Ethereum Treasuries Face Unique Risks Compared to Bitcoin Firms, Says Bernstein

Ethereum treasuries are treating the asset differently than their Bitcoin-focused counterparts, generating staking rewards even as they hold ETH as a reserve asset, brokerage Bernstein wrote in a note Monday. However, the analysts noted that the model also presents liquidity and smart contract risks as these companies address limitations on how they deploy capital.

The analysts wrote that these were important considerations as firms attempted to balance Ethereum availability and “yield optimization.”

“If ETH treasuries stake ETH for yield, staking contracts are generally liquid, but sometimes have days long queue to unstake,” the analysts wrote. “Thus, ETH treasury companies would have to balance ETH liquidity and yield optimization. Further, more complex yield optimization such as restaking (such as Eigenlayer restaking model) and DeFi-based yield generation would involve managing smart contract security risk.”

“The ETH treasury model has the benefit of actual cash flow yield driving operating earnings, however liquidity risk and security would be important considerations,” Bernstein added.

Staking is the process of pledging coins to the network to help it operate. Proof-of-stake networks like Ethereum and Solana differ from Bitcoin and other proof-of-work systems, which are built around resource-intensive mining operations.

The report comes as a small but growing number of companies have shifted their focus to build Ethereum treasuries. Bernstein noted that Ethereum companies—including SharpLink Gaming (SBET), Bit Digital (BTBT), and BitMine Immersion (BMNR)—had accumulated 876,000 ETH in July.

Last week, BMNR surpassed $2 billion in its Ethereum holdings, and the firm has stated its goal of holding and staking 5% of the asset’s supply. SharpLink holds more than $1.3 billion worth of ETH.

“The growth of this internet financial economy, driven by the digital dollar and tokenized assets, will drive higher transactions and user growth on the Ethereum ecosystem, including layer-2 chains run by platforms such as Coinbase and Robinhood,” Bernstein wrote. “ETH the underlying native asset, backed by transaction fees-driven staking yield (and ETH buyback and burn economics), should accrue value from the growth of the Ethereum financial economy.”

Ethereum broke $3,900 in Monday trading, its highest level since early December, before retreating. The asset is up more than 50% over the past month, its surge closely intertwined with the rise of ETH treasuries, a more favorable environment for the Ethereum blockchain after passage of the GENIUS Act, and growing perception of its potential usefulness.

A number of analysts have predicted that ETH will surpass its previous record high above $4,800 this year, with BitMEX founder Arthur Hayes recently projecting a $10,000 mark for ETH this year.

In a report published on the social media platform X, BitMine Immersion Chair Tom Lee wrote that ETH could hit 18 times its current value, about $60,000, based on replacement values the firm requested from research analysts. Of course, BitMine has a vested interest in suggesting a potentially massive surge ahead for its held assets.

Ethereum treasuries have followed a model pioneered by Strategy, formerly MicroStrategy, which pivoted from software development to Bitcoin purchasing in 2020 after years of struggling and low share prices. Strategy now holds nearly $72 billion in BTC based on its current price. But the analysts wrote that they “would have a more involved risk management compared to the Strategy model.”

“Michael Saylor has remained adamant about holding his Bitcoin liquid on the balance sheet, without trying to lend it out to generate a passive yield,” the analysts wrote. “Strategy is extremely focused on ALM [asset liability management] and liquidity management.”

“And Strategy often toggles between debt and equity fund raise to keep debt levels conservative, depending on market sentiment,” they added.