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Bitcoin recently hit an all-time high of nearly $123,000. How about buying one today for around $200,000? Ludicrous as that might sound, this pitch has proved popular with investors. More companies are now rolling out new riffs on the theme, and adding an extra cadenza of financial innovation.
The progenitor is Strategy — formerly known as MicroStrategy — a software company that pivoted to owning bitcoin. It raises cash through equity and debt offerings, and then buys more of the digital token. Its shareholders have rewarded this lavishly: it owns around $72bn of bitcoin, and has an enterprise value of $130bn.
Many are copying Strategy’s strategy, from online video platform Rumble to heart-medication developer Windtree Therapeutics. In May, a small marketing company called SharpLink Gaming became a shell for investing in ethereum; its market capitalisation has risen from $2mn to $2.7bn, double the value of the crypto it now holds.
As crypto goes mainstream, financiers are now combining it with another edgy financial product: the special-purpose acquisition company. These raise money by issuing shares in public markets, then seeking a company to buy. Cantor Fitzgerald, the investment bank formerly led by current US Secretary of Commerce Howard Lutnick, has sponsored two Spacs that are acquiring pools of bitcoin.
And on Monday, another joined the swelling ranks of crypto-treasury Spacs. The Ether Machine, founded by a one-time UBS banker, said it would merge with listed cash shell Dynamix to create a listed, Strategy-like honeypot, filled with around $1.5bn of ethereum rather than bitcoin.
This might be an improvement on Strategy’s template, in one way. Unlike bitcoin, which generates no yield, ethereum can be “staked” — essentially, locked up for a period of time in return for a yield of around 3 per cent. On the other hand, the global supply of bitcoin, at $2.4tn, is five times bigger.
Needless to say, a precondition for engaging in these investments is a belief that bitcoin, or ethereum, or whichever digital token is involved, will keep rising in value, at least for as long as the holder intends to stick around. Those who believe otherwise need not apply.
Even so, fusing crypto with Spacs is a bold choice. These vehicles have a well-deserved reputation for incinerating fortunes. The median return from those that have completed mergers with target companies is minus 83 per cent since 2020, and minus 64 per cent from deals done this year alone, according to data gatherer ListingTrack.
Perhaps crypto treasuries and Spacs will help each other ease into the mainstream. Every non-disaster helps. If The Ether Machine can trade above its merger price for more than a few months, it would expand the universe of 2025-vintage Spac targets to achieve that feat by a third.
In any case, one of the flaws that felled numerous past Spac mergers was the fact that so many of the companies involved, from adult entertainment firm Playboy to electric-car maker Lucid, dismally failed to meet their lofty revenue and earnings targets, leading investors to dump their shares. Crypto treasuries, at least, offer no such goals to begin with.
john.foley@ft.com
sujeet.indap@ft.com
