Vitalik Warns Corporate ETH Treasuries Could Become ‘Overleveraged Game’ Despite Benefits

Ethereum co-founder Vitalik Buterin has issued a stark warning about the growing trend of companies holding ETH in their treasuries, cautioning that the strategy could evolve into an “overleveraged game” that triggers massive market liquidations.

His comments come as corporations rush to add cryptocurrencies to their balance sheets, with 64 entities now holding 3.04 million ETH worth $11.88 billion.

Ethereum Founder Balances Benefits Against Overleveraging Risks

Buterin acknowledged the benefits of corporate ETH adoption during a recent video podcast with Bankless.

He praised the coordination around ETH as a treasury asset and noted that treasury companies provide valuable access vehicles for different investor types with varying financial circumstances and requirements.

However, the Ethereum founder painted a concerning scenario about potential risks.

He warned that if someone told him in three years that treasuries led to ETH’s downfall, he would guess that they turned into an overleveraged system.

A 30% market drop could trigger forced liquidations, escalating to 50%, then 70%, and eventually 90% crashes, compounded by credibility loss, he explained.

Glassnode lead analyst James Check had previously sounded similar alarms about Bitcoin treasury strategies in July.

Check argued that easy gains might already be gone for new entrants as the market matures, with the strategy having a “far shorter lifespan than most expect.”

VanEck’s Matthew Sigel raised additional concerns in June about companies using at-the-market share issuance programs to fund crypto purchases.

When stock prices near parity with Bitcoin holdings’ value, dilution sets in rather than capital formation.

Semler Scientific exemplifies these risks, with its stock dropping 32% year-to-date despite accumulating 3,808 BTC, resulting in a market multiple below its Bitcoin net asset value.

The warnings coincide with an unprecedented surge in corporate crypto adoption.

Bitcoin treasuries now hold 3.65 million BTC across 290 entities, led by MicroStrategy’s massive 628,791 BTC position.

Strategy’s dominance has attracted numerous copycats, with 21 new entities adding Bitcoin holdings in June alone.

Early Movers Advantage: Market Faces Saturation Risks

MicroStrategy’s pioneering approach under Michael Saylor established a template that hundreds of companies now follow.

The firm’s nearly 630,000 BTC position was due to its early adoption, which created substantial advantages before the strategy became mainstream.

Check emphasized that established players like MicroStrategy have more time to prove their thesis compared to latecomers entering an increasingly crowded space.

“Nobody wants the 50th Treasury company,” he noted, warning that investors now demand clear differentiation beyond simply adding Bitcoin to balance sheets.

New entrants face mounting challenges as speculative retail investors have limited capital to support dozens of similar strategies.

The saturation concerns extend beyond Bitcoin to Ethereum, where corporate holdings have grown rapidly.

Bitmine Immersion Tech leads with 833,100 ETH, followed by SharpLink Gaming’s 521,900 ETH position and The Ether Machine’s 345,400 ETH holdings.

Liquidity Concerns Mount as Treasury Strategies Face Structural Vulnerabilities

Financial experts have identified significant liquidity risks in the corporate crypto treasury trend.

Historical precedence has shown how liquidity-driven selling can trigger market crashes even without major economic shocks, with historical examples including the 2008 financial crisis and 2023 banking turmoil.

In fact, Bear Stearns and Silicon Valley Bank’s collapses perfectly illustrated how quickly liquidity can evaporate when confidence erodes.

SVB’s failure was particularly due to liquidity mismanagement risks, as the bank couldn’t liquidate assets fast enough to meet withdrawal demands from panicked depositors.

VanEck recommended safeguards, including pausing share issuance programs if stocks trade below 0.95 times net asset value for ten trading days.

The firm also suggested prioritizing buybacks when Bitcoin rises but stock prices don’t reflect gains, and tying executive compensation to NAV per share growth rather than holdings size.

Breed Venture Capital warned in June that only a few Bitcoin treasury companies will likely survive long-term without falling into a “death spiral” as stock prices converge with BTC holdings values.

Notably, Pomerantz LLP has filed a class action lawsuit against MicroStrategy, accusing the firm of misleading investors about the profitability and risks of its crypto strategy.

The concerns extend to artificial liquidity provided by market makers and algorithmic trading firms.

While this corporate adoption is pushing the bull run, it may vanish during extreme volatility, leaving traders vulnerable to shortages when real liquidity becomes crucial for market stability.

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