Efficient markets come for the crypto bonanza

TORONTO, Sept 21 (Reuters Breakingviews): Strategy boss Michael Saylor's hoarding of digital currency has turned him into a coinfluencer. Corporate copycats are proliferating, extending from bitcoin into tokens like ether and Solana. The $94 billion firm pioneered the model of harnessing crypto's notorious volatility to fund its purchases. The problem is that volatility is fading. That's an existential problem both for the original coin-stacker and the upstarts promising a shift to operating businesses centered around digital assets.

Corporate treasurers now hold over 1 million bitcoin, according to, opens new tab BitcoinTreasuries.net. The newer twist of piling into the likes of ether and Solana gets an added boost: these tokens underpin, opens new tab stablecoins, which are pegged to the value of a traditional currency, like Circle Internet's USDC. As this market grows, the hope is that the underlying technology will become more valuable. Digital asset hoarders have raised over $16 billion this year for purchases, according to, opens new tab data provider Kaiko. Strategy's neatest trick has been tapping hedge funds for financing. It sells bonds that convert into shares to arbitrageurs who simultaneously short its stock. Traders are protected from price moves up or down; they profit instead from the magnitude of those moves. Since Strategy's value is mostly tied to bitcoin, and bitcoin's worth swings around sharply, it's an ideal issuer.

However, investment giant Fidelity, opens new tab points out that, as bitcoin's ownership grows, each marginal buyer has a diminishing influence on its price. The cryptocurrency's volatility has fallen to less than one standard deviation below its five-year average. It makes sense: BlackRock's iShares Bitcoin Trust exchange-traded fund has $87 billion in assets. That's approaching the most popular ETF tracking gold - the original store of value - which holds $114 billion.

The effects are visible at Strategy. The implied volatility of its standalone options has slumped, according to LSEG data. In July, the company said, opens new tab that it would not issue equity when its enterprise value falls below 2.5 times the value of its bitcoin holdings except to pay interest or preferred dividends. Less than a month later, this was tweaked, opens new tab to give the company more leeway in diluting shareholders.

Upstarts targeting other coins have another promised wheeze. Ether and Solana function by asking holders to put stashed tokens into a mechanism that validates transactions on their digital ledger. In return, "stakers" earn a yield, which Bernstein analysts estimate, opens new tab at between 3 per cent and 5 per cent for ether. Treasury companies hope to turn this into crypto cashflow. Yet traditional bonds offer similar payoffs, with lower risk. As the main engine for coin stacking risks running out of juice, it seems a meager vision of the future compared to the excitement of "number go up."