Crypto VCs Bring a $2 Trillion Story to Wall Street

The Emerging Trend of Crypto Reserve Companies

Suddenly, the most eye-catching phenomenon in the US stock market no longer seems to be artificial intelligence, but rather a wave of companies undergoing significant transformations. In recent times, the US capital market has been experiencing an unprecedented surge in reverse acquisition cases.

Listed companies have completely abandoned their original core businesses, pivoting cryptocurrency into their fundamentals, causing stock prices to soar multiple times—even dozens of times—in a short period. The US stock market has indeed become a laboratory for the crypto space to conduct financial experiments. This time, crypto venture capital firms have truly brought their story to Wall Street's attention.

In the US Stock Market, the 'Firestarter' Is Setting Off DAT Fireworks

Several months ago, when Primitive Ventures invested in Sharplink, they had no idea that this new crypto track in the US stock market would become so crowded in such a short time. "At that time, not many people were discussing these investment cases, and it was nothing compared to the current market heat, but it was really only a month or two," said Primitive partner Yetta.

Sharplink Gaming announced the completion of a $425 million financing round, becoming the first Ethereum reserve company in the US stock market. After the announcement, the company's stock price surged dramatically, rising more than 10 times at its peak. Primitive, as the only fund in the Chinese investment circle to participate in this investment case, attracted significant attention within the community.

"Because we found that liquidity in the crypto market is poor, while institutional buying power is very strong. The Bitcoin ETF volume has always been robust, and the open interest in Bitcoin options on major derivatives exchanges even exceeded that of certain major trading platforms," explained the investment rationale. During an internal review meeting, Primitive established a new investment direction focused on the 'fusion of CeFi (centralized finance) and DeFi (decentralized finance).' Since then, they have become one of the most active VC firms in the crypto space.

Primitive now receives daily emails from investment banks inviting the fund to participate in investments in crypto reserve companies. In this wave of investment, investment banks act as intermediaries, responsible for helping project teams find and coordinate investors while assisting in roadshows for capital providers.

In recent months, Primitive has engaged with no fewer than 20 cryptocurrency reserve projects. However, the projects they have publicly invested in currently are only Sharplink and another company focusing on Litecoin reserves, MEI Pharma. This cautious investment approach stems from concerns about market overheating; the team has been closely monitoring various indicators for potential market peaks.

"We indeed feel that the level of market bubbles is significantly higher now than in previous periods," Yetta noted. The team now prepares market reports regularly and assesses suitable exit strategies based on market conditions. "Crypto reserve companies represent financial innovations; you can maintain a long-term bullish view on their underlying assets, but there is also a risk of severe deleveraging and bubble burst during market downturns."

Pantera's New Direction: DAT Fund

Unlike Primitive's cautious approach, Pantera is rolling up its sleeves to capitalize on the opportunity. This veteran crypto venture capital firm with a 12-year history even created a new term for this field—DAT (Digital Asset Treasury). The firm subsequently established a new fund dedicated to this strategy.

In the fundraising memorandum, Pantera partner Cosmo Jiang wrote: "As an investor, it is very rare to find oneself at the starting point of a new investment category. Recognizing this and responding quickly to seize early investment opportunities is crucial."

The story Pantera tells investors is straightforward: if a company holds an increasing number of Bitcoins per share each year, owning stock in that company will give investors more and more Bitcoin exposure.

The underlying logic of Bitcoin reserve companies pioneered by MicroStrategy and other cryptocurrency reserve companies is to raise funds through targeted issuance, convertible bonds, preferred stocks, and other financial instruments when the asset values of their cryptocurrencies exceed their market capitalizations, allowing them to acquire more crypto assets. Due to the premiums on stocks, companies can accumulate more assets at a lower cost.

Investors generally use the mNav indicator (Market Cap To Net Asset Value) to measure the premium multiplier and assess the company's financing capabilities. "Clearly, the stock market is volatile; sometimes the market overestimates certain assets. At this point, initiating financial instruments for financing is essentially selling that volatility; from this perspective, the premium can actually be maintained over time," explained Cosmo.

Pantera invested in Defi Development Corps (DFDV), which reserves the Solana native token SOL. This was the first company in the US stock market to use cryptocurrencies other than Bitcoin as reserve assets, and its stock price has risen over 20 times in the months following the investment.

However, for Pantera, this was definitely a contrarian investment, as no one was initially willing to invest in the project; the company's $24 million financing round was almost entirely funded by Pantera.

Most DFDV team members come from senior positions at major crypto platforms, and the CFO has also operated Solana validation nodes. The team's deep understanding of Solana and its professional expertise in traditional finance became key factors in impressing Pantera. "Nevertheless, we also set some downside protection measures in the transaction structure, but DFDV's astonishing success was something we completely did not anticipate."

Market Catalysts and Rapid Growth

"I believe the real catalyst was the inclusion of major crypto companies in mainstream indices, which forces all fund managers around the world to consider cryptocurrency," noted market observers. Since the shift in regulatory sentiment, the crypto industry has been making significant strides in traditional capital markets, with various developments drawing global attention to digital assets and tokenization. DAT has now become a new concept in the investment landscape.

Following the success of DFDV, other major players quickly took notice. The success accelerated plans for Bitcoin reserve companies backed by prominent investors, ultimately raising approximately $300 million in external funding, with Pantera again becoming the largest external investor.

The funding for investments in DFDV and other projects came from Pantera's flagship venture fund and liquid token fund. The team initially thought these would be the only two investments the fund would make in this field.

However, market developments quickly exceeded expectations. Due to restrictions in investment portfolio frameworks and concentration limits for the aforementioned funds, Pantera quickly decided to establish a new dedicated fund.

The DAT Fund began raising capital with a target of $100 million and completed fundraising within days. Due to the high enthusiasm of limited partners, Pantera subsequently launched fundraising for a second DAT Fund. By the time of subsequent interviews, all funds from the first DAT Fund had already been deployed.

Pantera's Investment Strategy

In publicly disclosed investment cases, Pantera often acts as the 'Anchor,' meaning they are the largest investors. Due to the poor initial liquidity of DAT companies, they are prone to trading at discounts. At such times, the team needs to bring in heavyweight investors to build a foundational base, ensuring liquidity and narrowing the price gap.

On the other hand, the 'Anchor Investor' role also serves as a marketing strategy for Pantera. "In recent months, we have received nearly a hundred proposals from DAT companies. Pantera is usually the first call they make because we entered early enough to form cognitive leadership in this field, and they can see that when we invest, we are truly capable of making significant bets and daring to write big checks."

Of course, Pantera does not invest in every opportunity it encounters. For DAT companies, the fund also values their ability to create 'cognitive leadership' in market marketing. Much of its investment strategy is based on identifying teams and projects with strong market positioning capabilities.

Key investments include companies led by prominent figures in the blockchain community who have demonstrated ability to build public narratives. One notable example was the completion of a reverse acquisition marking the birth of the first Ethereum reserve company, with subsequent announcements of Ethereum fundamentals reports introducing the investment value of Ethereum to institutions.

The second Ethereum reserve company was born shortly thereafter, with industry experts coming forward to support it and frequently appearing in mainstream media to interpret investment opportunities. During this period, the first company's stock price began to rise, and the 'Ethereum arms race' quickly became a hot topic in the industry.

Keys to DAT Company Success

"To truly open up the financial leverage channel, the market value of DAT companies must reach at least $1 to $2 billion," explained Cosmo, emphasizing that only by reaching this scale can companies truly obtain valuation premiums in the market and access institutional capital through convertible bonds or preferred stocks.

Before reaching that scale, DAT companies need to tell their story to ordinary investors, not just crypto-native investors, but to a broader mainstream retail investor group in the stock market. "They need to understand this story and be willing to participate. The market must first 'believe it will be realized' for the whole model to work."

Building ongoing trust with the market is another key factor in DAT company success. The traditional financial market requires guarantees of 'transparency and discipline'; the team must be sufficiently 'Crypto Native' while also possessing the sophistication of traditional finance to manage and disclose information for listed companies, clearly understanding regulatory rules and processes to ensure the company can efficiently and professionally access the US capital market.

"We spend a lot of time conducting due diligence; what truly matters is not the static mNav number. Is there a clear management structure? Can financing be stabilized? Is there the ability to build a new business model? That is what makes a truly excellent 'DAT startup team.'"

Diversifying Reserve Assets

In addition to reserves in Bitcoin, Ethereum, and Solana, Pantera has recently invested in several other large-cap altcoin reserve companies. From Bitcoin to mainstream coins to altcoins, the investment narrative presented to the market is layered: compared to Bitcoin, DAT relies entirely on financial engineering for growth; mainstream tokens can generate returns through staking and DeFi activities, while altcoin protocols have mature application scenarios and income fundamentals in the crypto market, allowing stock market investors to gain exposure to their growth through DAT.

Different from the financing paths of Bitcoin and mainstream coins, many altcoin DAT companies' initial reserves come directly from the protocol foundation itself or its token investors.

Several strategic reserve companies have had their initial reserves directly injected by prominent crypto venture capital firms, which made substantial token purchases in advance. According to market reports, the establishment of other strategic reserve companies was also led by protocol foundations, with investors able to directly use their tokens or stablecoins to participate in financing rounds.

Liquidity Issues and Insider Trading Concerns

Due to poor liquidity, altcoin DATs often see rapid surges after financing news is announced, providing trading opportunities for many participants with advance information. In several notable cases, stock price movements began well before official announcements, with prices quadrupling or surging significantly in the days leading up to public disclosure.

Recently, several reserve companies backed by prominent investors encountered similar issues. To prevent participants from knowing the company's name in advance, teams have purchased multiple US shell companies in advance and randomly selected one at the last moment. However, even with such precautions, there were still instances of early leaks just hours before official announcements.

On the other hand, many investors are also concerned about the potential risks of altcoin DATs having 'left hand and right hand' issues. Due to poor liquidity in the crypto market, large-cap, high-price tokens are difficult to exit without a discount. However, by injecting crypto assets into DAT companies, the false liquidity of the tokens themselves becomes real liquidity in the US stock market.

Therefore, whether to 'provide growth exposure' or 'find exit liquidity' still requires careful discernment by investors. "Many DATs choose to operate in regulatory gaps, such as being listed on lower-threshold trading boards. But this approach is difficult to establish stable information disclosure and compliance mechanisms; if they can't obtain real capital premiums, it's merely transferring the problem."

Regulatory Risks

Regulation is also one of the risks faced by DAT companies; if regulatory authorities classify altcoins and other on-chain assets as securities, the structure of DAT would need significant adjustments. Nevertheless, leading venture capital firms still believe this is a better investment battlefield. "Because US stock market liquidity is indeed superior, and listed company investors have more protections, so for us, investing in DAT currently has better winning odds and payout ratios compared to pure crypto investments," noted industry participants.

The World Outside the US Stock Market

The world outside the US stock market is still competing for 'the next MicroStrategy.'

The US stock market is widely recognized as the most efficient, inclusive, and liquid capital market. If one wants to replicate the next major success story, the US market remains the optimal venue. However, this does not mean that other capital markets lack opportunities; outside the US stock market, investors aim to become the next major success story.

In the past period, certain Asian-listed companies have seen stock premiums rise sharply, bringing investors returns of over 10 times. This success story has made more people see the opportunity for regional arbitrage.

The Asian market is emerging as a pioneer in Bitcoin reserves. Over the past year, several partnerships have been established between crypto-focused firms and major financial institutions to invest in Asian-listed companies pursuing Bitcoin acquisition strategies. As the US market has confirmed this industry trend, current plans include investing in multiple Asian-listed companies with expansion targets for the year.

"It's clear that the current US market for Bitcoin and mainstream coin reserve companies is already quite crowded; the next growth is more likely to come from capital markets outside the US," noted market participants. This year, several investors have participated in the investment wave of reserve companies and quickly received substantial returns.

At the beginning of the year, investors joined dedicated venture funds specializing in Asian Bitcoin reserves; the most recent investments have included Southeast Asian-listed companies, which recently announced the completion of financing rounds, becoming the first Bitcoin reserve company in the region.

In addition, investors have also personally participated in several Bitcoin reserve project investments in other regions, mostly in seven-figure USD amounts. For example, in recent months, the first Bitcoin reserve company in Latin America completed its acquisition, supported by major regional financial institutions, raising substantial funding in its initial round.

"We feel that markets like Japan, South Korea, India, and Australia still have room to do this (Bitcoin reserve companies)," noted market observers. After joining dedicated funds, roles have gradually shifted from limited partner to active participant, looking at investment opportunities alongside other members. The task has become to find publicly listed companies interested in acquisitions; shell companies in the Asian region have become the focus of recent meetings.

The Race Against Time

"Striving to be first" is key to winning in capital markets outside the US stock market. This not only allows teams to accumulate first-mover advantages but also helps companies capture more market attention. However, this also means that the regional arbitrage narrative of Bitcoin reserve companies is a race against time.

In the acquisition process, the differences between shell companies are significant; some can be acquired for relatively modest sums, while in some cases, multiple participants spent considerably more.

From shell acquisition to listing and trading, the entire process generally takes 1 to 3 months, with regulatory approval efficiency being the main variable. However, from finding opportunities to getting things done, it typically takes at least 6 months or longer.

Several major acquisitions in the region have taken nearly a year to complete. The main investors leading these acquisitions have also been the main architects behind other successful ventures.

Recently, leading firms also planned and completed acquisitions in other Asian markets. "The capital markets in Asia, especially Southeast Asia, are relatively closed, but the volume here is actually very large; many foreign investors are simply unaware of the activity level in these markets," noted regional market participants.

"Now everyone is racing against time, but in the Asian market, I believe very few can compete with leading firms," said market observers. In their view, local regulations pose a significant barrier for many foreign capital sources; most venture capital firms lack complete experience in acquisitions and communication with regulators and do not really understand the Asian market.

Leading firms' strategy is to bring in a large number of local partners to help connect with securities exchanges and regulatory agencies to accelerate the project landing process. In several cases in Asian markets, teams took less than a month from initial discussions to finalize transactions, setting records for acquisition speed.

Financing Strategies in Asia

The company's financing rhythm and market strategy is another barrier. "mNav is a very late-stage valuation model; it only takes effect when crypto assets accumulate to a certain amount. Early-stage companies have completely different strategies and premium logic compared to established players." Thanks to equity structure designs like super voting rights, US stock market DAT companies can ensure the team's control while continuously diluting equity.

However, Asian listed companies generally do not have such mechanisms, so the team's dilution space is relatively limited. This means that the team needs to accurately grasp the financing rhythm while buying back shares through cash flows from core businesses for reverse dilution. It is understood that several Asian DAT companies have obtained relevant local licenses and will soon start operations for cryptocurrency-related services.

Currently, leading firms are accelerating the finalization of acquisition deals in multiple Asian markets while advancing Bitcoin reserve companies in various regions. In recent months, teams have taken significant stakes in Asian-listed companies, which will soon be renamed to reflect their new focus. "Our goal is to create multiple successful companies in Asia and then integrate them into a US-listed parent company, allowing US stock market investors to indirectly gain exposure to the premium of Asian companies through us."

Companies have participated in the acquisitions of several other ventures and are about to complete initial financing rounds. Leading firms continue to adopt a 'multiple players plus small funds' model, with total fundraising of less than $10 million and a 6-month lock-up period.

Management hopes that portfolio companies will present a capital layout of significant holdings in Asian companies and substantial reserves in Bitcoin, to tell investors a relatively differentiated narrative. Of course, all of this is just the team's ideas and stories; whether the Asian market's premium is sustainable and whether US investors can buy into the Asian narrative remains to be verified by the market and time.

"It must be acknowledged that the Asian market has a high floor and a low ceiling; to achieve a certain scale, one can only do so in the US stock market, which attracts investors and players from around the world," noted market analysts. Although investors attempt to chase the alpha of Bitcoin reserve narratives in various countries, all investors share a consensus that the beta sustaining everything still comes from the favorable regulatory environment in the US.

"If legislation for national Bitcoin reserves and similar bills is truly implemented, government purchasing actions will drive other regional governments and sovereign funds to allocate synchronously, and Bitcoin could continue to appreciate," noted observers.

Saved by 'Coin Stocks'

Compared to the sluggish crypto market, the current DAT track seems particularly lively. This new wave not only captures attention but also seems to provide a 'lifeline' for capital trapped in the crypto space. "Now, many top crypto projects by market cap are considering doing DAT," noted market participants.

In the current period, many crypto venture capital funds are at crucial junctures for starting new fundraising rounds; however, poor performance metrics have left many limited partners hesitant. In recent months, several crypto funds have gradually shut down.

Since 2022, the valuation of the primary market in the crypto field has continuously inflated; many projects can raise tens of millions of dollars in seed rounds, but very few have actual innovation and practical applications. With the development of cryptocurrency ETFs and FinTech integration with crypto, venture capital has become an increasingly challenging avenue for limited partners to allocate crypto assets.

On the other hand, the shrinking liquidity in the market is also increasing the difficulty of exits for projects. Retail investors are no longer buying 'venture capital tokens'; at the same time, projects need to pay high listing costs for 'going public.' "Now, listing on top trading platforms generally requires giving up at least 5% of the token quota; based on a market value of $100 million, that cost would be $5 million. Acquiring a shell company in the US costs about the same."

However, the openness of the US regulatory environment has given everyone new hope. Cryptocurrency reserve companies not only found the best exit channels for tokens but also provided a new storyline to attract institutional funds into the crypto space.

In addition to crypto venture capital firms, midstream investment banks have also benefited from this wave. According to market reports, DAT-related trading occupies a significant portion of many investment banks' brokers' working time, and it is expected that business in this field will grow substantially in the coming period.

Now, the industry is eager to move the $2 trillion cryptocurrency market into the US stock market. In a short period, dozens of DAT companies have burst onto the scene.

According to industry perspectives, the DAT field will see significant consolidation within several years. When the downward trend comes, small DAT companies that cannot achieve economies of scale will fall into negative premium dilemmas and be swallowed up by larger competitors at extremely low prices. "DAT is a 'new type of financial asset model experimental field,' not the center of technological innovation. Ultimately, only a few companies will survive."

But now the music seems to have just begun. Industry experts believe that it will take at least several more months before the competitive race truly heats up. "In the end, who will win is completely unknown, all we can do is support the teams we think have the potential to become one of the survivors in the future."

FAQ

O que é investimento de risco em criptografia (Crypto VCs)？Quais são suas principais direções de investimento？

Crypto VCs são fundos de risco especializados em blockchain e criptografia。Investem em protocolos inovadores，DeFi，NFTs e infraestrutura Web3 com alto potencial de crescimento。Buscam projetos transformadores que revolucionem o mercado digital。

Por que o mercado de criptmoedas é chamado de escala de 2 trilhões de dólares? Como esse número é calculado?

O mercado de criptmoedas é avaliado em 2 trilhões de dólares com base na capitalização total de mercado, calculada multiplicando o preço atual de cada criptmoeda pela sua oferta em circulação. Esse valor reflete a avaliação global do mercado cripto, consolidando todos os ativos digitais em um único indicador de valor.

Como os investimentos de risco em criptografia entram no mercado tradicional de Wall Street？Quais são as oportunidades e desafios？

A entrada em Wall Street oferece acesso a capital institucional massivo e legitimidade regulatória，impulsionando a adoção. Os desafios incluem conformidade regulatória rigorosa，volatilidade do mercado e integração com sistemas financeiros tradicionais. A tokenização de ativos e parcerias estratégicas abrem caminhos para crescimento exponencial.

Quais são as principais instituições de VC de criptografia? Qual é sua influência no mercado?

As principais instituições incluem a16z, Multicoin Capital, Paradigm, Mechanism Capital, Polychain e Variant Fund. Essas organizações exercem influência significativa no mercado, direcionando investimentos e impulsionando o desenvolvimento de projetos criptográficos inovadores no ecossistema global.

Quais são os tipos de projetos em que os VCs de criptografia investem? Quais são as perspectivas dos campos DeFi, NFT e Layer2?

Os VCs investem em DeFi, NFT, Layer2 e infraestrutura blockchain. DeFi crescerá com adoção institucional; NFT expandirá além arte; Layer2 revolucionará escalabilidade e volume de transações.

A atitude do Wall Street tradicional em relação aos VCs de criptmoedas é como？Isso prediz a centralização da indústria？

Wall Street tradicional adota postura cautelosa mas progressiva com criptmoedas。Instituições financeiras começam participação ativa，sinalizando potencial mainstream。O volume de transações crescente indica aceitação institucional crescente e integração gradual no sistema financeiro global。