Upexi: The ‘Strategy’ Of Solana?

Summary Upexi has seemingly shifted its focus from Bitcoin to Solana, raising capital through stock issuance and private placements to invest heavily in SOL tokens. The company’s legacy re-commerce business is in decline, and it faced Nasdaq de-listing due to financial reporting issues but regained compliance in December. Upexi’s SOL investments have appreciated, but the company’s valuation at nearly 4x its SOL holdings is considered too high, leading to a ‘sell’ recommendation. Despite generating yield from staking SOL, the high premium on UPXI shares makes it an unattractive investment at its current market cap. By now, most in the financial world are likely aware of what Strategy ( MSTR )( STRF ) is doing with Bitcoin ( BTC-USD ). Through convertible notes, common stock issuance, and even preferred shares, Strategy is raising capital essentially any way it can in order to buy Bitcoin. What is less known, is that there are other companies attempting similar strategies with both Bitcoin and alternative digital assets. One such company is Upexi, Inc ( UPXI ). Like Strategy, Upexi operates a legacy business outside of digital assets that is in clear decline. However unlike Strategy, Upexi is prioritizing Solana ( SOL-USD ) rather than BTC. In this article, we’ll briefly look at Upexi’s legacy business, examine the company’s balance sheet strategy, and get into whether or not SOL is the right kind of asset for such a move. Upexi’s ‘Re-commerce’ Business & Bitcoin Mining Prior to jumping headfirst in the world of crypto, Upexi primarily operated a ‘re-commerce’ business where it sold wellness products direct-to-consumer and through Amazon’s ( AMZN ) marketplace. Entities that were previously owned outright or partially by Upexi included Tytan Tiles, E-Core, VitaMedica, and Interactive Offers. Those assets have all been sold. The company still operates LuckyTail, PRAX, and Cure Mushrooms. Data by YCharts After significant revenue declines over the last several quarters and mounting net losses, the company found itself facing Nasdaq de-listing last November after failing to file both its fiscal 2024 10-K and subsequent 10-Q in a timely manner. Upexi regained compliance in late December . Prior to Nasdaq compliance issues, Upexi had already begun a restructuring that saw the company selling assets, brands, and eliminating debt. By the end of December 2024, the balance sheet had just $400k in cash/equivalents, $6.1 million in current assets, $4.2 million in net property, plant & equipment and $17.5 million in total assets. With $13.8 million in total liabilities – $10.6 million of which was current – and 1,045,429 shares outstanding at the end of the year, UPXI had a book value of about $3.60 per share. This year, Upexi announced its shift in focus to Bitcoin and crypto through newly established and owned brands ChainBitMiner and QuantumHash. The former appears to simply be a holding company for Upexi’s digital assets and the latter seems to be more mining-focused despite still being quite vague regarding the actual operations of the business: The Company will look to capitalize with investments in Crypto mining with a main focus on Bitcoin mining. The Company does not initially plan to operate its own mining operations. The quote above is from the Upexi’s late-January press release. The quote below is current as of mid-May from the company’s website : Leveraging Hash-as-a-Service to mine our own coins, expand our digital portfolio, and create low-risk digital treasury levered growth. We seek to mine Bitcoin as well as high growth opportunity alt coins with immediate conversion to Bitcoin. If I’m reading these accurately, it seems like Upexi’s original plan was to scale BTC holdings through usage of cloud hash services similar to the ones offered by companies like Bitdeer ( BTDR ) and BitFuFu ( FUFU ). Which anyone who follows my work may know are often terrible deals for the mining plan buyers. In March, Upexi announced a letter of intent to buy a 2 MW Bitcoin mining facility but didn’t provide much detail beyond the following: The facility is currently utilizing less than half its available capacity output. Quantum Hash intends to update current equipment and add the latest and fastest mining machines available to maximize hash rate and maximize bitcoin mined monthly, upon closing. As far as I can tell, active and prospective shareholders don’t know where this mining facility is located or what kind of machines are currently hashing. More importantly, it appears as though the company has already pivoted priority again based on how it is allocating an enormous capital raise in April. Solana Strategy Less than two months after the company announced the Bitcoin mining LOI, Upexi raised over $100 million through private placement from several venture funds as well as prominent crypto advocates like Frank Chaparro, Arthur Hayes, Austin Federa, and Joey Krug. As part of this arrangement, the company issued 36 million common shares and has been deploying that capital into Solana purchases. After initially announcing the acquisition of 45,733 SOL for $6.7 million in late-April, Upexi subsequently added over a half million SOL in less than a month. Announced Locked? Cost SOL Cost Basis 4/29/24 No $6,700,000 45,733 $147 5/6/24 No $23,216,705 155,767 $149 5/12/24 Yes $44,128,641 326,347 $135 N/A* No $10,154,654 68,867 $147 Total $84,200,000 596,714 $141 Source: Upexi, *Author’s estimate based on Upexi cost basis and announced holdings The table above shows announced and estimated purchases based on recent press releases. However, 596,714 SOL at a cost basis of $141 per coin is not an estimate; those figures were provided straight from Upexi in a May 12th press release . The company purchased over half its SOL stack at a discount because they’re locked at a weighted maturity of 1.4 years. Meaning, after initially expressing interest in Bitcoin mining through both hash services and company-owned infrastructure, Upexi appears far more committed to the Solana ecosystem at this juncture. Data by YCharts So far, these acquisitions have actually worked out wonderfully. For $84.2 million, Upexi has acquired Solana tokens that have a current market value of over $104 million and the company is actively staking those assets for chain-native yield as well. Upexi, Spring Investor Deck In Upexi’s Spring investor deck, the company laid out its plan for accretive issuance through both common stock and convertible debt. The company specifically mentions in the deck how SOL ETFs and the return of memecoins are positive catalysts for SOL’s price. I’m not generally a fan of memecoins and have expressed that in prior work. But if they are going to have a resurgence this year, Solana is likely to be the chain where it happens. Is Solana The Right Play? As of this article submission, Solana’s reward rate from staking is 8.3%: Solana Staking Rate vs Inflation (Blockworks) Keep in mind though that unlike Bitcoin, which is hard capped at 21 million coins, Solana doesn’t have a limited supply. Instead, Solana has a 5.3% rate of inflation that declines over time. This gives Solana staking a ‘real yield’ of 3% before any appreciation or depreciation of the asset price. Looking at the ‘real yield’ on a quarterly average, we can see that the real yield line in purple has held up well in the 3-4% range despite nominal APY in general decline going back to Q4-22 – the declining inflation rate has supported real yield in spite of lower nominal returns. Another consideration is fees from transactions. Like Bitcoin miners who make revenue from both issuance and transaction fee payments, Solana validators are paid through both token emissions and fees from network usage. The latter has been terrific for Solana since the start of 2024 as the network has grown share of fees among top smart contract blockchains: Fee Share, Top Smart Contract L1s (Artemis) Compared with some of the other top smart contract blockchains by market cap, Solana has generally fallen somewhere between 20-40% share of the market over the 8 months. Year to date, Solana has generated over $430 million in network fees which is second only to Tron ( TRX-USD ). And while one could certainly argue Solana’s rally has been driven by the casino-culture that is memecoins rather than expansion of real utility through stablecoin usage, as long as memecoins have an incentive to exist, they will persist. Pump.fun – the interface used for memecoin generation – will be sharing 50% of Pumpswap revenue with coin creators in the future. This could perhaps drive more memecoins on Solana. The Elephant In The Room Keep in mind, UPXI did $4 million in revenue for the quarter ended December 2024 and generated a $1.3 million net loss in the same quarter. The underlying legacy business was worth about $3.60 per share at the end of December. With the $100 capital raise and nearly 40 million shares issued subsequent to the end of last year, we now have a company that likely has somewhere between $5 to 10 million in cash remaining after using $5.3 million of the $100 million capital raise for working capital and debt reduction as well as $84 million for SOL purchases. $373 million market cap (Seeking Alpha) So for a re-commerce business worth a few million at best, $10 million in cash at most, and $104 million in SOL that is earning a 3% real yield after inflation, investors can buy UPXI at a $373 million valuation – or nearly 4x the Solana held by the company. I doubt this needs to be said; but that’s probably way too high a premium for exposure to staked SOL. Closing Thoughts Valuation aside, this is all quite the turnaround for an entity that was facing Nasdaq de-listing just a few months ago. Even the path to get here was a bit confusing. It looked like Upexi was making a play on raising capital to buy Bitcoin à la Strategy and Michael Saylor just a few weeks ago. However, it now appears as though Solana is the ecosystem Upexi is primarily banking on. Wise? Possibly. Provided the Solana can be staked for blockchain rewards, there’s an argument to be made for acquiring SOL with the purpose of generating yield on those assets. Of course, things often come down to price. Even though Upexi may have purchased SOL at a great price, that doesn’t mean $10 a share for UPXI is a good price. At a market cap just shy of $400 million and a little over $100 million in SOL – I’m going to go out on a limb here and call UPXI a ‘sell.’

Source: Seeking Alpha