In the surge of cryptocurrency reserve companies, what are the potential "pits"?

Author: Peggy, BlockBeats

More and more listed companies are starting to "reserve cryptocurrencies."

They are no longer just buying BTC or ETH, but are following in the footsteps of MicroStrategy, building a complete set of replicable financial models: through traditional financial tools such as PIPE, SPAC, ATM, and Convertible Bonds, they are raising funds on a large scale, accumulating positions, and creating momentum, while adding the new narrative of "on-chain treasury," incorporating cryptocurrencies like Bitcoin, Ethereum, and SOL into the company's 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. Institutions such as UTXO Management, Sora Ventures, Consensys, Galaxy, and Pantera have successively entered the scene, pushing several marginal listed companies to complete their "transformation," becoming "crypto reserve stocks" in the US or Hong Kong stock markets.

However, this seemingly innovative capital feast is also raising the alarm among old-school financiers. On July 18, Wall Street's famous short-seller Jim Chanos warned that today's "Bitcoin treasury craze" is replaying the SPAC bubble of 2021—companies are buying coins by issuing convertible bonds and preferred shares without actual business support. "Every day there are hundreds of announcements, just like the madness back then," he said.

This article outlines four key tools and representative cases behind this trend, attempting to answer one question: When traditional financial tools meet crypto assets, how does a company evolve from "buying coins" to "manipulating the market"? And how can retail investors identify risk signals in this capital game?

How do financing tools build "coin-buying companies"?

PIPE: Institutions enter at a discount, retail investors buy at a high

PIPE (Private Investment in Public Equity) refers to a public company issuing stocks or convertible bonds to specific institutional investors at a discounted price to achieve rapid financing. Compared to traditional public offerings, PIPE does not require cumbersome review processes and can complete capital injection in a short time, making it a "strategic lifeline" tool during periods of tightened financing windows or market uncertainty.

In the trend of crypto treasuries, PIPE has been given another function: to create a signal of "institutional entry," driving stock prices to rise rapidly and providing "market validation" for project narratives. Many originally unrelated listed companies have introduced funds through PIPE to purchase large amounts of BTC, ETH, or SOL, quickly reshaping themselves into "strategic reserve enterprises." For example, SharpLink Gaming (SBET) saw its stock price soar more than tenfold shortly after announcing a $425 million PIPE financing to establish an ETH treasury.

However, the impact of PIPE goes far beyond superficial benefits. In structural design, PIPE investors typically enjoy better entry prices, lock-up arrangements, and liquidity channels. Once a company submits an S-3 registration statement, the related shares can be listed and traded, allowing institutional investors to choose to cash out. Although S-3 is essentially just a technical operation and does not directly imply 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.

The experience of SharpLink is a typical case: on June 12, 2025, the company submitted an S-3 registration statement allowing PIPE shares to be listed for resale. Despite the chairman and Ethereum co-founder Joseph Lubin publicly clarifying that "this is a standard PIPE follow-up process in tradfi" and stating that neither he nor Consensys had sold any shares, market sentiment was already difficult to salvage. The stock price fell a cumulative 54.4% over the next five trading days, becoming a textbook example of the structural risks of the PIPE model. Although the stock price rebounded later, the dramatic volatility of "soaring after a spike" reflects the structural fractures in the PIPE process.

Additionally, BitMine Immersion Technologies (BMNR) also experienced a "boom and bust" scenario after announcing its PIPE structure. After announcing a $2 billion PIPE financing for Ethereum treasury construction, the stock price surged and then plummeted, dropping 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 at a discount, enjoying reserved exit mechanisms; while ordinary investors often only enter during positive narratives like "successful financing" or "coin-based treasury," passively bearing risks before the lock-up pressure arrives. In traditional financial markets, this "pump and dump" structure has long been controversial, and in the less regulated, more speculative crypto space, this structural imbalance is further amplified, becoming another risk driven by capital narratives.

SPAC: Writing valuations in press releases, not financial reports

SPAC (Special Purpose Acquisition Company) was originally a tool used in traditional markets for reverse mergers: a group of sponsors first establishes a shell company, raises funds through an IPO, and then seeks to acquire a private company within a specified time frame, allowing the latter to bypass the conventional IPO process and achieve "quick listing."

In the crypto market, SPAC has been given a new purpose: to provide a financial vehicle for "strategic reserve" companies, allowing the securitization of their Bitcoin, Ethereum, and other digital asset treasuries and integrating them into the exchange system, thus facilitating both financing and liquidity.

These companies often lack a clear business path, product model, or revenue source. Their core strategy is to first raise funds through PIPE to acquire crypto assets, build a "coin-based" balance sheet, and then merge via SPAC to enter the public market, packaging a narrative of "holding coins equals growth" for investors.

Typical representatives include Twenty One Capital, ProCap, and Reserve One, which mostly revolve around a simple model: raising funds to acquire Bitcoin and putting Bitcoin into a stock code. For example, Twenty One Capital holds over 30,000 Bitcoins, merges with a SPAC supported by Cantor Fitzgerald, and raised $585 million through PIPE and convertible bonds, with some funds used for on-chain yield strategies and Bitcoin financial product development. ProCap, supported by Pompliano, develops lending and staking businesses around Bitcoin treasury. Reserve One is more diversified, holding BTC, ETH, SOL, and participating in institutional-level staking and over-the-counter lending.

Moreover, these companies are often not satisfied with merely "holding coins for appreciation." They frequently issue convertible bonds and increase share issuance to raise more funds to buy more Bitcoin, forming a "structural leverage model" similar to MicroStrategy. As long as the coin price rises, the company's valuation can expand excessively.

The biggest advantage of the SPAC model is time and control. Compared to 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 without disclosing existing revenues, lead valuation negotiations, and retain more equity. Although in reality, these crypto projects often face longer regulatory review periods (such as Circle ultimately abandoning SPAC for IPO), the SPAC path remains popular, especially for those "coin-based companies" that have yet to establish revenue capabilities, as it provides a shortcut to bypass products, users, and financial fundamentals.

More importantly, the "public company" identity brought by SPAC has a natural legitimacy in investors' perceptions. 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, this structure often carries strong "signal value": once a large PIPE financing is announced or a partnership with a well-known financial institution is established, it can quickly activate retail investor sentiment. The reason Twenty One Capital attracted market attention is precisely because it has backing from Tether, Cantor, and SoftBank, even though the company's actual operations have not yet begun.

However, SPAC brings not only convenience and glamour; its structural risks are also significant.

Business stagnation and narrative overextension: Many companies merged through SPAC lack stable revenue, and their valuations heavily depend on whether the "Bitcoin strategy" can continue to attract attention. Once market sentiment reverses or regulation tightens, stock prices will quickly fall.

Inequitable institutional priority structure: Sponsors and PIPE investors usually enjoy enhanced voting rights, early lock-up releases, and pricing advantages, while ordinary investors are at a dual disadvantage in terms of information and rights, leading to severe dilution of equity.

Compliance operation and information disclosure challenges: After completing the merger, the company must assume the obligations of a public company, such as auditing, compliance, and risk disclosure, especially in the context of incomplete accounting rules for digital assets, which can easily lead to financial report confusion and audit risks.

Valuation bubbles and redemption mechanism pressure: SPACs often have inflated valuations at the beginning due to narrative expectations, and if retail investors redeem en masse during a sentiment reversal, it will lead to cash flow tightness for the company, expected financing failures, and even trigger secondary bankruptcy risks.

The more fundamental issue is that SPAC is a financial structure, not value creation. It is essentially a "narrative container": packaging the future vision of Bitcoin, signals of institutional endorsement, and plans for capital leverage into a tradable stock code. When Bitcoin rises, it appears sexier than an ETF; but when the market reverses, its complex structure and fragile governance will be exposed more thoroughly.

ATM: Printing money anytime, issuing more as prices fall

ATM (At-the-Market Offering) was originally a flexible financing tool that allows listed companies to sell shares to the public market in phases based on market prices, raising funds in real-time. In traditional capital markets, it is often used to hedge operational risks or supplement cash flow. In the crypto market, ATM has been given another layer of function: serving as a "self-financing channel" for strategic reserve companies to continuously accumulate Bitcoin and maintain liquidity.

The typical practice is: the company first constructs a narrative around a Bitcoin treasury, then launches an ATM plan, continuously selling shares to the market without needing to specify pricing and time windows, in exchange for cash to purchase more Bitcoin. It does not require specific investors to participate like PIPE, nor does it need to disclose complex processes like an IPO, making it more suitable for asset allocation companies that are flexible in pace and narrative-driven.

For example, Canadian listed company LQWD Technologies announced the launch of an ATM plan in July 2025, allowing it to sell up to CAD 10 million of common shares to the market on an irregular basis. In the official statement, the ATM plan "enhances the company's Bitcoin reserve capacity and supports its global Lightning Network infrastructure expansion," clearly conveying its growth path centered on Bitcoin as a core asset. Similarly, Bitcoin mining company BitFuFu signed ATM agreements with multiple underwriting institutions in June, planning to raise up to $150 million through this mechanism, and has officially filed with the SEC. Its official documents state that this will help the company finance according to market dynamics without having to set financing windows or trigger conditions in advance.

However, the flexibility of ATM also means higher uncertainty. Although the company must submit a registration statement to the SEC (usually S-3 form), outlining the issuance scale and plan, and accept dual regulation from the SEC and FINRA, the issuance can occur at any point without needing to disclose specific prices and times in advance. This "no-warning" issuance mechanism is particularly sensitive during stock price declines, easily triggering a "more issued as prices fall" dilution cycle, leading to weakened market confidence and harmed shareholder rights. Due to high information asymmetry, retail investors are more likely to passively bear risks in this process.

Moreover, ATM is not suitable for all companies. If a company does not qualify as a "Well-Known Seasoned Issuer (WKSI)," it must comply with the "one-third rule," meaning that fundraising through ATM within 12 months cannot exceed one-third of its public float market value. All transactions during the issuance process must be completed through regulated brokers, and the company must disclose fundraising progress and fund usage in financial reports or through 8-K filings.

In summary, ATM is a means of concentrating financing power: companies do not need to rely on banks or raise funds externally; they can simply "press a button" to raise cash and accumulate Bitcoin and Ethereum. For founding teams, this is an attractive path; but for investors, it may mean being passively diluted without any warning. Therefore, behind the "flexibility" lies a long-term test of governance capacity, transparency, and market trust.

Convertible Bonds: Financing + Arbitrage "Both Hands Grab"

Convertible Bonds are a financing tool that combines debt and equity attributes, allowing investors to enjoy bond interest while retaining the right to convert the bonds into company stock, providing a dual revenue path of "fixed income protection" and "equity potential." In the crypto industry, this tool is widely used for strategic financing, especially favored by companies looking to raise funds to "accumulate Bitcoin" without immediately diluting equity.

Its appeal lies in: for companies, convertible bonds can achieve large-scale financing at lower coupon rates (even zero); for institutional investors, it offers an arbitrage opportunity of "downside protection, upside potential." Many mining companies, stablecoin platforms, and on-chain infrastructure projects have introduced strategic funds through convertible bonds. However, this also buries the seeds of dilution risk: once the stock price reaches conversion conditions, the bonds will quickly convert into shares, releasing large-scale selling pressure and causing sudden market shocks.

MicroStrategy is a typical case of using convertible bonds for "strategic reserve accumulation." Since 2020, the company has issued two convertible bonds, raising a total of $1.7 billion, all used to purchase Bitcoin. Its first bond issued in December 2020 was a 5-year term with a coupon of only 0.75%, and a conversion price of $398 (a 37% premium); the second bond in February 2021 even had a 0% interest rate, 6-year term, and a conversion price of $1,432 (a 50% premium), yet still received oversubscription of $1.05 billion. MicroStrategy leveraged over 90,000 Bitcoins at an extremely low cost of capital, achieving a super accumulation of Bitcoin with almost zero leverage cost, and its CEO Michael Saylor has thus been dubbed "the biggest gambler in the crypto world."

However, this model is not without cost. MicroStrategy's financial leverage has far exceeded traditional corporate standards, and once Bitcoin prices fall significantly, the company's net assets could turn negative. As the IDEG report indicates, when BTC falls below $17,500, MicroStrategy will face a situation of being underwater on its balance sheet. Additionally, since its convertible bonds are in private placement form, some forced redemption and conversion terms are undisclosed, further exacerbating market uncertainty about future dilution rhythms.

In summary, convertible bonds are a double-edged sword: they provide companies with high flexibility between "non-dilutive financing" and "strategic accumulation," but they can also trigger concentrated selling pressure at any moment. Especially under conditions of information asymmetry, ordinary investors often find it difficult to perceive the specific triggering points of conversion terms, becoming the ultimate bearers of dilution.

Conclusion: Above Narrative, Structure is King

On July 18, Wall Street's famous short-seller Jim Chanos compared this wave of "crypto treasury craze" to the SPAC frenzy of 2021—during which $90 billion was raised in three months, only to collectively collapse and bleed profusely. He pointed out that the difference in this round is that companies are buying Bitcoin by issuing convertible bonds and preferred shares, but without actual business support. "We can see several hundred million in announcements almost every day," he said, "this is just like the madness of SPAC back then."

At the same time, a report from Unchained further pointed out that these "crypto treasury companies" have serious structural risks. The report listed representative projects such as SATO, Metaplanet, and Core Scientific, indicating that their real net asset values (mNAV) are far below market valuations, compounded by unclear disclosures, insufficient treasury quality, and complex structures. Once market sentiment reverses, they are likely to turn from "crypto reserves" into "financial bombs."

For ordinary investors, "companies buying coins" is far more complex than it appears. What you see are announcements, price limits, narratives, and numbers, but what truly drives price fluctuations is often not the coin price itself, but the design of the capital structure.

PIPE determines who can enter at a discount and who is responsible for taking over; SPAC determines whether a company can bypass financial quality checks to tell its story directly; ATM determines whether the company is still "selling while prices fall" when stock prices decline; convertible bonds determine when someone suddenly converts debt into equity and triggers concentrated selling.

In these structures, retail investors are often placed in the "last baton": without priority information and no liquidity guarantees. What seems like an investment in "crypto optimism" actually carries multiple risks of leverage, liquidity, and governance structure.

Therefore, when financial engineering enters the narrative battlefield, investing in crypto companies is no longer just about being bullish on BTC or ETH. The real risk lies not in whether the company has bought coins, but in whether you can understand how it is "manipulating the market."

How market capitalization inflates with coin prices, and how it releases selling pressure through structure—this design process determines whether you are participating in growth or holding the fuse for the next crash.