Corporate Crypto Reserves: A Looming Bubble Analogous to the 1920s Investment Trust Boom

Galaxy Digital analysts have issued a warning regarding the risks associated with public companies accumulating cryptocurrencies through equity issuance. This model creates systemic vulnerabilities that could lead to a cascading collapse.

According to their report, major firms have established a new class of assets dubbed Digital Asset Treasury Companies (DATCOs), which currently hold digital assets worth over $100 billion on their balance sheets.

The primary strategy of these companies revolves around accumulating cryptocurrencies, predominantly Bitcoin. Leading players in this sector include Strategy, Metaplanet, and SharpLink Gaming.

DATCOs operate on a «self-reinforcing» cycle model. Their shares are often traded at a premium to the net asset value (NAV) on their balance sheets. This enables them to issue new securities and utilize the raised capital to purchase even more cryptocurrencies, thereby increasing the NAV per share and maintaining the premium. To achieve this, companies rely on two main instruments: private placements for large investors and the issuance of stocks at current market prices.

Collectively, these firms own 791,662 BTC and 1.3 million ETH, representing approximately 3.98% of the total supply of Bitcoin and 1.09% of Ethereum.

Strategy remains a dominant player, holding over 70% of all Bitcoins in this sector.

The trend extends beyond digital gold, as new market entrants are accumulating Ethereum and other altcoins like SOL, XRP, and BNB. ETH-focused firms are leveraging staking and DeFi protocols to generate income without diluting shareholder equity—a strategy that Bitcoin firms have yet to adopt.

The primary risk of this model lies in its dependence on the premium to NAV. Should this premium vanish or turn negative, companies would lose their ability to effectively attract capital. This scenario could trigger a «trend reversal,» where firms might buy back their shares or liquidate crypto assets to support stock prices, exerting downward pressure on the market.

Experts have drawn parallels between the current situation and the investment trust boom of the 1920s, where a collapse of premiums to NAV accelerated a stock market crash. While regulation today is stricter, the underlying market mechanics remain similar.

Despite rapid growth, DATCOs—except for Strategy—currently operate as relatively small players, with their assets amounting to around $32 billion or 0.83% of the total cryptocurrency market capitalization. However, they have fostered significant demand for digital assets from the stock market and have increasingly interlinked traditional finance (TradFi) with the crypto industry, according to Galaxy.

In June, analysts from Coinbase Institutional identified the growing trend of corporate Bitcoin reserves as one of the primary systemic risks for the market.

Later, on-chain researcher James Check remarked that the strategy of bolstering company capitalization through the creation of crypto treasuries might not be as sustainable as many expect.