The cryptocurrency market has been severely hit, and the "Digital Currency Financial Vault Company" that "leveraged cryptocurrencies" has collapsed

A cryptocurrency sell-off that began in October last year is engulfing Wall Street's hottest investment strategy this year. "Digital currency treasury companies," which buy Bitcoin, Ethereum, and other cryptocurrencies through borrowing or fundraising, were once seen by investors as excellent tools for leveraging cryptocurrencies, but now their stock prices have fallen far more than the tokens they hold.

This model was pioneered by Michael Saylor in 2020, transforming a small software company named MicroStrategy into a Bitcoin whale. The company's market value peaked at about $128 billion in July last year but has now shrunk to about $70 billion. Over the past month, MicroStrategy's stock price has dropped 25%, while Bitcoin's decline during the same period was 15%.

This round of plummeting prices has affected several heavyweight investors, including renowned venture capitalist Peter Thiel. The Ethereum treasury company BitMine Immersion Technologies, supported by Thiel, has fallen over 30% in the past month, while another company he invested in, ETHZilla, which transitioned from a biotech firm, has dropped 23% during the same period.

The total market value of cryptocurrencies has plummeted about 20% from the nearly $4.4 trillion historical high reached on October 6, nearly erasing all gains made in the first ten months of this year, with a year-to-date increase of only 2.5%, down about 18% from the record high of $120,000 set on October 6.

The Premium Trading Logic of Treasury Companies is Questioned

The core issue with digital currency treasury companies is that investors are effectively paying a premium far above the net asset value for companies holding cryptocurrencies. Brent Donnelly, president of Spectra Markets, bluntly stated, "This whole concept makes no sense to me. You're just buying a $1 bill for $2. Ultimately, these premiums will be compressed."

This skepticism is not unfounded. Notable short-seller Jim Chanos has been shorting MicroStrategy while buying Bitcoin, believing that investors have no reason to pay a premium for Saylor's company.

Last Friday, he told clients it was time to close this trade. In an interview on Sunday, he stated that while treasury company stocks are still overvalued, the premium level is no longer extreme, "the trading logic has basically played out."

When digital currency treasury companies first emerged, they provided a channel for institutional investors who previously found it difficult to invest directly in cryptocurrencies. However, cryptocurrency exchange-traded funds launched in the past two years have been able to offer the same solutions, weakening the unique value proposition of treasury companies.

Leverage Amplifies Downside Risks

"Digital asset treasury companies are essentially leveraged crypto assets, so when cryptocurrencies fall, they will fall even more," Matthew Tuttle stated. The MSTU ETF he manages aims to provide double the returns of MicroStrategy, and the fund has plummeted 50% over the past month This leverage effect is vividly reflected in several treasury companies. Tuttle emphasized that "Bitcoin has proven it will not disappear, and buying on dips will yield returns."

Matt Cole, CEO of Bitcoin treasury company Strive, stated that the average price at which the company raised funds to purchase Bitcoin earlier this year was more than 10% higher than current levels. Strive's stock price has fallen 28% in the past month. Cole mentioned that many treasury companies are "in trouble" because it is difficult for loss-making companies to sell new shares to buy more cryptocurrencies, which could put pressure on cryptocurrency prices and raise questions about these companies' business models.

However, Cole stated that Strive has enough capacity to "weather the volatility" due to recent financing through preferred shares rather than debt.

Believers Still Hold Firm

Despite the heavy setbacks, some investors are still increasing their positions. 29-year-old investor Cole Grinde from Seattle began accumulating Ethereum earlier this year at BitMine, purchasing about $100,000 worth at around $45 per share, and is currently down about $10,000. However, the beverage industry salesman stated that he is increasing his holdings and is helping to offset losses by selling BitMine options.

Grinde attributes his confidence in the company to the growing popularity of the Ethereum blockchain and the influence of Tom Lee. Lee worked at JP Morgan for 15 years and is currently a managing partner at Fundstrat Global Advisors, as well as a frequent guest on business television shows. "I believe his network and charisma helped the stock price soar after he took over," Grinde said.

Saylor himself maintains a consistent optimistic attitude, claiming on social media that Bitcoin is currently on a "discount promotion."