the hyperliquid tokens it holds are worth nearly $60 million at current token prices. Since changing its name to HYPD and altering its stock code on July 2, Hyperion's stock price has dropped by 62%.

When these companies trade at a premium above their assets, fundraising is easy—but the opposite is true when they trade at a discount. This makes it difficult for them to raise funds to purchase more cryptocurrencies. In this case, the decline in the value of underlying tokens like hyperliquid could further depress the company's stock price.

Companies holding popular tokens like Bitcoin significantly outperform those holding smaller tokens. According to statistics from Architect Partners, the median return for cryptocurrency stocks holding Bitcoin, Ethereum, or Solana tokens since their respective announcements is 92.8%.

In contrast, the median return for the group of cryptocurrency stocks investing in less popular tokens is negative 24%.

A weak market could reduce the earnings of crypto asset management firms like Pantera, Hivemind, ParaFi, and Galaxy Digital. These companies invest in businesses planning to purchase cryptocurrencies through private placements before the stock announcements. These deals almost always yield profits, as stocks typically rise after announcements are made.

The rise of cryptocurrency stocks has increased the connection between traditional markets and cryptocurrencies, potentially adding volatility to stocks. Matt Zhang, founder of Hivemind, stated, "As this integration deepens, traditional stock investors will face more risks they have not encountered before. They may not be accustomed to certain tokens dropping 15% in a day, which happens frequently in the cryptocurrency space."

Nic Carter, founding partner of crypto venture capital firm Castle Island Ventures, stated that the firm has avoided investing in cryptocurrency stocks. "We believe that companies that are essentially zero-sum games carry a certain reputational risk, as their returns primarily come from leverage or retail shareholders buying in at unfavorable prices."

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