Upexi: The Market Loves Crypto Treasury Companies

Summary Upexi is the “Solana Treasury Company,” a line it has recently adopted after growing out of its e-commerce phase. While it is still operational, its primary business is now crypto-focused. The market seems to adore companies like this, and Upexi has jumped over 180% since the announcement, but it is still relatively fairly valued to its net assets. This could be a great opportunity for investors bullish on Solana, but this firm is on the frontier of risky companies, and investors should tread carefully. Thankfully, options trading went live recently for Upexi, offering investors a chance to buy a protective put! Introduction As someone who considers themselves a risk manager more than an investor (the difference makes me happy even if you think there isn’t one), nothing makes me balk quite like the phrase, “crypto treasury company.” Of course, when I see an opportunity to cover one of these companies, I want to take it — what if I’m wrong, and I discover a diamond in the rough? Enter Upexi Inc. ( UPXI ), which has had a very wild ride through the stock market, several iterations, massive spikes, and massive crashes. Now, they are a crypto treasury company. Data by YCharts That chart looks bad, but it’s a remnant of the company’s past as a hemp-CBD distributor — known as Grow Inc. at the time — then as an e-commerce brand owner for health and wellness products. Entering their Crypto Phase Let’s zoom in to just their “crypto phase,” which started in April of this year. See when the announcement happened? It was a crazy spike, and that got the attention of a lot of investors who had never heard of this company before, or who remember it as a very different business. Data by YCharts The announcement in question was this : [UPXI] today announced establishing a digital currency holding company to invest and capitalize on the opportunities of cryptocurrency including Bitcoin and other coins with high growth potential. Upexi has made an initial investment in Bitcoin and is actively pursuing additional investment opportunities to expand its portfolio through further direct investment into coins, mining, and M&A in the fintech space. Management…have agreed to make a strategic investment in a portfolio of Cryptocurrency including Bitcoin that could grow exponentially in the future, and shift its growth strategy to opportunities in Crypto and the Blockchain. The Company has initiated a multi-pronged go-to-market strategy with a primary portfolio investment anchored by at least a 50% of the total portfolio asset size in Bitcoin and the remainder of the portfolio in cryptocurrencies such as Ethereum, Ripple, Aave, Chainlink, Render, and several others. In the future, the portfolio will be available to view on the Upexi website with daily updates of Upexi’s holdings. Upexi will initially operate through two newly established, wholly owned subsidiaries to separate our investments and reporting. The two entities consist of: ChainBitMiner: A diversified portfolio of Crypto coins anchored with 50-70% of portfolio in Bitcoin held in lieu of cash on balance sheet. The company will issue periodic press releases around completed Bitcoin purchases and newly added coins to the portfolio. QuantumHash: 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. Andrew Norstrud, Chief Financial Officer of Upexi, stated, “The strategy of using debt, equity and cash flow to accumulate Bitcoin has proven very successful for many companies and their investors. We believe an expanded strategy should give investors more exposure to new coins with more potential upside while anchoring our strategy with Bitcoin. The new Trump administration has been publicly bullish and with the possibility of large financial institutions beginning to adopt this financial asset alternative, it has been clearly evident now is the time to make a strategic investment into the space.” So, we see the beginnings of a few things: A Strategy ( MSTR ) style treasury, although with more than just Bitcoin ( BTC-USD ). A foray into mining through investments in other mining ventures, not their own mining operations. They have already signed a LOI to acquire a mining facility. The other half of the crypto portfolio to be put in “alt-coins,” or non-Bitcoin crypto assets. On the mining side, Norstrud has said : We’re not aiming to be a pure-play mining operation…We’ll mine the best-performing coins, including AI-powered blockchain assets, with the goal of building a long-term crypto portfolio. Few things make me more nervous than the phrase, “AI-powered blockchain assets.” That just screams risk and bubble behavior — but I don’t decide what makes money in this market, and the market seems to love crypto treasury companies. Shortly after these announcements, UPXI deployed $100M in private placement funds into Solana ( SOL-USD ), which they are now “staking,” or collecting interest (more or less) by providing the tokens to help stabilize and secure the network. In this way, tokens that allow staking (Bitcoin does not natively support this on its blockchain) can be turned into cash-flowing assets. While the initial announcement didn’t include any mention of SOL, the company is now calling themselves the “Solana Treasury Company.” Here’s some of the related marketing they’ve released on it: Upexi Upexi Don’t Look At The Money, Think About the Future Because staking SOL provides a yield, and the other business operations of selling mushroom based wellness products, products for pets, and others on Amazon ( AMZN ) and elsewhere, the company does make some money. That revenue is entirely eaten up by expenses, and the net income is negative. Data by YCharts That may not matter to some, but it definitely does to others. Any cash they do raise (because they aren’t making any) is being deployed into crypto projects in general, and SOL in particular. Data by YCharts Without much cash on hand, how are they buying all this Solana? Private placement into shares and debt issuance. The plan is for SOL to increase in value faster than management can devalue the stock through share and debt issuance. Data by YCharts One of the ways they are deploying their cash is to be “locked” SOL tokens, which come at a discount. We can see how they are habitually buying below market price, which they advertise as instant shareholder gains. This is true, in a sense, but it also relies on the price of SOL continuing to climb over time. Upexi While the firm was much more highly valued a month ago, now down 33% from then, it is now very closely aligned in market cap to its net asset value. Upexi This could present a good “floor,” provided one is bullish on Solana. Crypto can fall precipitously, and often without warning or much of a reason (it can go up the same way too), and so betting on something so fickle is not exactly akin to gambling, but can feel like it while one watches the price swings. Conclusion Ultimately, Upexi, Inc. ((UPXI)) is one of the newest “crypto treasury companies,” a firm that uses the cash from its (unrelated) operations and fundraising to buy cryptocurrencies. Specifically, UPXI has gone in on Solana ((SOL-USD)), calling itself the “Solana Treasury Company.” This has paid off for them, and the company stands at tremendous gains since it made the switch. The current market loves this kind of stuff, and seemingly any company pushing into this space has been rewarded. Holding crypto instead of cash, UPXI hopes to make it big. As small as they are currently, it wouldn’t take too much to grow. However, it also makes the firm extra risky, and if the floor falls out for crypto, it’s unclear how long they will be able to hang on. Consider this firm extra speculative, and only for folks trying to take big swings with small amounts of capital. I won’t call UPXI a lottery ticket, but I can see how the comparison fits. However, I don’t decide what makes money in modern markets. Despite all the talk I’ve done about risk and bubble behavior (“AI-powered blockchain assets” is a real doozy on this front), the company is up over 180% since the original announcement, and peaked at over 500% gains at one point. There were many shareholders that were rewarded by this firm, and they could continue to be indefinitely. Or it could go to zero. One bright note to leave off on: options trading began in early June. While it is relatively illiquid, options do allow for more prudent risk management. This is a stock I’d buy a protective put on just in case. Thanks for reading.

Source: Seeking Alpha