Original Article Title: Why ETH Treasuries Will Outpace MSTR's Historic Run

Original Article Author: Kevin, Co-Founder of Keo Plus AI

Original Article Translation: DeepTech TechFlow

While the cryptocurrency community has long been enthusiastic about using tokenization and on-chain assets as a means to enhance accessibility, the most significant progress has actually come from integrating cryptocurrency with traditional securities. The recent surge of interest in Digital Asset Treasury strategies in the public markets perfectly reflects this trend.

Michael Saylor was the first to implement this strategy through MicroStrategy, transforming his company into a over $100 billion valued firm, surpassing even NVIDIA. We extensively dissected this blueprint in our article on MicroStrategy (a great reference for those new to the asset management space). The core argument of these financial strategies is that publicly traded stocks can access cheaper, unsecured leverage, something regular traders simply cannot acquire.

Recently, attention has shifted beyond Bitcoin to areas such as Ethereum-based asset management platforms, like Sharplink Gaming ($SBET, led by Joseph Lubin) and BitMine ($BMNR, led by Thomas Lee), which are also gaining traction. But does an ETH asset management platform really make sense? As we outlined in our analysis of MicroStrategy, asset management firms are essentially attempting to arbitrage the long-term Compound Annual Growth Rate (CAGR) of the underlying asset against their cost of capital. In a previous article, we outlined the following arguments: ETH's long-term CAGR. It is a scarce programmable reserve asset that plays a foundational role in securing the on-chain economy as more assets move onto the blockchain network. This article will explain why ETH assets have a directional bullish trend and provide operational advice for enterprises adopting this asset management strategy.

Liquidity Acquisition: The Cornerstone of Asset Management Firms

One of the primary reasons tokens and protocols seek to create these asset management firms is to provide a pathway for tokens to access traditional finance (TradFi) liquidity, especially in the case of cryptocurrency where liquidity for altcoins is diminishing. Typically, these asset management firms acquire liquidity through three main avenues to expand their assets. Importantly, this liquidity/debt is unsecured, meaning it is non-redeemable:

· Convertible Bond: By issuing debt to raise funds, the borrower can convert it into stock and use the proceeds to buy more Bitcoin.

· Preferred Stock: By issuing preferred stock that pays a fixed annual dividend to investors, funds are raised.

· At-The-Market (ATM) Offering: Selling new shares directly on the public market to raise flexible, real-time funds for purchasing Bitcoin.

Why ETH Convertible Bonds Are Superior to BTC Convertible Bonds

In our previous MicroStrategy article, we highlighted two main advantages of convertible bonds for institutional investors:

1. Downside Protection with Upside Participation: Convertible bonds allow institutions to gain exposure to the underlying asset (such as BTC or ETH) while protecting their principal investment through the bond's inherent protective features.

2. Volatility-Driven Arbitrage Opportunities: Hedge funds often buy convertible bonds not only to gain exposure but also to execute gamma trading strategies (note: a type of options trading strategy primarily based on the "gamma" value in options Greeks to make trading decisions. Gamma value measures the sensitivity of an option's delta value to changes in the underlying asset's price), profiting from the volatility of the underlying asset and its securities.

Currently, gamma traders (hedge funds) are the main market participants in convertible bonds.

Considering this, Ethereum's higher historical volatility and implied volatility compared to Bitcoin have become a key distinguishing factor. An Ethereum asset management company reflects this higher volatility in its capital structure by issuing ETH Convertible Bonds (CB). This dynamic makes ETH-backed CBs particularly attractive to arbitrageurs and hedge funds. Importantly, this volatility also allows Ethereum asset management companies to secure more favorable financing terms by selling CBs at a higher valuation.

Figure 1: Historical Volatility Comparison between ETH and BTC

Source: Artemis

For convertible bond holders, increased volatility enhances the opportunity to profit through gamma trading strategies. In short, the higher the volatility of the underlying asset, the higher the profit from gamma trading, giving ETH asset-backed convertible bonds a clear advantage over BTC asset-backed convertible bonds.

Figure 2: Historical Volatility Comparison of SBET, BMNR, and MSTR

Source: Artemis

However, there is an important caveat: if ETH fails to maintain a long-term Compound Annual Growth Rate (CAGR), the appreciation of the underlying asset may not be sufficient to justify its conversion before maturity. In this scenario, an ETH asset manager would face the risk of full bond repayment. In contrast, BTC convertible bonds—backed by Bitcoin's more mature long-term performance record—have a lower likelihood of this downside risk as, based on past experience, most convertible bonds under this strategy have already converted to equity.

Figure 3: ETH vs. BTC Four-Year Compound Annual Growth Rate (CAGR) Evolution Over Time

Source: Artemis

Why Can ETH Preferred Equity Provide Differentiated Value?

Unlike convertible bonds, the structure of preferred equity issuances targets the fixed-income asset class. While some convertible preferred stocks offer a blended upside potential, for many institutional investors, yield remains a primary consideration. The pricing of these instruments is based on underwriting credit risk, i.e., whether the asset manager can reliably meet interest payments.

A key advantage of the MicroStrategy approach is the use of At-The-Market (ATM) offerings to fund these payments. Since this typically represents only 1-3% of the total market capitalization, dilution and risk are minimal. However, this model still relies on market liquidity and volatility of both BTC and MicroStrategy underlying securities.

Ethereum adds another layer of value: generating native income through staking, restaking, and borrowing. This built-in income provides higher certainty for preferred distribution services and theoretically should lead to an improved credit rating. Unlike Bitcoin, which relies solely on price appreciation, Ethereum's return profile combines CAGR with protocol-level native income.

Figure 4: Ethereum's Annualized Native Staking Yield

Source: Artemis

I believe that a notable innovation of ETH Preferred Shares is that it could become a non-directional investment tool, allowing institutional investors to participate in network security without bearing ETH price risk. As emphasized in our ETH report, maintaining at least 67% honest validators is crucial for upholding Ethereum's security. With more assets moving on-chain, institutional investor support for Ethereum's decentralization and security is becoming increasingly important.

However, many institutions may not want direct exposure to ETH. ETH asset management companies can act as intermediaries, absorbing directional risk while providing institutions with fixed-income-like returns. Preferred shares issued by institutions like $SBET and $BMNR are designed as on-chain fixed-income staking products for this purpose. They can be enhanced through advantages like priority inclusion in trades, protocol-level incentives, making them more appealing to investors seeking stable returns without full market risk exposure.

Why ATM Issuances Benefit ETH Assets

One of the most commonly used valuation metrics by financial firms is mNAV (market multiple to net asset value). In concept, mNAV functions similarly to a P/E ratio: it reflects how the market prices the future asset growth per share.

Due to Ethereum's native yield mechanics, ETH assets inherently guarantee a higher asset net value premium. These activities generate recurring "yield" or incremental increases in per ETH value without requiring additional capital. In contrast, BTC asset management companies must rely on synthetic yield strategies, such as issuing convertible bonds or preferred shares. Without these institutional products, when the market premium on BTC assets approaches net asset value (NAV), their yield is challenging to rationalize.

Most importantly, mNAV has reflexivity: a higher mNAV enables asset management companies to more efficiently raise funds through ATM issuances. They issue shares at a premium and use the proceeds to purchase more underlying assets, increasing per-share assets and reinforcing the cycle. The higher the mNAV, the greater the value acquired, making ATM issuances especially effective for ETH asset management companies.

Accessing capital is another key factor. Companies with stronger liquidity and broader financing capabilities naturally have a higher mNAV, while companies with limited market access often trade at a discount. Therefore, mNAV often reflects a liquidity premium—market confidence in a company's ability to effectively access more liquidity.

How to Screen Asset Management Companies from First Principles

A useful mental model is to view ATM issuance as a way to raise funds from retail investors, while convertible bonds and preferred stock are typically designed for institutional investors. Therefore, the key to a successful ATM strategy lies in building a strong retail following, which often depends on having a trusted and charismatic leader, as well as maintaining consistent transparency in strategy so that retail investors believe in the long-term vision. In contrast, successful execution of convertible bonds and preferred stock requires a robust institutional sales channel and relationships with the capital markets department. Based on this logic, I believe $SBET is a stronger retail-driven company, mainly attributable to Joe Lubin's leadership and the team's consistent transparency in ETH accumulation per share. At the same time, $BMNR under Tom Lee's leadership, due to its close ties to traditional finance, seems better positioned to leverage institutional liquidity.

Why is ETH Asset Vital to the Ecosystem and Competitive Landscape?

One of Ethereum's biggest challenges is the increasing centralization of validators and staked ETH, especially in liquidity staking protocols like Lido and centralized exchanges like Coinbase. ETH asset management companies can help counter this trend and promote validator decentralization. To support Ethereum's long-term resilience, these companies should diversify their ETH across multiple staking providers and operate their own validators whenever possible.

Figure 5: Staking Distribution by Category

Source: Artemis

In this context, I believe the competitive landscape of ETH asset management companies will be vastly different from BTC asset management companies. In the Bitcoin ecosystem, the market has evolved into a winner-takes-all scenario, with MicroStrategy holding over 10 times the amount of BTC as the second-largest holder. With its first-mover advantage and strong narrative control, MicroStrategy dominates the convertible bond and preferred stock market.

In contrast, Ethereum assets start from scratch. Currently, no single entity dominates, but multiple ETH assets are being launched simultaneously. This lack of a first-mover advantage approach is not only beneficial for the network but also fosters a more competitive and rapidly evolving market environment. Given the relatively close ETH holdings of all major players, I believe we are likely to see a duopoly emerge between two giants, $SBET and $BMNR.

Figure 6: ETH Asset Position

Source: strategicethreserve.xyz

Valuation: MSTR + Lido Comp

Broadly speaking, the ETH financial model can be seen as a fusion of MicroStrategy and Lido, tailored for TradFi. Unlike Lido, an ETH asset management company may potentially achieve a larger share of asset appreciation due to owning the underlying assets, making this model more advantageous in terms of value accumulation.

Rough valuation perspective: Lido currently manages approximately 30% of the total ETH staked, implying a valuation of over $300 billion. We believe that over a market cycle (4 years), $SBET and $BMNR are highly likely, as indicated by MicroStrategy's growth strategy, to surpass Lido's scale in the speed, depth, and reflexivity of capital flow in TradFi, with the company's total market value potentially exceeding $1.2 trillion.

Background: BTC has a market cap of $2.47 trillion, while ETH has a market cap of $428 billion (17-20% of BTC). If $SBET and $BMNR are approximately 20% of MicroStrategy's $120 billion valuation, this implies a long-term value of around $240 billion. Currently, the total valuation of the two companies is slightly less than $8 billion, indicating significant growth potential as ETH assets mature.

Conclusion

The convergence of cryptocurrency and traditional finance through a digital asset management strategy represents a major paradigm shift, with ETH assets emerging as a powerful force. Ethereum's unique advantages, including higher volatility of convertible bonds and priority issuance of native returns, enable ETH asset management companies to achieve unique growth. Their potential in promoting validator decentralization and fostering competition further sets them apart in the BTC asset arena. Combining MicroStrategy's capital efficiency with Ethereum's intrinsic rewards can unlock significant value and drive deeper integration of on-chain economics into TradFi. The rapid expansion and growing institutional interest foreshadow a transformative impact on cryptocurrency and capital markets in the coming years.

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