Most penny stocks close to falling foul of Nasdaq’s minimum bid price requirements have no choice but to execute increasingly brazen reverse splits, financially engineering their way around the exchange’s erratically-enforced rules.
Others need never go to the trouble. Asset Entities is one such listed company, and its co-founder’s ascent from humble TikToker to business partner with ur-DOGE-job-cuts victim Vivek Ramaswamy’s Strive Asset Management says something, though it’s not entirely clear what, about our times.
Two years ago, Kyle Fairbanks was your typical 21-year-old: churning out dubious get-rich-quick tips on social media, arbitraging Airbnbs and flogging what he described as “artificial intelligence chatbot NFTs”.
In Donald Trump’s America, these constitute killer credentials, and earlier this month Fairbanks’ lossmaking collection of “investment education” Discord servers — listed on Nasdaq with the help of Boustead Securities in 2023 — said it was set to merge with Strive.
The plan? To create a “public Bitcoin Treasury Company” inspired by, but subtly different to, Michael Saylor’s MicroStrategy (and Brandon Lutnick’s Tether/SoftBank/Bitfinex-backed Twenty One Capital, the Trumps’ American Bitcoin/Gryphon Digital Mining platform and healthcare group KindlyMD’s marriage to Trump adviser David Bailey’s bitcoin treasury company Nakamoto, etc etc).
Worth about $0.63 in early May, Asset Entities’ shares are up by more than 1,000 per cent since the proposed tie-up was announced.
Like a Jeff Lee Johnson painting, the longer you stare at the accompanying press release, the weirder things become.
Strive is a $1.7bn company whose investors include vice-president JD Vance, Peter Thiel, Bill Ackman and further characters from the extended Trump universe. Asset Entities reported an unaudited net loss of $1.6mn on revenue of about $170,000 in the first three months of this year, filings show. Strive has yet to disclose any capital raises associated with the merger.
The combined company would operate under the Strive brand and be led by Strive CEO Matt Cole, who enjoys sharing “his deep insights on capitalism, meritocracy, and the transformative power of Bitcoin” — something he has done on “several prominent Bitcoin podcasts” and also via less reputable platforms such as MainFT. Strive Asset Management did not reply to our request for comment.
Cole’s ultimate goal is to build “the Berkshire Hathaway of Bitcoin Treasury companies,” though he admitted in a discussion last week that there may be bumps along the way:
. . . no one wants to spend [bitcoin] right now and I think in the future, you know, as we move more towards this Bitcoin denominated future, I think there will be times where people will need to spend it, because that’s going to be what their assets are in, if they, if they actually put all their assets in. And so it’s, it’s an interesting, you know, dilemma, I think . . .
But back to Asset Entities, which did not answer FT Alphaville’s calls. “Before factoring in the contemplated Bitcoin-for-stock exchange and any additional financing,” parent company Strive Enterprises will own approximately 94.2 per cent of the new company, with the legacy shareholders of Asset Entities keeping the remaining 5.8 per cent.
While Saylor’s Strategy sells shares and convertible bonds to buy bitcoin, supporting the price of the so-called digital gold and its own shares at the same time, Strive hopes to do something a little different:
Strive Asset Management [SAM] intends to use all available mechanisms to build a Bitcoin war chest in a minimally dilutive manner to common shareholders and build a long-term investment approach designed to outperform Bitcoin, by using Bitcoin itself as the hurdle rate for capital deployment…
SAM will leverage its institutional investment expertise to implement proprietary strategies to fuel Bitcoin accumulation in accretive ways. Such strategies include the planned first-of-its-kind offer of combined company equity in exchange for Bitcoin in a manner that is intended to be tax-free to investors under Section 351 of the U.S. tax code; acquiring cash at a discount through mergers with overcapitalized companies; and unlocking additional leverage to accumulate Bitcoin, while hedging risk in novel ways using in-house fixed income and derivatives expertise.
Essentially, Strive wants to do tax-free mergers and reorganisations, and to encourage the masses to contribute their own bitcoin in exchange for equity.
It’s a bold strategy, and one born of necessity: Craig Coben kindly pointed out to us (from his holiday complex in Bora Bora) that Strive can’t replicate Strategy’s self-perpetuating strategy like-for-like “unless and until” its stock trades at a sizeable premium to its net asset value. Last week, Strive’s head of research Chris Nicholson pre-emptively addressed the 300-pound (0.0036 BTC) gorilla in the room — why not just buy Strategy shares instead?
What Strategy has done is amazing, but for any bitcoin Treasury company, your question is like, what do you bring to the table that Strategy doesn’t because otherwise you know, why not just buy Strategy? And, you know, one of the things that they can start thinking is, you have an operating business. You should, you should care about growing it, and you should care and think about how it can support your Bitcoin Treasury Strategy. You know, we can. We can follow [Strategy’s] lead. But that doesn’t mean we just have to mimic it and locks lockstep [sic], everybody basically is, what [sic] is the way I think of Bitcoin Treasury companies.
OK then.
Whether or not Strive ever manages to replicate Strategy may hinge upon how successfully it can leverage Asset Entities’ *checks filings* 1,254 paying subscribers and various other businesses.
These include a Discord development site “loved by” the “actual pasta prince of LA” Emanuele Filiberto de Savoie (whom readers may remember from previous coverage) and another called PureProfits, where users can “grow $0 -> $1,000+/month” by exploiting “exclusive price errors, glitches and opportunities . . . before they are made public”.
It’s probably safe to assume that a fair chunk of Asset Entities existing subscribers are trying, like Fairbanks, to get filthy rich as fast as possible. So a new bitcoin play, in whatever guise, might be right up their street. Equally, it’s not hard to imagine how the idea of handing over your bitcoin to get equity in a “bitcoin treasury” company might prove a tough sell to diehard HODLers.
Fairbanks himself was being phased out of Asset Entities a while before the proposed merger was announced. The company’s latest quarterly report states that the now executive vice-chair and chief marketing officer will remain employed until April 2027, during which time he’ll be paid an annual salary of $240,000.
Fair play to him. As for the “bitcoin treasury” evangelicals busy hoovering up a finite resource just to sit on it, perhaps the big question potential investors should now be asking is . . . what’s the point?
Thankfully, Strive’s Nicholson once again has us covered:
. . . in the world where Bitcoin totally wins and it replaces the dollar and Fiat, I think 50 to 100 years from now, its returns and volatility may be low enough that most people start using it as money and Bitcoin Treasury companies, yeah, they’re focusing on today, but I think they should also think occasionally about what their 50 year plan is.
The Sage of Omaha would surely approve.
