Bernstein Analysts Dive Deep Into Ethereum Treasury Companies, Highlight Unique Risks

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Analysts at investment firm Bernstein have discussed in detail the Ethereum treasury companies, which have begun to emerge. The analysts highlighted specific risks around their ETH operations but declared that they remain bullish on the largest altcoin by market cap.

How The Ethereum Treasury Companies Are Unique

The Bernstein report noted how the Ethereum treasury companies are different from the Bitcoin treasury companies since the former are not just holding the asset but using it to generate yield. Companies like SharpLink Gaming, BitMine, and BitDigital have adopted ETH as a reserve asset and expanded their presence in the Ethereum ecosystem by using their holdings for DeFi activities. 

The report further noted that staking returns are currently around 3%, although it has historically surged to as high as 5%. Based on this, the analysts remarked that an Ethereum treasury company that holds $1 billion in ETH, for example, could earn between $30 and $50 million in annual yields.

However, the Bernstein analysts noted that this staking mechanism comes with its risks, especially since these Ethereum treasury companies have to deploy their holdings to earn these yields. As such, these companies face liquidity constraints, unlike Bitcoin treasury companies like Michael Saylor’s Strategy, which hold a 100% reserve at all times. 

Furthermore, these ETH treasury companies also have to deal with the risks involved in unstaking their coins, as it could take days due to the validator queue. There is also an additional risk if these companies choose to restake their coins. Bernstein also highlighted DeFi yield farming and smart contract risks. 

In line with this, the analysts opined that the Ethereum treasury companies that are likely to advance are those that adopt proper risk management with institutional-grade custody. Bernstein warned that these companies must maintain a balance between trying to generate yields while maintaining their good standing.  

Bullish On ETH As Demand Increases

The Bernstein analysts revealed that they remain bullish on ETH even as demand for the altcoin continues to increase through these Ethereum treasury companies and even the Ethereum ETFs. They expect ETH’s price to rally higher in the long run as the network’s usage also grows, thanks to its expanding stablecoin ecosystem and Real World Assets (RWAs) tokenization.  

It is worth noting that Bitwise CIO Matt Hougan recently attributed ETH’s 60% rally in the past month to the Ethereum treasury companies and Ethereum ETFs. He predicted that ETH could still further witness a demand shock, as these entities potentially purchase up to $20 billion of ETH in the next year, equivalent to 5.33 million ETH at today’s prices. 

StrategicEthReserve data shows that these treasury companies currently hold 2.73 million ETH ($10.56 billion). Meanwhile, SoSo Value data shows that the ETH ETFs boast $21.43 billion in net assets. 

At the time of writing, the ETH price is trading at around $3,865, up in the last 24 hours, according to data from CoinMarketCap.

Featured image from Getty Images, chart from Tradingview.com

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