Sharplink: An Unfairly Penalized Ethereum Treasury Company

Summary Blood is on the Ethereum streets, and Sharplink hasn’t been spared. Compared to a pure play Ether long position, Sharplink offers some unique advantages. A closer look at Sharplink’s price and underlying fundamentals points to a compelling entry point here. From its roots as an online affiliate marketing company, Sharplink ( SBET ) has successfully pivoted into one of the largest digital asset treasury companies (or DATCOs) on the market. SBET’s treasury strategy, announced in June last year, is focused on Ether ( ETH-USD ), the Ethereum blockchain’s native currency and the #2 cryptocurrency by market cap. As it stands, SBET has accumulated a very sizeable ~863K ETH treasury (worth ~$2bn at the time of writing), making it the #2 public holder of ETH after Bitmine Immersion ( BMNR ). Strategic ETH Reserve Like most other DATCOs, SBET funds its accumulation strategy by issuing shares, when they trade at a premium to their underlying net asset value, under an amended “At-The-Market” (or ATM) Sales Agreement. This strategy paid off for a while, allowing SBET to raise well over $2bn of gross proceeds toward building its ETH stockpile. In recent months, however, sentiment has tanked, taking ETH prices to less than half of their all-time highs. Data by YCharts Along with this drawdown, SBET has seen its NAV premium (the source of its funding) flip into a deep discount. So deep, in fact, that SBET now trades at an over 20% discount to its underlying holdings - at the bottom end of its DATCO peer group. The silver lining here is that deep discounts and peak pessimism also make for good entry points, so it’s worth taking a closer look at the SBET investment case here. Blockworks SBET as a Bet on Ether 1. Ether’s Price to Fundamentals Discrepancy With the legacy gaming business now down to a mid-single-digit % of revenue, a bet on SBET today is a concentrated bet on ETH. And as ETH (the currency) is the “gas” powering Ethereum (the blockchain), you do need to be comfortable underwriting Ethereum’s future. Here, I don’t see too many issues. Yes, price action has not been pretty at all in recent months, but fundamentally speaking, Ethereum’s position as the leading smart contract blockchain remains firmly intact. DefiLlama If anything, all signs point to adoption continuing to go up, rather than down. Broadly speaking, key megatrends in the space, from the growing tokenization of “real world assets” to decentralized finance, remain centered on Ethereum. Sharplink Developer activity also remains as robust as ever - despite the emergence of innovative (and better-funded) new competitor blockchains in recent years. Electric Capital Last but not least, there’s the scaling roadmap, which, as last year’s “Fusaka” upgrade (increased block capacity, among other improvements) showed, paves the way for reduced fees and much higher throughput in the years to come. That should, in turn, allow for activity to migrate back to Ethereum from “Layer 2s” (scaling solutions built on top of Ethereum) like Arbitrum ( ARB-USD ), as well as lower fee, higher throughput chains like Solana ( SOL-USD ). Coin Metrics 2. A Multi-Trillion Dollar CLARITY Catalyst While the infrastructure is as sound as it’s ever been, ETH pricing is also a function of external forces. One of which is regulation. Today, the focus here is on the Digital Asset Market Clarity Act, or “CLARITY Act.” CLARITY will firstly delineate regulatory jurisdiction between the securities regulator, the SEC (for security tokens), and the commodities regulator, the Commodity Futures Trading Commission or CFTC (for digital commodity coins/tokens). Recall this was a major point of contention with the previous Biden administration. Bybit Secondly, CLARITY defines regulatory requirements (think registration, AML/KYC, etc.) for applications like decentralized finance and “real world asset” tokenization. Both of these pave the way for institutional participation and the opportunity to tap into “trillions of dollars” of new capital . ETH price very closely tracks the total financial value (or TVL) locked on-chain, so as TVL scales with new inflows, ETH should appreciate accordingly. DefiLlama For all the promise, passing CLARITY hasn’t been as straightforward as last year’s Guiding and Establishing National Innovation for U.S. Stablecoins Act (“GENIUS Act”), which established regulatory clarity on stablecoin (i.e., tokens backed 1:1 by equivalent fiat currency) issuers. This has weighed on the market. Bybit The most notable sticking point with CLARITY is the banking industry’s pushback on platforms passing stablecoin yield onto customers. The rationale here is that a more attractive stablecoin proposition might lead to capital flight away from the banking system, creating systemic risks. Whether the banking or crypto lobby ultimately makes the concession is anyone’s guess, but for now, a watered-down CLARITY (minus yield sharing) seems like the base case scenario. Not ideal, but still a net positive, in my view, especially with other major crypto hubs (EU, Hong Kong, UK, etc.) also converging in a similar regulatory direction. Last but not least, a base case outcome isn’t fully priced into the market (60/40 odds per Polymarket ) - despite a growing sense of urgency with midterms looming large. Thus, a potentially positive near-term catalyst worth watching out for. Polymarket SBET as a Bet on Ether Accretion 1. Invest Alongside the Ultimate Ethereum "Insider" There are many ways to invest in ETH today, so why SBET? Management is one big reason, in my view. At the top of the leadership team is key man and Chairman Joseph Lubin. For context, Lubin is the co-founder of Ethereum and founder of Consensys, the company that built out Ethereum’s #1 digital wallet (MetaMask), as well as its infrastructure (Infura). In other words, about as much of an “insider” as it gets in the Ethereum ecosystem. Alongside Lubin is CEO Joseph Chalom, who brings fintech and digital assets experience from BlackRock ( BLK ). Together, Lubin and Chalom bring the access and expertise to string together some fairly unique opportunities across the Ethereum ecosystem. Sharplink Take, for instance, the incremental yield SBET has been able to unlock by liquid staking ~$200m on Linea (an Ethereum “Layer 2” network backed by Consensys) in a multi-year deal. In addition to native yield (currently 2.5-3%), this opportunity allows SBET to layer additional re-staking yield (from EigenCloud) and incentives from Linea and ether.fi on top. Sharplink Then you also have opportunities with the Ethereum Foundation, the non-profit supporting protocol growth, research & development. Of particular note here is the ETH Foundation's decision to sell ~10k ETH directly to SBET - a win-win outcome. For the foundation, a direct sale to an aligned party minimizes price impact if it had decided to sell into the open market. Meanwhile, SBET gets to negotiate better trade terms for the direct sale. How else can SBET leverage its privileged position down the line? Perhaps it gets first pass at managing foundation assets down the line. Or perhaps it innovates capital raising opportunities outside of the existing $6bn facility, allowing it to fund accretive ETH purchases. Either way, there's a latent value creation opportunity at SBET, which, in my view, isn’t reflected at current prices. 2. Buy Ether at a Discount SBET is a treasury company, so most of the valuation work is already done for you on its live dashboard , which tracks both its underlying net asset value and the market Net Asset Value (or mNAV). Sharplink What isn’t here, though, is, firstly, the incremental value from SBET’s staking yield. Note that while yields are currently around 2.5%, SBET is able to get a little bit more creative here and therefore generate above average yields. The company isn’t subject to redemptions either, so there is really no hurdle to SBET staking its full ETH balance. Putting it all together, this means that even a ~3% yield assumption (conservative given SBET’s participation in L2s and re-staking), net of recurring SG&A expenses, could add quite a bit of upside going forward. Sharplink The second ‘free’ option is SBET’s future discount narrowing initiatives. For now, management hasn’t shown much intent beyond equity offerings (when mNAV >1) and buybacks (when mNAV MSTR ) has shown, treasury companies can raise funds in all sorts of creative ways; more so for SBET, given its access, via Lubin/Consensys, to virtually every part of the Ethereum ecosystem. In sum, there’s clear value here, as neither the balance sheet nor the two ‘free’ options above are being priced in at the current 0.77x fully diluted mNAV. A compelling entry point for those with patience and looking to deploy new money. Final Note on Risks & Summing Up To be clear, SBET also comes with several key risks. Volatility, derived both from the ETH price and the mNAV discount/premium, means this isn’t an investment for the faint of heart. As discussed, regulation is also a factor here, and unfavorable outcomes could negatively impact SBET’s existing investments and its ability to raise new capital. Still, there’s more than enough buffer at currently depressed prices to offset these risks and then some. Thus, I’m quite happy underwriting SBET—both as a standalone long (captures ETH upside + mNAV discount narrowing) or with an accompanying ETH hedge (only captures the discount narrowing).