Crypto treasury companies | Last Tuesday, SharpLink Gaming Inc. was an online marketing company for sports betting with a stock price of about $2.91 per share and an equity market capitalization of about $2 million. It was listed on the Nasdaq, but only barely; a few weeks ago it had to do a reverse stock split to stay above Nasdaq's $1 minimum stock price, and it also didn't meet Nasdaq's minimum $2.5 million shareholders' equity requirement. So on Tuesday it announced a stock offering, raising $4.5 million at $2.94 per share, with a use of proceeds of "regaining compliance with Nasdaq's minimum requirement for total stockholders' equity." Though it added: "We may elect to use a portion of the proceeds to acquire crypto currencies in connection with execution of the potential treasury strategy we currently have under consideration." And why wouldn't it? SharpLink was only in the very most technical sense a US public company: It had a public listing, but with a $2 million market capitalization it did not really meet the requirements for a public listing, and its business — with revenue in the mid seven figures — did not really justify the expense and complexity of being a public company. In the past, that would be bad. In 2025, though, it is good. SharpLink combined two assets that are currently in high demand and in, uh, not that short but short enough supply: - It has a public listing.
- It's not doing much with it.
This means that it's the perfect candidate to pivot to being a crypto treasury company. As I often comment around here, the US public stock market will pay $2 or more for $1 worth of crypto. Every crypto entrepreneur has noticed this. If you have a big pot of Bitcoin or Ethereum or Solana or Dogecoin or Trumpcoin or anything else, you should wrap it in a US public company and sell it to stock investors for twice its actual value. But to wrap it in a public company, you need a public company. There are only so many of those, and they are busy. If you called, like, Apple Inc. and said "hey we'd like to merge our big pot of Dogecoin with you so that our coins are worth more," Apple would say no. The trick is to call a company that is (1) a public company but (2) only barely. Those companies' phones are ringing off the hook. And so today we got this press release: SharpLink Gaming Announces $425,000,000 Private Placement to Initiate Ethereum Treasury Strategy SharpLink continues its online performance-based marketing company serving the U.S. sports betting and global iGaming industries Upon the closing of the Private Placement, SharpLink will adopt an Ethereum Treasury Strategy Joseph Lubin, the Founder and CEO of Consensys and Co-Founder of Ethereum, will become Chairman of the Board of Directors of the Company effective upon the closing of the private placement Consensys, a blockchain software company run by a co-founder of Ethereum, would like to run a $425 million pot of Ethereum that the stock market values at much more than $425 million. SharpLink was just there. So Consensys and its co-investors ("prominent crypto venture capital firms and infrastructure providers such as ParaFi Capital, Electric Capital, Pantera Capital, Arrington Capital, Galaxy Digital, Ondo, White Star Capital, GSR, Hivemind Capital, Hypersphere, Primitive Ventures, and Republic Digital among others") will put in $425 million to buy SharpLink stock at $6.15 per share, and SharpLink will buy Ethereum with the money. The stock opened today at $33.93 per share and was trading around $35 at 1:30 p.m., for a market capitalization of $2.5 billion. [1] SharpLink's planned $425 million stash of Ethereum is worth $2.5 billion on the stock market. [2] Note that SharpLink apparently doesn't own any Ether. The investors are contributing $425 million in dollars, not Ethereum. This is not "we've got a stash of Ethereum and might as well sell it on the stock exchange"; it's "man the stock exchange is paying $2 for $1 of Ethereum, we'd better do that arb." Or, in this case, $6 for every $1 of Ethereum. And: Right? Everyone should do this arb? This is not investment advice but honestly what am I doing with my life. Right now, if you have a few hundred million dollars lying around, you can buy any crypto you like with it, and the US stock market will give you an immediate 500+% paper profit. All you need — besides the startup cash — is a little public company to put your crypto in. Remember the New Jersey deli that briefly had a $2 billion fully diluted market cap? It was just slightly before its time. The deli was designed for this sort of trade, or rather its corporate parent was: It was a shell of a public company with a placeholder business (the deli) that was intended to merge with some other, private, probably foreign company to give it a US listing. For reasons that were never entirely clear to me, the deli people also manipulated its stock and are now going to prison, but that is not essential to the trade. What is essential is finding a good merger partner. The deli got shut down before the rise of crypto treasury companies, but man, what a great trade that would have been. A single New Jersey deli merging with a $425 million pot of Ethereum would have justified its $2 billion market cap, sort of. A few hundred million dollars' worth of crypto, plus a wisp of a public company, is worth billions of dollars now. SharpLink's stock was up 35% last Thursday and 79% last Friday, before the deal was announced today. I suppose it's possible that the deal leaked and there was insider trading, but I wouldn't bet on that. SharpLink was already open about considering a crypto treasury strategy, and it was the perfect candidate for it (had public listing, wasn't doing much with it). Even without inside information, it was reasonable to think "hey this little company is going to put out some sort of crypto press release and go up several hundred percent, I might as well buy it." This is not investing advice, and when I say "reasonable" in that sentence I do not mean it in the conventional sense. Just, you know. Everything about this is weird but let me focus on three particularly weird things. First: This keeps working? I've been writing a lot about crypto treasury companies for months now — MicroStrategy Inc. more or less invented the idea and has been doing it for years — and there has been an absolute explosion of them recently. Intuitively one would think that they can't all work. MicroStrategy is a large public company with a real investor relations function, a good marketing schtick for retail, a huge stash of Bitcoins, a first-mover advantage, a clever and diversified funding strategy, inclusion in levered exchange-traded funds and some stock indexes, etc.; if some sorts of investors (mutual fund managers? certain retail investors?) want Bitcoin exposure but can't buy actual Bitcoins or futures or ETFs, MicroStrategy is a high-profile option and perhaps does deserve to trade at a premium. But the zillions of quick copycats all trade at premiums too. The stock market just consistently loves brand-new crypto treasury companies. I have no explanation for this. "It looks a little bit like crypto keeps playing a prank on the stock market, and the stock market keeps falling for it," I wrote, a month ago, and it looks a lot more like that now. Second: People keep doing it. This is less surprising: As I also wrote last month, "if you run a crypto investment fund it is absolute malpractice not to acquire a small, not-particularly-operating US public company" to do this trade. If you are in any sort of crypto-adjacent business, by far the lowest cost of capital available in the world comes from acquiring a public company and pivoting it to a crypto treasury model. And so we've talked about Tether and SoftBank and Bitfinex and Nakamoto Holdings and others getting into this game. The Financial Times reports that Trump Media & Technology Group is going to get into it, which, I mean, of course, how could it not. Still. There's a reason that many of the public companies involved here (other than MicroStrategy) are small and semi-defunct, and Apple is not getting into the crypto treasury business: If you run a real business, you are probably more interested in running that business than you are in getting a high stock price with one weird trick. The same might be true for some crypto entrepreneurs. One assumes that Vitalik Buterin, the main founder of Ethereum, is more interested in improving Ethereum than he is in selling pots of it at high prices to stock investor. But a lot of people can't resist the high stock price. Third: How do you cash out? SharpLink created $2 billion of paper profits out of thin air this morning. Now what? Presumably the private placement investors (Consensys and its co-investors) can't sell their stock immediately — they probably have lockups and would need to register their shares — and anyway they own about 97% of the stock and if they sold it all it would tank. In the year before last Friday, the stock traded an average of about 75,000 shares per day, so they would have to sell more than three years' volume. The stock market values their $425 million stash of Ethereum at $2.5 billion, but they can't just take that $2.5 billion out; it's locked up in the stock market. It does seem like a problem worth working on, though. Modern finance has discovered a new method for reliably creating billions of dollars of stock market value out of thin air. It's not literally the case that anyone can do it in an hour, but a lot of people can apparently do it pretty consistently without much effort. But it is just a cool party trick if you can't convert that value into cash. Being a billionaire because you own 97% of SharpLink Gaming is fun, but 100% of SharpLink Gaming was worth $2 million a week ago, so you might worry about how long it will last. You might want to take some money off the table, and just naively selling the stock doesn't seem like it would work. There are boring answers. "Now they run a multi-billion dollar company with an extremely low cost of capital; they can keep issuing new shares to the public to buy more Ethereum, growing their empire and influence, and when you run a big company like that you can pay yourself a large salary." Meh. They had hundreds of millions of dollars to begin with; they don't want a nice job. The question is, how can they extract that $2 billion? I don't have a good answer, and if I did I would probably be doing it. I will note, however, that this feels like a very crypto problem, one that is quite common in crypto but that the recent wave of treasury companies has transferred to the stock market. The classic crypto story is: - You create some magic beans, and own most of them.
- Relatively few of the beans trade — most of them just sit in your wallet — but the ones that do trade at a high market price, giving the beans a large market capitalization.
- This makes you a billionaire on paper, but if you were to sell your beans the market would crash and you'd get nothing.
- Being a billionaire on paper is nice and gets you various perks and self-esteem, but you have some reason to think that the magic bean market can't be this good forever, so you'd really like to cash out.
There are all sorts of examples, but the most famous is probably the collapse of Sam Bankman-Fried's crypto exchange FTX and his crypto investment firm Alameda Research, which looked like valuable companies worth tens of billions of dollars, until a lot of that value turned out to be in various cryptocurrencies ("Samcoins") that they had created and that went poof when confidence in FTX declined in November 2022. I wrote about it at the time, and I quoted something that Bankman-Fried had previously said to me on a podcast, about a box of crypto and its associated token: If everyone kind of now thinks that this box token is worth about a billion dollar market cap, that's what people are pricing it at and sort of has that market cap. Everyone's gonna mark to market. In fact, you can even finance this, right? You put [the] token in a borrow lending protocol and borrow dollars with it. If you think it's worth like less than two thirds of that, you could even just like put some in there, take the dollars out. Never, you know, give the dollars back. You just get liquidated eventually. And it is sort of like real monetizable stuff in some senses.
In crypto, if you have magic beans that are currently priced at $1 billion, maybe someone will lend you $500 million of real money against them, with no recourse to you. In the stock market … look you're going to have a hard time borrowing 50%, or 10%, of the market value of a 97% stake in a crypto treasury company whose market cap has increased 100,000% in a week, but, man, I would try.  | | | There is another famous example in crypto of someone monetizing a stash of magic beans. In October 2022, an "applied game theorist" named Avi Eisenberg applied some game theory to a decentralized crypto futures exchange called Mango Markets. Mango operated a market where people could trade perpetual futures contracts on various crypto tokens, including its own token, MNGO. The futures contracts were settled against "oracle" prices derived from several other crypto exchanges: Your Mango Markets futures went up or down depending on the price of the underlying crypto token on those other reference exchanges. Mango also allowed customers to borrow crypto against the value of their positions; if you had a $100 profit on your futures trades, Mango would lend you, say, $50 against that position, secured by your futures, with no recourse to you. [3] So Eisenberg did this trade: - He bought a few million dollars' worth of perpetual futures on MNGO on Mango Markets.
- He simultaneously sold a few million dollars' worth of those same futures, leaving him flat.
- He then went out to the reference exchanges and bought some MNGO tokens.
- MNGO doesn't trade that much, so his buying pushed up the price.
- This made his long futures position very valuable.
- He went back to Mango Markets and borrowed against his long MNGO futures position, withdrawing crypto from Mango Markets.
- Then he sold his MNGO tokens on the reference exchanges, which pushed down the price.
- This made his short futures position more valuable, so he borrowed against that one too.
- "In total, Eisenberg borrowed and then quickly withdrew over $100 million in cryptocurrency from Mango Markets." [4]
Colloquially, you might say that Eisenberg stole $100 million from Mango Markets: He manipulated the price of the token, which inflated the value of his futures, and then he borrowed against that value to extract $100 million from the market. The borrowing was non-recourse — as it kind of has to be in a decentralized crypto market — so he never had to pay it back. He did get arrested though. We have talked about this several times before, including (1) when he did it, (2) when he tweeted a "statement on recent events" explaining that he had done it but it was cool because "all of our actions were legal open market actions, using the protocol as designed, even if the development team did not fully anticipate all the consequences of setting parameters the way they are," and (3) when he was arrested, because US federal prosecutors did not agree with that. Eisenberg was convicted at trial last April, but on Friday a judge threw out his convictions. Bloomberg News reports: US District Judge Arun Subramanian on Friday vacated Avraham Eisenberg's fraud and manipulation convictions and acquitted him of a third charge. The judge ruled that the trial evidence didn't support the jury's decision that Eisenberg had made false representations to Mango Markets, a decentralized finance platform run by smart contracts.
Here is the opinion. There are two separate problems here. One problem is that Eisenberg was prosecuted in New York, but he did his applied game theory in Puerto Rico, and he applied it to crypto exchanges that sort of famously exist nowhere. The three reference exchanges where he manipulated MNGO prices — FTX, AscendEX, and Serum — were certainly not located in New York; FTX was headquartered in the Bahamas, AscendEX in Romania, and Serum is a decentralized exchange that might not have a headquarters. "There is no allegation that the Mango Markets platform had ties to New York." There is a widespread belief that, if you do any sort of financial crime, surely it touches New York, and so New York federal prosecutors can go after you, but there are some limits, and crypto has found them. There is a sort of stereotypical belief in crypto that if you put stuff "on the blockchain" it will somehow become immune to the jurisdiction of national laws. That is not quite true! Eisenberg could, apparently, be prosecuted in Puerto Rico, and maybe even Romania. But putting stuff on the blockchain might make it immune to the jurisdiction of the US Attorney's Office for the Southern District of New York, which is honestly a pretty good trick. Anyway that's the first problem: The judge vacated Eisenberg's convictions for commodities manipulation because they were obtained in the wrong place. The Justice Department could, if it wants, try again in Puerto Rico on those charges. [5] But Eisenberg was also convicted of wire fraud, and the judge threw out that conviction entirely; prosecutors can't try again. The issue there is that, while Eisenberg definitely did some manipulation, it's not clear that he did any fraud. Commodities laws — which seem to apply to crypto tokens including MNGO — prohibit "the use of any manipulative device" in connection with any derivatives trade, and so Eisenberg was charged with commodity manipulation. But he was also charged with wire fraud, which requires telling a lie for money using a computer. "Establishing a scheme to defraud requires proof of a material misrepresentation," and the judge concluded that, whatever Eisenberg did, he didn't lie to anyone. The government argued that he did (from the opinion, citations omitted): At trial, the government pointed to two alleged misrepresentations that Eisenberg made: First, he deceived Mango Markets into believing he was taking out a loan of cryptocurrency, when in fact he intended to steal it; and second, he misrepresented the value of his collateral, making Mango Markets believe it was valuable, when it was artificially inflated and worthless.
But neither of those are lies. It might seem like clicking "borrow" when you never intend to repay the loan could be fraud, but in the context of a non-recourse loan on a crypto platform, that isn't really true. The way those platforms work is that you are not personally liable to repay the loan: The platform can only use your collateral for repayment, and it would not be unusual to walk away from an underwater loan. As the judge put it: What happens if a user borrows funds but the value of their collateral plummets? They get liquidated. There was no evidence that the "borrow" function on Mango Markets entailed an obligation to repay—or any other obligation for that matter—even if that's how the term is conventionally understood. So while in other contexts a contractual agreement to "borrow" might give rise to a claim of fraud if an individual intentionally misrepresents or omits something relevant to the terms of the agreement or the parties' negotiations, here there were no terms and no negotiations. There was just the word "borrow." Or as Bankman-Fried put it: "Never, you know, give the dollars back. You just get liquidated eventually." As for misrepresenting the value of his collateral, Eisenberg didn't actually do that: Mango Markets calculated the value of the collateral on its own, using market prices (which he manipulated). Delightfully, this isn't fraud, because of a case about Libor manipulation: Of course, Eisenberg knew that the value of his portfolio was the product of his market manipulation, and he knew it wouldn't stay valuable for long. So although the value of Eisenberg's portfolio may have been technically accurate at the specific moment in time when he borrowed against it, the government argues that Eisenberg's representation about its value was deceptive. … The government argues that when Eisenberg borrowed, he implicitly represented to Mango Markets that the collateral in his account had not been manipulated, and that it was in fact valuable, both of which were false. But that theory runs into the Second Circuit's decision in United States v. Connolly. There, Deutsche Bank (DB) submitted daily reports to the British Bankers' Association (BBA) about "the rate at which DB could borrow cash in the interbank market." Defendants, who were traders at the bank, sometimes requested that the LIBOR submitters make submissions beneficial to their positions. The evidence at trial included testimony from another DB employee and the LIBOR submitters themselves that "altering DB's LIBOR submissions to benefit DB trader positions was 'wrong' at the time they engaged in it." Among other things, the court rejected the government's argument that the submissions carried an "'implied certification' that there had in fact been no trader influence on the submission." Even though there was evidence that market participants understood that trader influence on LIBOR submissions was improper, the absence of any rule or instruction prohibiting that conduct was dispositive. The court observed that while the BBA later adopted rules prohibiting this kind of conduct (just like Mango Markets did after Eisenberg's scheme), "during the earlier period at issue in the present case, there were no such guidelines or prohibitions." We talked about Connolly in 2022: Libor was a made-up number, so the Deutsche Bank traders couldn't have committed a crime by making it up wrong. One can see the analogy to the price of the MNGO token. Anyway the point here is that, at least for wire fraud, the terms and conditions matter. If Mango Markets had said to its users "if you want to borrow against your positions you have to promise that you're not doing any market manipulation," then Eisenberg's trades would have been fraud. But it didn't say that — it didn't say anything — so they weren't. Another stereotypical belief in crypto is that "code is law": If some crypto system allows you to do something, then you are allowed to do it, "even if the development team did not fully anticipate all the consequences of setting parameters the way they are." Background legal norms and expectations and terms and conditions don't matter; all that matters is what is coded into the system. That isn't quite the result in this case. The result in this case is: Code can be law. If you run a crypto platform and you say "hey try not to do any manipulation or hacking or whatever," and then someone does manipulation, they can get in trouble. But if you run a crypto platform and don't say that, if you say "here's how the platform works, go for it," and someone finds a manipulation, that's fine, or at least it's not wire fraud. Which makes sense? Once, in talking about Eisenberg's trades, I wrote that "you could imagine having two market regimes and letting people opt into one or the other": a "Nice Market," with rules against manipulation and insider trading, and a "Fun Market," where any source of edge that you can find is fair game. I suggested that crypto, with its relative lack of real-world importance or interconnection with the financial system (which is changing!), could be a good place to allow Fun Markets, but of course on a strictly opt-in basis. That might be, a little bit, the actual rule. None of this helps Eisenberg all that much, though, because as Bloomberg notes, when he was arrested for the crypto stuff, "US agents found 1,274 images and videos of child pornography downloaded between 2017 and 2022," and "he was sentenced in May to about four years in prison for child pornography possession." Here is sort of a funny Wall Street Journal story about how David Solomon, the chief executive officer of Goldman Sachs Group Inc., [6] "was fed up with his critics inside Goldman Sachs" and decided to "crack down": Solomon told Goldman's board that he was going to take action, pushing out troublemakers who he said were undermining him with their leaks, people familiar with the matter said. The board told Solomon he had their support. By last year, longtime executives who had openly criticized his strategy were gone. The departures sent a message inside Goldman: No one is safe if they go up against the CEO.
The funny part is that the internal criticism seems to have been mostly about Goldman's embrace of consumer businesses, which was Solomon's big strategic push early in his time as CEO: At a dinner with roughly a dozen partners, Ed Emerson, a top trader, blasted the consumer business. ... Longtime partner Jim Esposito, co-head of the global banking and markets division, was another critic of the consumer strategy. Esposito said in group meetings and in one-on-ones with Solomon that the firm was making mistakes expanding the business, and that he didn't agree with Solomon's all-in approach on consumers. ...Esposito wrote a memo for Solomon offering strategic recommendations, including why the consumer business wasn't right for Goldman. But, because he was the boss, Solomon overruled his critics and moved further into the consumer business: Solomon pushed forward with a roughly $2 billion acquisition of specialty lender GreenSky in 2021, overruling deputies who had counseled against the deal when it first came up a few years earlier. ... Esposito told a colleague that during another meeting, Solomon told Esposito that Disney chief Bob Iger had given him some advice: At some point the CEO has to pick the strategic direction himself, and the leadership team has to be on board. And … he was wrong and the critics were right? [7] "In 2023, Goldman agreed to sell [GreenSky] at a loss," and "the bank is exiting consumer lending and refocusing on its core businesses of advising giant companies and wealthy individuals." The basic contours of the story seem to be that Solomon made a bad strategic decision, various partners wrote memos explaining why it was bad, he pushed them out, and they were correct. At one level: Yes, of course, that's how companies work; "at some point the CEO has to pick the strategic direction himself, and the leadership team has to be on board." If they're not, they get pushed out. If the strategic direction is wrong, well, then the CEO picks a different strategic direction, and perhaps a few more subordinates get pushed out as scapegoats. (In 2023, "the board had launched a review about what had gone wrong with the consumer business and who should be held responsible.") If the CEO is generally good at running the business, he might get a mulligan on a bad strategic direction. At another level, we have talked a few times about another gripe from Goldman partners under Solomon, which is that there has been a decline in the bank's historical partnership culture. In the old days, if the senior partner picked a strategic direction and the other partners disagreed, and they were right, they would have a lot of ability to (1) influence the strategic direction and (2) at least carp a lot at him for being wrong. In the modern, hierarchical, normal-public-company form of Goldman, the partners just have to fall in line. I guess there are two main reasons to meet with an official in President Donald Trump's administration: - To try to get them to do what you want, or
- To see if they'll tell you what they're going to do, so you can insider trade on it.
As we have discussed a few times before, the Trump administration has a tendency to drastically lurch from policy to policy, and also to leak about the lurches in advance, so there are some possible trading opportunities. Last week Trump held an exclusive dinner for the people who paid the most money for his memecoin. I have always analyzed that as, you know, what it sounds like: People pay Trump money to have dinner with him so they can lobby him for the policies or personal goodies that they want. But of course there is also the second possibility: People pay Trump money to have dinner with him in case he comes to the dinner and says "I'm gonna build a US Solana reserve" or whatever and there are trades to be done. Here is a New York Magazine report on the dinner, which is very funny — "one attendee estimates that there were 'five to eight' women" at the 220-person dinner — but also quotes one pretty sensible trader named Morten Christensen, who bought $50,000 of Trumpcoin and hedged by shorting futures, [8] and who was there for the insider trading: "When this opportunity pops up and you figure out a way to do it risk free? Yeah, I'll take that opportunity for sure," he says. But the bonus he hoped for did not work out. "Me and my friends were hoping that he would slip something that we could trade on," he says. One of his friends even livestreamed to a 20-person group on Discord in case there was market-moving news. "So we were all having our wallets open and our exchanges open to be able to make a trade if he said something, but he didn't say anything."
Ah well. It was a reasonable bet though. HSBC Cuts Dozens of Analyst Jobs in Investment Banking Overhaul. EU plans sweeping stress test of non-banks. Why Exxon and Chevron Are Fighting So Hard Over an Oil Project in Guyana. Investors pile into rocks to absorb carbon emissions. Japanese Bonds Surge on Bets That Government May Tweak Issuance. The Prince, His Money Manager and the Corruption Scandal Rocking Monaco. Trump Threatens to Redistribute $3 Billion in Harvard Grants to Trade Schools. Anthropic's new AI model turns to blackmail when engineers try to take it offline. Kid Cudi says Diddy broke into his home, unwrapped his family's Christmas gifts, and shut his dog in the bathroom. Man sleeps through massive container ship running aground on his front lawn. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! |
