The capital game behind the encryption treasure trove carnival: how can retail investors avoid becoming dumb buyers?

Original Title: "What are the potential 'small pits' in the big pump of encryption reserve companies?"

More and more listed companies are starting to "reserve encryption currency".

They are no longer just buying BTC or ETH, but are following the example of MicroStrategy to build a complete replicable financial model: through traditional financial instruments such as PIPE, SPAC, ATM, and Convertible Bonds, they are raising funds on a large scale, building positions, and creating momentum, while adding the new narrative of "on-chain national treasury" to incorporate cryptocurrencies such as Bitcoin, Ethereum, and SOL into the company's core balance sheet.

This is not only a change in asset allocation strategy, but also a new type of "financial engineering": a market experiment driven by capital, narrative, and regulatory gaps. Institutions such as UTXO Management, Sora Ventures, Consensys, Galaxy, and Pantera have successively entered the arena, pushing several marginal listed companies to complete their "transformation" and become "encryption reserve-type meme stocks" in the US or Hong Kong stock markets.

However, this seemingly innovative capital feast is also arousing the vigilance of old-school financiers. On July 18, renowned Wall Street short-seller Jim Chanos warned that today's "Bitcoin treasury craze" is repeating the SPAC bubble of 2021—companies are buying coins by issuing convertible bonds and preferred stocks, but lack actual business support. "Every day there are hundreds of announcements, just like the madness of those years," he said.

This article outlines four key tools and representative cases behind this trend, attempting to answer a question: How does a company evolve from "buying coins" to "making plays" when traditional financial instruments encounter encryption assets? And how should retail investors identify the risk signals in this capital game?

How do financing tools build "coin buying companies"?

PIPE: Institutional discounts for entry, retail investors buying at high positions.

PIPE (Private Investment in Public Equity) refers to the issuance of stock or convertible bonds by publicly traded companies to specific institutional investors at a discounted price to achieve rapid financing. Compared to traditional public offerings, PIPE does not require cumbersome review processes, allowing for quick capital infusion. Therefore, during periods of tightening financing windows or market uncertainty, it is often seen as a "strategic lifeline" tool.

In the trend of encryption treasure troves, PIPE has been given another function: to create signals for "institutional entry," driving stock prices to rise rapidly and providing "market certification" for project narratives. Many publicly listed companies that were originally unrelated to encryption have introduced funds through PIPE, purchasing large amounts of BTC, ETH, or SOL, quickly reshaping into the new identity of "strategic reserve enterprises." For example, SharpLink Gaming (SBET) announced the establishment of an ETH treasury with a $425 million PIPE financing, and its stock price surged more than tenfold in a short period.

However, the impact of PIPE goes far beyond the superficial benefits. In terms of structural design, PIPE investors typically enjoy better entry prices, lock-up arrangements, and liquidity channels. Once the company submits the S-3 registration statement, the related shares can be listed and circulated, allowing institutional investors to choose to cash out. Although the S-3 is essentially just a technical operation and does not directly imply that a sell-off has occurred, in a highly emotional market, this action is often misinterpreted as 'institutions starting to cash out', thereby triggering market panic.

The experience of SharpLink is a typical case: On June 12, 2025, the company submitted an S-3 registration statement allowing the resale of PIPE shares. Although the chairman and Ethereum co-founder Joseph Lubin publicly clarified that "this is a standard PIPE follow-up process in tradfi," and stated that neither he nor Consensys sold any shares, market sentiment has become irreparable. The stock price fell a cumulative 54.4% over the next five trading days, becoming a textbook example of the structural risks of the PIPE model. Although the stock price rebounded later, the severe fluctuations of "big pump followed by a drop" reflect the structural gaps in the PIPE process.

In addition, BitMine Immersion Technologies (BMNR) also staged a "big pump and dump" scenario after announcing the PIPE structure. After announcing a $2 billion PIPE financing for the construction of an Ethereum treasury, the stock price surged and then collapsed, falling nearly 39% in a single day, making it one of the four high-risk "encryption treasury stocks" mentioned in the Unchained report.

The fundamental risk of PIPE lies in information asymmetry and liquidity mismatch: institutional investors enter at a discount, enjoying a reserved exit mechanism; while ordinary investors often only enter during positive narratives such as "successful financing" or "coin-based treasury," passively bearing risks before the release of selling pressure. In traditional financial markets, this "first pump, then harvest" structure has long been controversial, and in the less regulated, more speculative realm of encryption, this structural imbalance is further amplified, becoming another risk driven by capital narratives in the market.

SPAC: Write the valuation in the press release, not in the financial report.

SPAC (Special Purpose Acquisition Company) was originally a tool used in traditional markets for shell company listings: a group of sponsors first establishes a shell company, raises funds through an IPO, and then seeks to acquire a private company within a specified time frame, allowing the latter to bypass the conventional IPO process and achieve "quick listing."

In the encryption market, SPAC has been given a new purpose: to provide a financial container for "strategic reserve" companies, allowing them to securitize their digital asset treasury, such as Bitcoin and Ethereum, and incorporate it into the exchange system, thereby achieving dual convenience of financing and liquidity.

Such companies often lack a clear business path, product model, or revenue source. Their core strategy is to first acquire encryption assets through PIPE financing, create a "coin-based" balance sheet, and then merge via SPAC to enter the public market, packaging an investment narrative for investors that promotes "holding coins equals growth."

Typical representatives include Twenty One Capital, ProCap, and ReserveOne, which mostly revolve around a simple model: raising funds to purchase Bitcoin and putting Bitcoin into a stock code. For example, Twenty One Capital holds over 30,000 Bitcoins, merges with a SPAC backed by Cantor Fitzgerald, and raised $585 million through PIPE and convertible bonds, with part of the funds used for on-chain yield strategies and the development of Bitcoin financial products. ProCap, supported by Pompliano, develops lending and staking businesses around Bitcoin treasury. ReserveOne is more diversified, holding assets like BTC, ETH, SOL, and participating in institutional-level staking and over-the-counter lending.

In addition, these companies are usually not satisfied with "holding coins for a rise." They often issue convertible bonds and increase the issuance of new shares to raise more funds to purchase more Bitcoin, forming a "structural leverage model" similar to MicroStrategy. As long as the price of the coins rises, the company's valuation can expand excessively.

The biggest advantage of the SPAC model is time and control. Compared to the 12-18 months required for a traditional IPO, a SPAC merger can theoretically be completed in 4-6 months, and the narrative space is also more flexible. Founders can tell future stories, lead valuation negotiations, and retain more equity without disclosing existing revenues. Although in reality, such encryption projects often face longer regulatory review periods (for example, Circle ultimately abandoned SPAC in favor of an IPO), the SPAC route remains popular, especially for those "coin-based companies" that have not yet established revenue capabilities, as it provides a shortcut to bypass products, users, and financial fundamentals.

Moreover, the "public company" identity brought by SPAC has a natural legitimacy in the perception of investors. The stock code can be included by ETFs, traded by hedge funds, and listed on Robinhood. Even if the underlying is cryptocurrency, the outer packaging aligns with the language system of traditional finance.

At the same time, this type of structure often carries a strong "signal value": once a large PIPE financing is announced or a partnership with a well-known financial institution is reached, it can quickly activate retail sentiment. The reason why Twenty One Capital has attracted market attention is precisely because it is backed by multiple endorsements from Tether, Cantor, and SoftBank, even though the company's actual operations have not yet begun.

However, the SPAC also brings significant structural risks, not just convenience and allure.

Business Idling and Narrative Overdraft: Many companies involved in SPAC mergers lack stable revenue, and their valuations heavily rely on whether the "Bitcoin strategy" can continue to attract attention. Once market sentiment reverses or regulations tighten, stock prices will quickly fall back.

Institutional Priority Structure Inequality: Initiators and PIPE investors typically enjoy enhanced voting rights, early lock-up release, pricing advantages, and other privileges, while ordinary investors are at a dual disadvantage in terms of information and rights, leading to severe equity dilution.

Compliance Operations and Information Disclosure Challenges: After the completion of the merger, the company must undertake the obligations of a listed company, such as auditing, compliance, and risk disclosure. This is particularly prone to financial report confusion and audit risks, especially in the context where accounting rules for digital assets are not yet well established.

Valuation Bubble and Redemption Mechanism Pressure: SPACs often have inflated valuations in the early stages of listing due to narrative expectations, and if retail investors redeem on a large scale during a sentiment reversal, it can lead to cash flow tightness for the company, expected financing failures, and even trigger a second bankruptcy risk.

The more fundamental issue is that SPAC is a financial structure, not value creation. It is essentially a "narrative container": packaging the future vision of Bitcoin, signals of institutional endorsement, and plans for capital leverage into a tradable stock code. When Bitcoin rises, it looks sexier than an ETF; but when the market reverses, its complex structure and fragile governance will be exposed more thoroughly.

Related Reading: "2024 Encryption IPO Wave: SPAC Replaces Traditional Shells, Bitcoin Companies Rush Together"

ATM: Print money anytime, the more it falls, the more it issues.

ATM (At-the-Market Offering) was originally a flexible financing tool that allows listed companies to sell shares to the public market in phases at market prices, raising funds in real time. In traditional capital markets, it is often used to hedge operational risks or supplement cash flow. In the encryption market, ATM is given another layer of functionality: it becomes a "self-financing channel" for strategic reserve companies to increase their holdings of Bitcoin and maintain liquidity at any time.

A typical practice is for the company to first build a narrative around a Bitcoin treasury, then launch an ATM program, continuously selling shares to the market in exchange for cash to acquire more Bitcoin, without the need for clear pricing and time windows. Unlike PIPE, it does not require specific investors to participate, nor does it involve the complex disclosure processes typical of an IPO, making it more suitable for companies that are flexible in their pace and narrative-driven in their asset allocation.

For example, LQWD Technologies, a Canadian listed company, announced the launch of its ATM program in July 2025, allowing it to sell up to 10 million Canadian dollars of common stock to the market on an irregular basis. In the official statement, the ATM program "enhances the company's Bitcoin reserve capacity and supports its global Lightning Network infrastructure expansion," clearly conveying its growth path centered on Bitcoin as a core asset. Similarly, Bitcoin mining company BitFuFu signed ATM agreements with several underwriting institutions in June, planning to raise up to 150 million dollars through this mechanism, and has officially filed with the SEC. Its official documents indicate that this will help the company finance according to market dynamics without the need to set financing windows or trigger conditions in advance.

Related reading: "Public company LQWD launches ATM plan to rapidly increase Bitcoin holdings" "BitFuFu plans to launch $150 million ATM financing"

However, the flexibility of ATMs also means higher uncertainty. While companies need to submit a registration statement to the SEC (usually Form S-3) detailing the scale and plan of the issuance and are subject to dual regulation by the SEC and FINRA, the issuance can occur at any point without prior disclosure of specific prices and times. This "no-warning" issuance mechanism is particularly sensitive when stock prices are falling, easily triggering a "the more it drops, the more it issues" dilution cycle, leading to weakened market confidence and damage to shareholder equity. Due to the high degree of information asymmetry, retail investors are more likely to passively bear risks in this process.

In addition, ATMs are not suitable for all companies. If a business does not have the status of a "Well-Known Seasoned Issuer (WKSI)", it must also comply with the "one-third rule", which means that fundraising through ATMs within 12 months must not exceed one-third of its public float market value. All transactions during the issuance process must be completed through regulated brokers, and the company must also disclose fundraising progress and the use of funds in its financial reports or through an 8-K filing.

Overall, ATM is a means of centralizing financing power: companies do not need to rely on banks or external fundraising; they only need to "push a button" to raise cash to increase their holdings of Bitcoin and Ethereum. For the founding team, this is an extremely attractive path; but for investors, it may mean passive dilution without any warning. Therefore, behind the "flexibility" is a long-term test of governance capability, transparency, and market trust.

Convertible Bond: Financing + Arbitrage "Grasping Both Hands"

Convertible Bonds are a financing tool that combines the attributes of both debt and equity, allowing investors to enjoy bond interest while retaining the right to convert the bonds into company stock, thus providing a dual revenue path of "fixed income protection" and "equity potential." In the encryption industry, this tool is widely used for strategic financing, especially favored by companies looking to raise funds to "increase their Bitcoin holdings" without immediately diluting their equity.

Its appeal lies in the fact that for enterprises, convertible bonds can achieve large-scale financing at a lower coupon rate (even zero); for institutional investors, it provides an arbitrage opportunity of "downside protection, upside stock price appreciation." Many mining companies, stablecoin platforms, and on-chain infrastructure projects have introduced strategic funding through convertible bonds. However, this also lays the groundwork for dilution risk: once the stock price reaches the conversion condition, the bonds will quickly convert into shares, releasing large-scale selling pressure and causing sudden impacts on the market.

MicroStrategy is a typical case of using convertible bonds for "strategic reserve-type accumulation." Since 2020, the company has issued two convertible bonds, raising a total of $1.7 billion, all of which is used to purchase Bitcoin. The first bond issued in December 2020 has a 5-year term, with a coupon rate of only 0.75%, and a conversion price of $398 (a premium of 37%); the second bond issued in February 2021 even had a 0% interest rate, a 6-year term, and a conversion price of $1,432 (a premium of 50%), yet still received $1.05 billion in oversubscription. MicroStrategy leveraged over 90,000 Bitcoins with an extremely low cost of capital, achieving a super accumulation of Bitcoin with almost zero leverage cost, and its CEO Michael Saylor is thus referred to as "the biggest gambler in the encryption world."

However, this model is not without its costs. MicroStrategy's financial leverage has far exceeded traditional corporate standards, and once the price of Bitcoin experiences a significant drop, the company's net assets could turn negative. As the IDEG report indicates, when BTC falls below $17,500, MicroStrategy will face a situation of insolvency on paper. Additionally, due to its convertible bonds being in the form of private placements, some mandatory redemption and conversion terms have not been disclosed, further intensifying market uncertainty regarding the pace of future dilution.

Related reading "Uncovering the Number One 'Gambler' in the Encryption World: Is MicroStrategy's Convertible Bond Strategy Reliable?"

Overall, convertible bonds are a double-edged sword: they provide companies with a high degree of freedom between "non-dilutive financing" and "strategic accumulation," but they may also trigger concentrated selling pressure at a certain moment. Especially under conditions of information asymmetry, ordinary investors often find it difficult to perceive the specific triggering points of conversion terms, becoming the ultimate bearers of dilution.

Epilogue: Above Narrative, Structure is King

On July 18, Wall Street's famous short seller Jim Chanos compared this wave of "encryption treasury craze" to the SPAC frenzy of 2021—when $90 billion was raised within three months, only to collectively collapse in a bloodbath. He pointed out that the difference this time is that companies are buying Bitcoin by issuing convertible bonds and preferred stock, but there is no actual business support. "We can see announcements worth hundreds of millions almost every day," he said, "this is reminiscent of the SPAC madness back then."

Related reading: "Wall Street's Big Short Warns: Corporate Bitcoin Treasury Mania is Repeating SPAC-style Bubble Risks"

At the same time, a report from "Unchained" further pointed out that there are serious structural risks associated with these "encryption treasury companies". The report listed representative projects such as SATO, Metaplanet, and Core Scientific, pointing out that their real asset net value (mNAV) is far lower than market valuations. Coupled with issues such as unclear disclosures, insufficient treasury quality, and complex structures, once market sentiment reverses, it is highly likely to shift from "encryption reserves" to "financial nuclear bombs".

Related reading: "These 4 encryption treasury companies are ready to face a big pump in prices"

For ordinary investors, "company buying coins" is far more complex than it appears on the surface. What you see are announcements, price rises, narratives, and numbers, but what truly drives price fluctuations is often not the coin price itself, but rather the design of the capital structure.

PIPE determines who can enter at a discount and who is responsible for taking over; SPAC determines whether a company can bypass financial quality checks and go straight to storytelling; ATM determines whether the company is still "selling while falling" when the stock price drops; convertible bonds determine when suddenly someone exchanges debt for stock and sells in bulk.

In these structures, retail investors are often placed in the "last leg": lacking priority information and no liquidity guarantees. What seems to be an investment of "optimism in encryption" actually bears multiple risks of leverage, liquidity, and governance structure.

So, when financial engineering enters the narrative battlefield, investing in encryption companies is no longer just a matter of being bullish on BTC or ETH. The real risk does not lie in whether the company has bought coins, but in whether you can understand how it "sets the stage."

How the market value expands through the price of borrowed coins, and how it releases pressure through structure in return - the design of this process determines whether you are participating in growth or pulling the trigger for the next round of big pump.

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