Corporate Crypto Reserves Trend Likened to 1920s Bubble

Analysts at Galaxy Digital have warned of risks in the public company sector accumulating cryptocurrencies through stock issuance. This model creates systemic vulnerabilities and could lead to a cascading collapse.

Major firms have created a new asset class — Digital Asset Treasury Companies (DATCOs), according to the report. Currently, they hold digital assets worth over $100 billion on their balance sheets.

The primary strategy of these companies is the accumulation of cryptocurrencies, predominantly Bitcoin. The leaders in this field are Strategy, Metaplanet, and SharpLink Gaming.

DATCOs operate on a “self-reinforcing” cycle model. Their shares often trade at a premium to the net asset value (NAV) on their balance sheets. This allows them to issue new shares and use the raised funds to purchase more cryptocurrency, increasing the NAV per share and maintaining the premium. To achieve this, companies use two main tools: private placements for large investors and issuing shares at the current market price.

Collectively, these companies own 791,662 BTC and 1.3 million ETH. This accounts for approximately 3.98% of the total supply of the first cryptocurrency and 1.09% of Ethereum.

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

The trend extends beyond digital gold. New market participants are accumulating Ethereum and other altcoins like SOL, XRP, and BNB. ETH-oriented companies use staking and DeFi protocols to generate income without diluting shareholder capital. Such a strategy is not yet available to Bitcoin firms.

The main risk of the model is its reliance on the premium to NAV. If the premium disappears or turns negative, companies will lose the ability to effectively raise capital. This could trigger a “trend reversal”: firms might start buying back their shares or selling crypto assets to support stock prices, creating market pressure.

Experts have compared the situation to the investment trust boom of the 1920s. Back then, the collapse of NAV premiums accelerated the stock market crash. Although regulation is stricter today, the basic market mechanics are similar.

Despite rapid growth, DATCOs, excluding Strategy, remain small players. Their assets amount to about $32 billion or 0.83% of the total cryptocurrency market capitalization. However, they have created a sustained demand for digital assets from the stock market and have more closely linked TradFi and the crypto industry, concluded Galaxy.

In June, analysts at Coinbase Institutional identified the growing popularity of corporate Bitcoin reserves as one of the main systemic risks for the market.

Later, on-chain researcher James Check stated that the strategy of increasing company capitalization through the formation of crypto treasuries may not be as enduring as many expect.