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I'm always intrigued when I see an unfamiliar financial term.

What is a "crypto-treasury" deal?

https://www.wsj.com/finance/regulation/sec-crypto-...


Unusual Trading Ahead of Crypto-Treasury Deals Draws Scrutiny From U.S. Regulators
SEC, Finra reach out to companies whose shares moved sharply before they announced plans to buy bitcoin, other digital assets

By Vicky Ge Huang, The Wall Street Journal

The Securities and Exchange Commission and the Financial Industry Regulatory Authority have reached out to some of the more than 200 companies that announced this year that they would adopt a crypto-treasury strategy...

In those conversations and letters, the regulators have raised concerns about what they say were unusually high trading volumes and sharp stock-price gains in the days leading up to the companies’ announcements. ...

The playbook: raise money through stock and debt sales to buy bitcoin and other digital tokens. So far this year, 212 new companies have announced plans to raise about $102 billion to buy crypto...For many of these companies, the pivot to crypto treasury often entails contacting a group of outside investors to gauge their interest in privately financing their token purchases. In doing so, though, the investors are expected to keep the companies’ identities confidential—by signing nondisclosure agreements—until they announce their new strategy. ... [end quote]

https://gemini.google.com/app/5e103beabcaad2c6


A crypto-treasury deal typically refers to a strategy or transaction where a company, often a publicly traded one, decides to allocate a portion of its corporate cash reserves — its treasury — to hold cryptocurrencies, most commonly Bitcoin, instead of or in addition to traditional assets like cash, bonds, or fiat currency.

This is quite different than a company using a crypto stable coin as part of its treasury. The stable coin, like cash, would be expected to maintain a constant value. A cryptocurrency like Bitcoin is highly speculative since its value is volatile. I don't know how it could be considered "treasury" at all. How could it be put onto a balance sheet in the same line as cash?

The essence of the WSJ article is an investigation of insider trading, but I don't care about that.

I just can't understand why investors would invest in (or lend money to) a company that would invest in crypto currencies. If they wanted crypto, why not simply buy it for themselves and save the skim? Or invest in IBIT which is the largest crypto ETF if they wanted to speculate?

This is more end-bubble silliness, along with meme tokens and SPACs.

Wendy

I just can't understand why investors would invest in (or lend money to) a company that would invest in crypto currencies. If they wanted crypto, why not simply buy it for themselves and save the skim?

Great question. The short answer is blind greed. The long answer is these companies issue debt in order to buy crypto. So by buying shares in these companies, you are leveraging your crypto investment. Strategy (MSTR) started acquiring Bitcoin while back. As Bitcoin's price started its runup, this caused a spike in the stock price as speculators jumped in on the action. Last year MSTR's stock increased by 573%, which was by far greater than any company in the S&P 500, walloping paltry gainers like NVDA and PLTR (MSTR is not in the S&P 500). Lots of companies are eager to get in on that action and have started using leverage to by crypto themselves. In theory, companies can continue to issue debt forever to buy more and more crypto as long the price of crypto keeps increasing. I think we can all see the problem with that.

There is one more catch too. MSTR is nominally a software company, but they don't make any money on that end of the business. It is all Bitcoin speculation. Perplexity tells me MSTR owns $73.9 billion of Bitcoin and has a market cap of about $89 billion. Which is to say one dollar of MSTR buys you less than one dollar of Bitcoin.

I don't know how this ends, but it doesn't end well.

Just another table at the casino.

I wonder what the effect is on the money supply by cryptocurrency and whether that "cash", conjured out of thin air, is now fueling the stock market. Is it inflation if the new inflow of money is sequestered in equities?

Jeff

I just can't understand why investors would invest in (or lend money to) a company that would invest in crypto currencies.

I would expect the company would "invest" in crypto, for the same reason it engages in other forms of financial manipulation, like round trip trades, stock buybacks, and using a lot of leverage: to juice their short term profits, to juice the price of the stock. So, shareholders would want a piece of that rising stock price, that is juiced by financial manipulation. It all works great, everyone makes a lot of money, until it doesn't.

Steve

<I wonder what the effect is on the money supply by cryptocurrency and whether that "cash", conjured out of thin air, is now fueling the stock market. Is it inflation if the new inflow of money is sequestered in equities?>

Jeff, you're a little late with that question. Like... 17 years late. The Federal Reserve has been inflating assets (stocks, bonds, real estate) since 2008 by pumping money they conjure out of thin air.

https://fred.stlouisfed.org/series/WALCL

More recently, the Shadow Banking System has been inflating asset prices using rehypothecation. Economists refer to a collateral multiplier, which is the measure of the reuse of collateral. Estimates have shown: the collateral multiplier for U.S. Treasury securities has fluctuated between six and nine times, meaning $1 of Treasury collateral can support $6 to $9 in new financing. For other collateral classes, the multiplier has been more stable at around three times.

https://gemini.google.com/app/721e27c4c5cda2ac

This is an enormous amount of funny money which inflates all asset prices.

As for cryptocurrency...Based on recent market data, the total market cap of all cryptocurrencies is generally in the range of $3.7 to $3.9 trillion. For comparison, GDP is $30 trillion.
Since real dollars are taken out of the money system to pay for cryptocurrency this reduces the money available to buy stocks.

Wendy

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