BTCS Spins The Ethereum Flywheel

Summary BTCS is pursuing aggressive ETH accumulation via capital raises, aiming to leverage crypto treasury strategies for share price appreciation. Revenue from NodeOps and Builder+ has grown rapidly, but profitability is deteriorating, raising concerns about scalability and operational efficiency. Current market cap is only partially backed by crypto holdings, making valuation highly dependent on continued crypto bull markets and ETH price. Despite potential for explosive upside, high risk and uncertainty lead me to rate BTCS as a Hold, not a Buy, due to significant downside risks. Introduction BTCS Inc. is one of the smallest publicly traded companies, with a market cap of $105M. In a press release on July 8, they announced their intent to raise funds worth $100M to acquire more Ethereum ( ETH-USD ), as more and more companies are driving cryptocurrency treasury strategies. On July 9, they released an update on increasing their target funding to $225 million . BTCS wants to build the leading publicly traded company focused on Ethereum infrastructure. CEO Charles Allen stated the following: This is about scaling ETH per share, not just raising capital. With a maturing crypto regulatory environment and increased institutional focus on Ethereum, now is the time to double down on our unique model—accumulating ETH through a capital-efficient strategy that avoids unnecessary dilution and strengthens shareholder alignment. Their flywheel is depicted below. They aim to use some of the revenue they generate from blockchain operations to Buy ETH, which they believe will appreciate. This increases ETH per share, and at a higher ETH price, the share price should follow. Then they can perform strategic capital raises, as they can acquire large amounts of funds at higher share prices that they are then going to use to purchase more ETH. Higher ETH balances will lead to higher ETH staking rewards, and the cycle repeats. BTCS IR Uncertainties around liquidity and borrowing, intrinsic valuation, and a highly probable decline of crypto prices in 2026 make me lean towards issuing a Sell rating. However, ETH’s 2025 growth prospects amid a continued crypto bull market seem very good, and crypto treasury companies are often traded at very high valuations, at least for now, giving the stock potential upside. This leads me to rate BTCS a Hold. Their Operations The two largest revenue drivers for BTCS are NodeOps and Builder+. NodeOps is BTC’s validator node operations business. It runs a cloud-based network of proof-of-stake validator nodes that validate transactions, propose new blocks, and earn ETH tokens as a blockchain reward. Builder+ generates revenue by building blocks that include the most profitable transactions. It bids for block space and uses algorithms to maximize gas fees collected from users. BTCS IR These have been growing at very impressive rates, as of their income statement on their 10-Q . On the other hand, profitability has taken a hit, as gross profit has dropped more than 50% amid this increase, which led to a quarterly net loss of $17.3M, compared to $12.3M the year before. BTCS 10-Q From FY 2023 to FY 2024, revenues also increased drastically (more than 3X’ed), but net income dropped from positive $7.8M to negative $3.1M, raising questions about whether they have the ability to scale these operations at all. BTCS should therefore be valued based on their holdings. Their Holdings As of their 10-Q from March 31, 2025 , supplemented with more recent press releases, BTCS holds: Holding Amount of Tokens Market Value (July 9) Ethereum ( ETH-USD ) 14,600 $38.7M Cosmos ( ATOM-USD ) 338,838 $1.4M Solana ( SOL-USD ) 7,155 $1.1M Others $1.2M Sum $43.4M Therefore, their current market cap is backed by approximately 43% of crypto assets, making it trade at a premium. In a continued crypto bull market, the market value should expand significantly, which could lead to gains in share price, but only if the premium remains or grows even bigger. Total liabilities come in at $0.5M, which could easily be covered almost singularly by their cash + stablecoins balance of $0.3M. Being unprofitable and planning to buy a lot of Ethereum in the future, BTCS needs to rely on liquidity apart from their revenues and cash balance, as they essentially have no cash runway and cannot use much of their revenues to fund set purchases. To finance planned acquisitions, BTCS is pursuing a hybrid capital structure that combines DeFi and TradFi. This includes: ATM equity sales under their existing $250M shelf registration . Convertible debt. On-Chain borrowing via Aave, using their ETH as collateral, at an estimated cost of 3% p.a. They have also established an NAV leverage cap of 40%, which limits the amount of loans they can take on but could lead to higher levels of dilution. Risks BTCS’s strategy is highly dependent on Ethereum’s price trajectory. Sharp drops or prolonged volatility can erode NAV. Also, the planned on-chain borrowing seems to bear a large counterparty risk if lenders default. At the same time, their ATM sales expose shareholders to significant levels of dilution, especially if they do not get the timing right and offer equity at low prices, which then also leads to lower secured funds, less ETH acquired, and less staking revenues, slowing down the whole flywheel. The company is unprofitable and may struggle to secure debt at attractive terms, which could result in higher leverage without benefiting shareholders, or in the worst case, force the company into bankruptcy. Therefore, there is a large financial and execution risk with this name. Conclusion Ethereum historically outperforms Bitcoin during crypto bull markets, which appears to still be unfolding. That does bear some opportunity for strong performance of BTCS, who are now really focused on ETH. In that case, investors might get more euphoric and push up the share price. Being such a small company can lead to explosive price movements. These are the key reasons as to why BTCS is a Hold for me and not a Sell. I could see this name at higher prices towards year-end. Still, the reason it is not a Buy is that this is an incredibly speculative and risky play. Accurately valuing such complex operations and treasury strategies is incredibly difficult. Therefore, the true value of BTCS remains unknown, which is why I do not recommend buying now, as uncertainties and risks seem higher than they should for potential price gains. Additionally, technical indicators warrant caution, with the daily RSI trading at 65 (down from 86) and weekly RSI at 68 inching towards overbought status. These levels have historically led to pullbacks, so investors who believe in BTCS’s flywheel and higher ETH prices may want to wait for a larger pullback in the coming days and weeks. In my view, though, exposure to Ethereum directly makes more sense and is risky enough in itself.

Source: Seeking Alpha