Empire Cross-Post: The Crypto Treasury Playbook With Ben Forman & Josh Solesbury From ParaFi Capital

This episode unpacks the sophisticated financial engineering behind crypto treasury vehicles, revealing how they can outperform spot assets and why this trend is fundamentally reshaping crypto capital markets.

The Core Question: Why Pay a Premium for Crypto in a Public Company?

Ben Forman from ParaFi Capital opens by tackling the central puzzle of the crypto treasury space: why a dollar's worth of Bitcoin held by a public company like MicroStrategy often trades for more than a dollar. While the launch of spot Bitcoin ETFs in January 2024 made it easy to buy Bitcoin at its Net Asset Value (NAV)—the underlying market value of the assets—the premium on treasury vehicles has persisted.

Ben explains that the answer lies in a company's ability to actively manage its capital structure to increase the amount of crypto it holds per share over time. This strategy, if executed well, allows the company's stock to outperform the underlying spot asset, justifying the premium.

• Key Insight: The value is not just in holding the asset, but in the financial mechanisms the corporate wrapper provides to accumulate more of that asset for its shareholders.

The Strategy: Growing Crypto-per-Share

The primary mission of a crypto treasury vehicle is to increase its holdings of a specific digital asset (e.g., Bitcoin, ETH, SOL) per fully diluted share. Ben Forman outlines the core mechanic:

• When Trading at a Premium to NAV: The company can issue new stock at the inflated price and use the cash proceeds to buy more of the underlying crypto asset at its spot price. This action is accretive, increasing the crypto-per-share for all existing shareholders.
• When Trading at a Discount to NAV: The company can do the inverse—sell some of its crypto holdings and use the proceeds to buy back its own undervalued stock. This also increases the crypto-per-share.

Ben notes this creates perfect alignment between management and shareholders, a dynamic absent in closed-end funds like the Grayscale Bitcoin Trust (GBTC) pre-conversion, where there was no redemption mechanism to close the discount. He states, "Shareholders are the beneficiaries of effectively arbitrageing their own stock whether it trades at a premium to NAV or a discount to NAV."

Why Now? A Confluence of Macro and Regulatory Tailwinds

Josh Solesbury of ParaFi Capital explains that the current boom is driven by a favorable macro and regulatory environment. He introduces the concept of "reverse tokenization," where crypto-native assets are increasingly packaged into traditional financial wrappers to access public capital markets.

• Institutional Acceptance: Major financial players are now comfortable with instruments exposed to crypto volatility.
• Regulatory Shifts: The repeal of prohibitive accounting rules like SAB 121 has made it easier for public entities to hold digital assets without corresponding liabilities.
• Demand for Volatility: In a low-yield environment, certain pools of capital are actively seeking the high-volatility, high-return profile that crypto assets offer, which has been scarce in traditional markets.

The Copycat Phenomenon and Market Dynamics

Ben Forman observes that the success of MicroStrategy has inspired a wave of copycats, as the barriers to entry are relatively low for a struggling public company with a legal shell. He points out a key dynamic:

• Diseconomies of Scale: While MicroStrategy's size gives it unparalleled access to capital markets (it's one of the largest convertible bond issuers globally), its massive scale makes it harder to significantly increase its Bitcoin-per-share.
• Advantages for Smaller Players: Smaller, nimbler treasury vehicles may find it easier to grow their asset base on a percentage basis, creating an advantage.

The MicroStrategy Flywheel: Securitizing Bitcoin

The discussion dives into the mechanics of MicroStrategy's success, which Ben Forman describes as effectively "securitizing Bitcoin." The company slices the risk and return profile of Bitcoin into different financial instruments to appeal to various investor types.

• Convertible Bonds: A key instrument is the convertible bond, a type of debt that can be converted into the issuer's stock. MicroStrategy issues these bonds, often at a 0% coupon, to raise capital to buy more Bitcoin.
• The Arbitrage Play: Hedge funds buy these convertible bonds, valuing them as a combination of a standard bond and a call option on the stock. They then hedge their position by shorting the stock in the options market.
• The Flywheel Effect: A liquid stock and a deep options market are crucial. The more liquid MicroStrategy's stock and options are, the more capacity hedge funds have to run this arbitrage, which in turn increases the demand for MicroStrategy's convertible bonds, creating a self-reinforcing cycle.

The Scale of the Boom and ParaFi's Investment Thesis

Josh Solesbury quantifies the explosive growth of the sector:

• There are now over 150 Bitcoin treasury companies globally.
• These new entities (excluding MicroStrategy) have accumulated around 250,000 BTC.
• ParaFi Capital has analyzed 60-70 of these deals and invested in or committed to at least 10 globally.

When evaluating opportunities, ParaFi focuses on:

1. Market Analysis: Assessing the depth and capacity of the local capital market (e.g., US, Europe, Asia).
2. Management Quality: Partnering with teams who understand both crypto and traditional finance and have a long-term vision. Josh emphasizes the need for leaders who can speak to both retail crypto fans and sophisticated convertible bond investors.

Market Saturation, M&A, and the Risk for Retail

Ben Forman predicts an inevitable market shakeout. As the number of treasury vehicles grows, many will fail to command a premium and will trade at a discount to NAV, leading to a wave of M&A.

• Strategic Implication: The space will likely evolve beyond pure accumulation. To differentiate, companies will need to develop new strategies, such as earning yield on their crypto holdings or building cash-flowing businesses to fund more crypto purchases, as seen with Metaplanet.

Ben issues a strong caution for retail investors. Buying these vehicles in the open market at a significant premium is risky, especially before the "dust settles"—a period when early investors in SPACs (Special Purpose Acquisition Companies) or PIPEs (Private Investments in Public Equity) are unlocked and can sell their shares.

• Actionable Insight: Retail investors must be highly aware of the NAV multiple they are paying and the timing of potential unlocks, which could flood the market with supply and compress premiums.

Impact on Price and the Altcoin Treasury Landscape

The conversation addresses why the massive accumulation by these vehicles hasn't led to more dramatic price increases. Ben Forman attributes this to the "law of large numbers"—Bitcoin is now a multi-trillion dollar asset, and it simply takes more capital to move the price. He also notes that Bitcoin has matured from a technology bet into a macro asset.

The discussion then shifts to altcoin treasuries for assets like ETH and SOL.

• The "In-Kind" Dynamic: A key driver for these vehicles is the ability for funds with locked, vesting tokens (e.g., from venture rounds) to contribute them "in-kind" to the treasury vehicle. This provides the funds with a path to earlier liquidity through a publicly traded entity.
• Challenges for Altcoins: Josh Solesbury questions the long-term viability of many of these, asking who the marginal buyer will be after the initial, highly-aligned investors are exhausted. These vehicles lack the deep capital market access that Bitcoin-based treasuries enjoy.

The Endgame: Consolidation, Evolution, and the Final Boss

Looking ahead, both speakers agree on a few key outcomes for the crypto treasury space:

1. Consolidation: The strongest players, potentially including MicroStrategy, will acquire weaker ones trading at a discount.
2. Business Model Adaptation: Successful treasuries will evolve from passive holders to active managers, pursuing yield and building operating businesses around their assets.
3. The Corporate Treasury Domino: The most significant future catalyst is a major, non-crypto-native corporation (e.g., a "Mag 7" company) adding Bitcoin to its balance sheet as a standard treasury management practice. Ben believes this could happen within the next 12 months.

Josh concludes by stressing the importance of due diligence. As more vehicles launch, investors must scrutinize the fully diluted share count and capital structure to uncover hidden warrants or fees that could dilute their stake.

Conclusion

Crypto treasury vehicles represent a powerful new bridge between digital assets and traditional capital markets. While the current accumulation phase is creating significant opportunities, investors and researchers must look beyond the hype to analyze capital structures, management alignment, and the coming market consolidation to identify the long-term winners.