IN TODAY'S ISSUE:
- We unpack drivers to premiums to NAV as crypto treasury companies continue to proliferate.
- How the “Fed put” has materially altered risk and returns.
- Implications from bitcoin’s declining volatility.
Unpacking Premiums to NAV as Crypto Treasury Companies Proliferate
Crypto treasury companies remain highly topical for investors, drawing heightened interest as the space continues to evolve at a rapid pace. These companies are not only proliferating in number and increasing their capital bases, but also expanding in geography, and expanding their treasury tokens to beyond just bitcoin.
In just the past week, several notable developments have underscored these trends:
- Strategy (MSTR) continued to buy bitcoin, last week selling $112.2 million of preferred stock Link
- Metaplanet (3350 JP) announced plans to raise $5.4B to buy bitcoin Link
- GameStop (GME) priced $2.25B of 0% coupon convertible notes with plans to invest proceeds in a manner consistent with its investment policy, which already includes bitcoin Link
- Euronext Growth Paris listed The Blockchain Group (ALTBG FP) launched a €300mm ATM to acquire bitcoin Link
- DeFi Development Corp (DFDV) announced a $5B equity line of credit to acquire Solana (SOL) Link
- Synaptogenix (SNPX) announced plans to acquire $10M in Bittensor (TAO) tokens in partnership with controversial crypto figure James Altucher Link
- Mercurity Fintech (MFH) announced plans to raise $800m for a bitcoin treasury Link
- Trident Digital (TDTH) announced plans to raise $500 million for an XRP (XRP) strategy Link
- Interactive Strength (TRNR) entered a $500 million facility to Fetch.ai (FET) tokens. Link
- Sharplink Gaming (SBET) acquired $463M of ETH following a private placement led by Ethereum dev shop Consensys Link
- Nuvve Holdings (NVVE), after naming James Altucher to its board and as an advisor to its new digital asset strategy, filed to sell stock, warrants, and converts Link
- Anthony Pompliano is set to raise $750M for a bitcoin treasury strategy Link
The latest wave of crypto treasury announcements has drawn skepticism in some corners of the market. Many of the proposed capital raises appear disproportionately large relative to the microcap status of the companies involved, and notably, several of these announcements are thin on details. Compounding concerns, some of these firms have no prior involvement or expertise in the crypto sector, or worse, have aligned themselves with individuals with checkered pasts, casting doubt on their ability to execute their strategies.
There are also concerns surrounding the assets these companies intend to hold. Unlike bitcoin, which investors understand best as “digital gold,” many of these alternative treasury cryptocurrencies function as consumptive commodities, inputs to access decentralized ecosystems that are still speculative. These protocols may or may not achieve meaningful adoption, leaving open questions about the long-term value and utility of the treasury holdings. Caveat emptor.
Premium to NAV Appears to be Correlated to Bitcoin Price
A topic of endless debate has been the source of the premium crypto treasury companies tend to trade at. We have yet to find a satisfactory answer (yes, we’ve seen all your work), but regardless, one exists.
A more interesting question to us, rather than “why?” is “when?” As the following chart of MSTR’s historical premium to NAV shows (we are using MSTR here as an example because it has the longest history of any bitcoin treasury company, operating through both up and down cycles for bitcoin), since adopting bitcoin as its primary treasury reserve asset MSTR traded both at a significant premium to its underlying assets (bitcoins + cash + opco – non-convertible debt) as well as steep discounts. This appears to be purely correlated to bitcoin’s price, where it is in a cycle. As bitcoin has risen in value, both in the 2021 cycle and the current one, MSTR has traded at significant premiums to NAV. On the way down, the post-cycle peak drawdown for bitcoin in 2022, MSTR traded at a discount of nearly 50%.
In this way, MSTR stock price is simply a levered bet on the direction of bitcoin. A simple monthly regression between the two confirms this, with a beta of 1.2x, R squared of 53.5%, and tstat of 8.0.
The idea that bitcoin treasury companies are somehow the option for investors with limited options for bitcoin exposure is a hollow argument. This cycle, MSTR didn’t trade at a significant premium to NAV until AFTER the spot bitcoin ETFs started trading. The idea that bitcoin treasury companies are valued on expectations of future holdings doesn’t hold water as well – ETFs don’t trade at premiums to NAV despite expected growth in holdings.
The one plausible argument for the premium to NAV in our mind is capital structure and leverage. Because, as operating companies, crypto treasury companies can issue debt instruments, convertible notes, bonds, and preferred stock, whereas an instrument like an ETF cannot, it can create leverage for its equity holders in the form of bitcoin ownership – this is supported by our MSTR regression analysis. The ability to issue debt, as well as equity at a premium to NAV, is what allows bitcoin treasury companies to grow their bitcoin per share (BPS), creating bitcoin leverage for equity holders.
Despite the overwhelming success of products like iShares Bitcoin Trust ETF (IBIT) with over $70B in AUM, it still trades at the same “BPS” as it did when it launched. While only time will tell if crypto treasury companies continue to trade at premiums to NAV, history has shown that these premiums and stock prices are correlated to cycles and prices.
Has the “Fed Put” Materially Altered Risk and Returns for Investors?
The S&P 500 is now within striking distance of new all-time highs, marking a sharp reversal from the sell off sparked just months ago by the administration’s tariff-focused policies. Market sentiment, which had soured amid fears of a protracted trade conflict and its implications for corporate earnings, has rebounded sharply with tariff implementations either delayed or reduced sharply from their initial proposals.
This resurgence in equities has unfolded in tandem with a gradual moderation in inflation, punctuated by a softer-than-expected Consumer Price Index (CPI) report this week. The latest data showed core inflation slowing to 2.8%, a notable improvement from the 6.6% peak in 2022, but still meaningfully above the Federal Reserve’s long-standing 2% target. Despite this elevated level, the political pressure on the Fed is mounting once again, with Vice President J.D. Vance characterizing the Fed’s interest rate stance as “monetary malpractice.”
With Fed Chair Powell likely to be replaced by a more dovish chair when his term ends in May 2026, these developments raise a broader and more enduring question: is the Federal Reserve’s historical tendency to ease policy (and the administration’s strong encouragement), especially in response to market downturns reinforcing a form of moral hazard? By lowering interest rates, particularly during periods of asset price declines, the Fed may be inadvertently signaling to investors that downside risks will be mitigated, encouraging greater risk-taking.
Fed Put Origins
The concept of the “Fed put” emerged over successive monetary policy responses to a crisis that began with Fed Chair Alan Greenspan in response to the stock market crash of 1987. While the Fed did not lower interest rates in the wake of the crash, it did evolve from primarily managing inflation and employment to providing liquidity to the financial system. Before this event, there was no consistent response of easing monetary conditions in response to asset price declines. This evolved into the Fed managing the Long-Term Capital Management (LTCM) crisis, initiating interest rate cuts following the collapse of the dot-com bubble, well before the events of September 11, 2001, and later orchestrating major monetary responses during both the Global Financial Crisis and the COVID-19 pandemic.
The “Powell pivot” in December 2018 serves as a striking illustration of the "Fed put" in action. Markets had grown increasingly unsettled by the Fed’s ongoing rate-hiking campaign, which culminated that month with a final increase, bringing the federal funds rate to 2.25 – 2.50%—a level that now appears quaint. At the time, the hikes contributed to a nearly 20% drop in the S&P 500 in just three months. In early January 2019, following sharp market declines and mounting public pressure from President Trump, Chairman Powell notably shifted tone, stating that the Fed “listens carefully to the markets.” This marked a clear departure from the previous tightening stance, leading to a pause in further hikes and ultimately to a series of interest rate cuts beginning in July of that year.
What Academic Research Shows
This NBER paper on the "Fed put" offers a compelling analysis of the central bank’s relationship with financial markets. The authors conclude that the Fed tends to respond to falling asset prices, but not directly out of concern for markets themselves, but because of their downstream effects on consumption, which remains the primary engine of economic growth. The health of credit markets and business investment conditions also factor into the Fed’s policy calculus.
Ironically, the risk of moral hazard—that is, incentivizing excessive risk-taking by shielding investors from losses—does not appear to weigh heavily on the Fed’s decision making. Yet even if it is not a concern for policymakers, investors have seized on the idea. This is evident in metrics like the Sharpe ratio of the S&P 500, which reflects strong risk-adjusted returns, particularly since the GFC. In effect, the Fed put implies that the central bank will step in to limit downside risk, thereby placing a floor under asset prices and dampening market volatility through its use of monetary policy tools.
Macro Backdrop a Tailwind for Bitcoin
The Fed put and its decisions around monetary policy are coming into view with Powell’s term expiring in less than a year and repeated calls from the administration, including President Trump and VP Vance, to lower interest rates. The next head of the Fed is likely someone who will comply with that demand to lower interest rates. If that plays out, coupled with the proposed tax cuts and tariffs, investors should expect a couple of things - lower nominal and real rates on the short end and a weaker US Dollar. Inflation is still a wildcard, but lowering rates and rising tariffs could potentially be inflationary. This should all be good for “stores of value” like bitcoin and gold, as well as real estate and equities.
Bitcoin Volatility Continues to Decline
Bitcoin’s volatility has continued to trend lower, both in realized and implied measures, even as the asset reaches new all-time highs. This decline in volatility is particularly notable amid historically high price levels. We often see upside call buyers once bitcoin enters new levels, and while some of that has happened, it has not materially impacted volatility. With the market now entering the typically quieter summer months, this downtrend may well persist in the near term.
Declining volatility carries several important implications. The drop in realized volatility may reflect a steady and resilient bid in the market, potentially driven by increased demand from bitcoin treasury holders or investors looking for alternative safe-haven assets beyond gold. Additionally, the rise of yield-enhancement strategies, such as options overwriting and other forms of volatility selling, has likely contributed to the dampening of price swings.
Regardless of the underlying cause, the decline in volatility has made both upside exposure through calls and downside protection via puts relatively inexpensive. For traders anticipating market-moving catalysts, such as the SEC’s decision on the GDLC conversion (July 2), the conclusion of the 90-day tariff suspension (July 8), or the Crypto Working Group’s findings deadline (July 22), this presents a cost-effective opportunity to position for directional moves.
Market Update
Bitcoin gained 4.8% on the week, surging past the $110K mark in a strong Monday rally before retracing some of those gains over the subsequent days. As of Thursday’s close, major asset classes, including equities, gold, oil, and bonds, were all posting weekly gains. However, late Thursday brought a spike in market volatility following reports of Israeli strikes on nuclear facilities in Iran. In response, bitcoin and equities declined sharply, while traditional safe havens like gold and bonds rallied. Although stocks and bitcoin quickly recovered much of their losses, bitcoin still has not demonstrated a consistent inverse correlation to equities during brief bouts of market instability—a dynamic we've examined in depth on multiple occasions.
Important News This Week
Investing:
Tudor Jones on Next Fed Chair, Trump Budget, Markets, AI - YouTube
Paul Tudor Jones Predicts 10% Dollar Slump During the Next Year - Bloomberg
Family Office Investments: Private Equity, Crypto Rise in Shift Away from Stocks - Bloomberg
Regulation and Politics:
House Ag, Financial Services Committees Advances Market Structure Bill - CoinDesk
Bitcoin and Stablecoins Were on Agenda as Trump Digital Assets Chief Hines Met with Nayib Bukele - CoinDesk
Crypto Fund Issuers Press SEC To Reinstate 'First-To-File' ETF Approval Process - The Block
Connecticut Flips State Bitcoin Reserve Trend, Bans All Government Crypto Investments - Decrypt
Companies:
Peter Thiel-Backed Crypto Group Bullish Files for Wall Street IPO - FT
Gemini Confidentially Files for US IPO As Crypto Markets Heat Up - Reuters
Plasma Completes Its $500 Million Stablecoin Vault Raise Across 1,100 Wallets Within an Hour - The Block
Coinbase Alum-Founded Turnkey Raises $30M Series B to Grow Engineering Team - CoinDesk
Technology:
New Bitcoin Software Version Will Raise OP_RETURN Data Cap as Debate Concludes - CoinDesk
Bitcoin Core: Bitcoin Core Development and Transaction Relay Policy - Bitcoin Core
Gloria Zhao on OP_RETURN Data Cap Change - X
Upcoming Events
Jun 18 - FOMC interest rate decision
Jul 2 - Final SEC deadline for decision on GDLC ETF conversion
Jul 8 - 90-day tariff suspension ends
Jul 22 - EO Working Group report deadline
