Written by: Golem, Odaily Planet Daily

On July 17, SharpLink Gaming (SBET) announced in an updated prospectus submitted to the U.S. SEC its plan to issue an additional $5 billion in common stock on top of the originally planned $1 billion to further purchase ETH. Following the news, SBET's stock price peaked at $38.91 that day, but subsequently began to decline, closing at $28.98 for the week ending July 19. On Monday of this week, SBET's stock price fell again, closing at $25.25.

This raises questions—referring to the Strategy script, SharpLink Gaming, as a leading "ETH version Strategy," should see its stock price spiral upward whether it actually increases its ETH holdings or announces actions favorable to increasing ETH. Moreover, with ETH continuously breaking through, there should be no reason for a decline. However, "strangely," investors who added to their SBET positions last week found themselves trapped at the peak. Has the Strategy approach lost its effectiveness?

Market opinions generally summarize that SBET's decline has two main reasons:

First, last week, BitMine's ETH reserves (300,657 coins) briefly surpassed SharpLink's, making it the entity with the most ETH holdings, thus threatening SharpLink's title as the "ETH version Strategy." However, on July 19, according to public information, SharpLink continued to increase its ETH holdings, reaching a total of 345,158 coins, valued at over $1.2 billion, regaining its status as the entity with the most ETH reserves.

Second, the combination of private equity financing (PIPE) and at-the-market (ATM) issuance that SharpLink Gaming adopted to purchase ETH has begun to face market skepticism. The newly added $5 billion equity limit is not a stimulant for price increases; rather, it has become a trigger for market panic.

SharpLink's Financing Method Raises Market Concerns

Before understanding what investors are worried about, we need to clarify SharpLink's financing method that combines PIPE and ATM. The funds for Strategy's BTC purchases come from convertible bond financing, which carries risks such as debt maturity pressure and interest payments, but does not cause significant equity dilution or market selling pressure, making it a good strategy for achieving "left foot stepping on the right foot to the sky" during BTC's upward phase.

However, the private equity financing (PIPE) adopted by SharpLink directly dilutes equity and exerts selling pressure on the stock price. At the end of May, SharpLink Gaming completed a $425 million private equity investment, after which the stock price rose from a few dollars to $80. But on June 12, due to market rumors that "PIPE investors have begun to apply for exits," SBET's stock price plummeted over 70% in a single day, returning to single digits. Although SharpLink's board chairman, Consensys CEO Joseph Lubin, later clarified that no PIPE investors had actually sold, it reflected that if a sell-off were to occur, it would deal a fatal blow to SBET's price.

The mere $425 million in financing does not support SharpLink's purchase of more ETH, so it also adopted the ATM method of issuing stock at market price to raise funds. ATM refers to a financing method where a listed company sells stock directly to the secondary public market at the current market price. ATM is not a one-time event but a continuous sale until the target position is reached; a significant portion of SharpLink's total $6 billion equity issuance may need to be completed through this method. According to the SEC documents and announcements disclosed by the company, as of July 11, SharpLink had raised $608.1 million through ATM.

SharpLink's ATM market issuance completed after PIPE

Once we clarify SharpLink's financing model, it is not difficult to understand the market's concerns. The combination of PIPE and ATM financing methods not only causes immediate equity dilution for SEBT but also brings ongoing stock increment pressure. Although PIPE investors have not yet sold, they remain a thorn hanging over retail investors, and they may have already been secretly selling SBET shares purchased at low prices, cleverly avoiding disclosure.

Moreover, ATM is essentially a legal arbitrage behavior for the company, continuously bringing selling pressure to the market. Compared to SharpLink's current market value of about $2.9 billion, the future $5 billion issuance limit seems to drain market liquidity. The market inevitably begins to question whether SharpLink is genuinely focused on the long-term value of ETH or merely treating it as a reusable narrative lever.

SharpLink's ideal script may be: leveraging the current wave of crypto treasury to accumulate ETH and boost stock prices, then using ATM to directly extract investor funds from the market to increase ETH holdings, thereby reinforcing the ETH version Strategy narrative to drive stock prices up, and then selling shares at a higher point, repeating this cycle. Additionally, ETH is an income-generating asset; according to SharpLink's latest disclosure, as of July 8, its ETH staking income reached 322 coins (approximately valued at $1.22 million). This means SharpLink not only cashes out high-priced stocks into ETH through this left foot stepping on the right foot method but also enjoys capital appreciation benefits, ultimately leaving retail investors who sell ETH to chase high SBET prices "losing both the lady and the soldiers."

BTCS's Innovative TraFi + DeFi Hybrid Financing Structure

In addition to SharpLink, other publicly listed companies that also use equity financing to reserve ETH (such as BitMine, Bit Digital, and GameSquare) face the risk of equity dilution.

However, there is one ETH-reserving listed company in the market that has not adopted equity financing to raise funds but instead uses a convertible bond financing + revolving loan financing model, also known as the "TraFi + DeFi hybrid financing structure," which is BTCS. As of July 21, BTCS holds a total of 55,788 ETH, ranking 10th among listed companies.

BTCS's "TraFi + DeFi hybrid financing structure" means that on one hand, the company raises funds through convertible bonds and ATM to purchase ETH in traditional finance; on the other hand, BTCS uses ETH as collateral to borrow stablecoins in DeFi protocols like Aave to purchase ETH.

According to official documents, as of July 21, BTCS has raised $132 million through ATM (including $28.4 million in pending settlements at $7.9 per share and $10 million in pending convertible note funding), raised $17 million through convertible bonds, and borrowed $40 million in stablecoins using Aave (with a loan-to-value ratio below 40%).

BTCS currently has a market value of $144 million. Although it also uses ATM financing, the scale is not as large as SharpLink's, resulting in less dilution pressure on shareholders. Additionally, BTCS does not use all ETH for staking but further utilizes on-chain leverage to increase ETH holdings. If ETH continues to rise, it will create a larger yield flywheel.

Because ETH itself has income-generating properties and a well-developed DeFi ecosystem, unlike BTC reserve companies that can only hold BTC as digital gold in custodial wallets, ETH reserve companies can utilize more financial tools to repeatedly monetize ETH.

However, this also raises investor concerns. Behind the complex financial tools, if all returns are based on the rise of ETH, which financing model will be the first to collapse if ETH weakens again?

ETH Version Strategy Still Undecided

Although SharpLink currently holds the most ETH and has the strongest background, the ETH version of the Strategy has yet to be determined. SharpLink's left foot stepping on the right foot model does not rely on the continuous rise of ETH but rather on investor trust. When investors realize that SharpLink's continuous arbitrage of stock reserves of ETH is not based on the long-term value of ETH but merely a means to achieve balance sheet growth (the income generated from ETH reserves does not benefit shareholders), SharpLink's narrative will collapse.

BTCS's "TraFi + DeFi hybrid financing structure" controls the degree of equity dilution, but actively introducing on-chain lending also carries greater risks. If the upward momentum of ETH weakens and begins to decline, BTCS will have to face risks such as reduction or liquidation, which will inevitably negatively impact the stock price.

As investors gradually gain clarity and realize that reserving ETH is not as simple as directly purchasing BTC and holding it in a wallet, the market will no longer measure the value of an ETH-reserving listed company solely by "ETH reserves." Nevertheless, the current heat of ETH reserves has indeed brought real buying pressure and capital speculation hype to ETH. Therefore, rather than cross-trading crypto stocks, directly purchasing or going long on ETH is what we, the "esteemed crypto investors," should do.

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