The "hoarding coins" model has collapsed? MSTR has "paused buying coins," while Thiel-backed ETHZilla has already "sold coins to repay debts."
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The cryptocurrency hoarding strategy that swept the market in the first half of this year is now at a turning point.
According to documents filed with the U.S. Securities and Exchange Commission on Friday, ETHZilla, a company backed by billionaire Peter Thiel, has sold $74.5 million worth of Ethereum tokens to repay debt, while Strategy—the pioneer of this model—has also paused Bitcoin purchases this week in order to bolster its cash reserves.
According to the documents, ETHZilla will continue to evaluate multiple financing strategies, including selling Ethereum and equity financing. This is the company’s second sale of Ethereum in four months, having previously sold about $40 million worth of Ethereum at the end of October for a stock buyback.
Meanwhile, Strategy founder Michael Saylor increased the company’s cash reserves to $2.19 billion over the past week and stopped buying Bitcoin.
The company previously stated it had built up cash reserves to repay the high interest generated by prior securities issuances. According to TD Cowen analyst Lance Vitanza, Strategy needs to pay approximately $824 million annually in interest and dividends.
These developments indicate that the business model of accumulating cryptocurrencies through publicly listed companies is being put to the test. Since hitting a record high in early October, Bitcoin has fallen by about 30%, and Strategy’s stock price has plummeted over 50% in the same period.
(Strategy’s stock price dropped 50% over the past three months)
ETHZilla’s Pivot: From Hoarding to Selling Tokens
ETHZilla was still a follower of the digital asset treasury strategy four months ago.
This company, headquartered in Palm Beach, Florida and formerly known as 180 Life Sciences Corp., announced on August 18 its transformation from a biotech company to a digital asset management company centered around accumulating Ethereum. Its stock price soared from $30 before the transformation was announced to over $100.
But the boom was short-lived. According to documents filed with the SEC on Monday, ETHZilla has sold $74.5 million worth of Ethereum to repay senior secured convertible notes.
As of December 19, the company held about 69,800 Ethereum tokens, worth roughly $210 million at current prices. At 3:14 p.m. New York time on Monday, ETHZilla’s stock price was down about 7.5% to $6.38.
(ETHZilla’s price fell as much as 9% intraday)
The company said it would continue to evaluate various financing options, including Ethereum sales and equity issuances, to carry out its business plan, including “real-world asset tokenization.” According to media reports, an ETHZilla spokesperson declined to comment further on Monday beyond the filings.
Strategy Pauses Purchases, Bolsters Cash Reserves
Strategy, the originator of this business model, has also pressed pause.
According to documents filed with the SEC on Monday, the company raised $748 million by selling common shares in the week ending December 21, increasing its cash reserves to $2.19 billion, but paused its Bitcoin purchases.
In the previous two weeks, the company had purchased about $2 billion worth of Bitcoin, bringing its total holdings to roughly $6 billion.
Earlier this month, Strategy created a $1.4 billion reserve fund to pay future dividends and interest, seeking to allay market concerns that the company might be forced to sell Bitcoin if token prices continued to fall.
According to TD Cowen analyst Lance Vitanza, Strategy needs to pay about $824 million annually in interest and dividends, and its software business cannot generate enough free cash flow to cover these expenses. Bitcoin itself does not pay dividends.
On Monday, the company’s mNAV was about 1.1—a key valuation metric comparing enterprise value with the value of Bitcoin holdings—whereas this indicator had previously traded at a significant premium.
Business Logic Faces Scrutiny
Strategy’s approach of using listed companies to accumulate Bitcoin attracted hundreds of imitators in the first half of this year.
ETHZilla followed Strategy’s script, seeking to position itself as an Ethereum treasury company.
However, this model has always been difficult to justify: why should tokens simply become more valuable because they are held by listed companies? Especially after the sharp drop in crypto prices at the beginning of October, this logic is even less convincing.
As the crypto winter continues, the sustainability of this business model is facing a severe test.
Billionaire Peter Thiel holds multiple investments in the cryptocurrency sector. Aside from ETHZilla, he is also an early investor in crypto exchange Bullish. Reportedly, Thiel-backed crypto-friendly bank startup Erebor is expected to raise $350 million at a $4.35 billion valuation.
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