Brian Rudick, Chief Strategy Officer at Upexi, discussed the reasons why treasury firms are holding firm despite the recent downturn in the cryptocurrency market.

As the cryptocurrency market lost over $1 trillion in a short span, many investors felt panic. Yet, crypto treasury firms, which possess significant token holdings, remained resilient.

Upexi is among these firms, focusing on Solana. In an exclusive interview, Chief Strategy Officer Brian Rudick shares insights on how recent market volatility affects their operations, their method for acquiring more SOL, and the trends among treasury firms.

Crypto.news: In light of the crypto market crash and its impact on market cap, how did this affect treasury firms like Upexi, notably since Solana was hit hard?

Brian Rudick: Frankly, the effect on us was almost negligible, and I believe that applies to most treasury firms. We adopt a buy-and-HOLD strategy. We refrain from aggressive trading or using leverage for yield enhancement. We keep our SOL holdings and stake them. When a crash happens, it mainly causes a temporary decrease in net asset value (NAV), which has mostly rebound in this case.

Unless you are significantly leveraged, your strategy or risk profile largely remains unaffected. In fact, it can actually provide a great buying opportunity if you have cash to leverage the dip. Otherwise, our strategy stays the same.

The real concern lies in excessive leveraging. If you borrow heavily and the token crashes, that’s where problems can start. We maintain a conservative approach, with around $40 million in debt against about $400 million in Solana. This results in a low single-digit leverage ratio, and we can settle our line of credit anytime.

For treasury firms, you’re only compelled to sell under high leverage and prolonged price drops. Many firms stagger their debt maturities over multiple years, meaning risk mainly materializes during extended bear markets, not mere weeks.

CN: Does this volatility influence demand from institutional or retail investors? It definitely highlights the persistent volatility in crypto.

BR: I don’t think it significantly shifts investor demand. Most investors in a treasury company like ours aren’t trying to take short-term trading positions.

They focus on understanding long-term value growth driven by factors like capital issuance, staking yields, and SOL accumulation per share. They accept the inherent volatility of crypto as part of the investing landscape. Over time, the rise in value per share is what matters to them.

Treasury firms also leverage unique advantages from volatility. For example, when we or companies like MicroStrategy issue convertible notes, those come with an embedded option. The greater the asset’s volatility—in this case, our stock—the more valuable the option becomes for the purchaser.

Consequently, volatility can enhance our capital-raising effectiveness in some scenarios. Investors often pay a premium for that inherent volatility. Thus, rather than merely being a risk, it can become an asset when structured appropriately.

CN: What are the primary advantages of investing in a treasury firm like Upexi versus simply acquiring the underlying asset, such as SOL?

BR: Firstly, a treasury strategy can genuinely create shareholder value. One method is through strategic capital issuance—if we trade above book value, raising equity at that price enhances our SOL per share. This supports our stock price as long as the market sustains that multiple.

Secondly, our treasury acts as a productive asset. By staking our Solana, we generate an annual yield of around 8%. Additionally, we occasionally purchase locked SOL at a mid-teens discount, which boosts our staking yields when that discount translates into yield-equivalent returns.

These methods foster tangible value accumulation over time and are central to our strategy.

CN: What criteria do you use to determine when to acquire Solana?

BR: We purchase more Solana when we raise additional cash. Market timing doesn’t feature in our strategy. Our capital formation methods include convertible notes, private equity placements, or “at-the-market” (ATM) equity issuance programs.

For example, this April, we completed a $100 million equity private placement, and in July, we executed a $200 million simultaneous offering that included both equity and convertible debt. Once liquidity is established, we invest in Solana.

CN: Is your investment strategy contingent on enhancing SOL per share?

BR: Definitely. Much of our timing is dependent on market dynamics. Is there strong demand for treasury company equity? Are we trading at a valuation that makes equity issuance advantageous?

It’s a balanced dynamic. For instance, if we’re trading at 5x NAV, then selling $100 million in equity becomes very beneficial, generating immediate value. However, achieving that much at such a high valuation can also be more complex.

We evaluate the benefits of the capital raise against its feasibility. We’ve filed for an equity line with the SEC, essentially a quasi-ATM, allowing us to sell a small segment of our daily trading volume gradually once effective.

But caution is essential; we want to avoid negatively impacting our stock price. Thus, we typically aim to issue 1-4% of our daily volume, ensuring we raise capital while minimizing market disruption and still achieving SOL/share benefits.

CN: What led to your decision to choose Solana?

BR: Solana stands out as the top high-performance smart contract blockchain for several reasons:

From a technological standpoint, Solana processes transactions in parallel, much like modern processors. It was the first second-generation smart contract chain launched in 2020, benefitting from contemporary architecture and design principles along with significant network effects.

Its ecosystem is incredibly diverse, accommodating a variety of applications ranging from DeFi, DePIN, social platforms, gaming, tokenization, stablecoins, to meme coins and AI agents. Almost anything can be developed on Solana.

Performance metrics from platforms like Artemis.xyz demonstrate Solana’s robust traction in vital areas, such as daily active users, DEX volumes, and dApp revenues.

While Ethereum remains the largest and most recognized chain, Solana is making impressive advances, and we aim to position ourselves alongside its growth path.

CN: How do you view Solana’s competitive landscape? How does it stack up against other similar chains?

BR: Ethereum undoubtedly remains the largest decentralized chain, equipped with a solid brand. However, it grapples with limitations from its initial design choices.

Ethereum prioritized decentralization and security, ultimately affecting performance. Much execution has consequently shifted to Layer 2 solutions—separate blockchains that capture substantial value that could have been retained by Ethereum.

In contrast, Solana adopted a performance-driven and security-first methodology from the outset, evolving progressively toward increased decentralization, aided by advancements like Moore’s Law and hardware enhancements. We see it as the first blockchain that concurrently achieves security, decentralization, and high performance.

In our perspective, Solana is purpose-built to serve as the foundation for internet-scale capital markets—delivering 24/7, global, and permissionless access. This vision is compelling and signals the future of finance.

CN: How does the Solana user experience differ from Ethereum’s Layer 2 solutions?

BR: User experiences on Solana are considerably simpler and more seamless because it functions as a monolithic solution—managing data availability, execution, consensus, and settlement on a single layer. Users don’t need to navigate between rollups or deal with bridging challenges.

Conversely, value on Ethereum is divided across Layer 2 solutions, many of which still depend on centralized sequencers, raising issues surrounding decentralization and regulatory risks. When employing these services, you depend on the sequencer operator, which undermines true permissionless systems. Solana circumvents much of this intricacy.

CN: What emerging trends are you observing that the market might be missing?

BR: To be frank, Upexi was one of the pioneers in conducting large-scale equity private placements to build an altcoin treasury centered on Solana. Being ahead of the curve brought us success, prompting a wave of imitators.

This surge has led to a congested landscape, with many companies attempting to replicate our approach, resulting in declining valuations and NAV multiples. This evolution is prompting a quest for the next iteration of the “Digital Asset Treasury 2.0” model.

One idea gaining traction is acquiring a profitable operating business and leveraging its cash flow to build digital assets—effectively financing your treasury through real earnings. While it’s an enticing proposition, I’m not entirely convinced. MicroStrategy’s success arguably stems from its singular focus on Bitcoin, a model that thrives on simplicity.

The intricacy of integrating operational elements may not add value to the model.

Another trend involves further on-chain integration, possibly with more aggressive staking strategies or utilizing DeFi for enhanced yields. That’s not a direction we are pursuing; we think it introduces various risks, including legal, regulatory, smart contract complexities, and liquidation threats—and even then, those yields probably aren’t sustainable as capital flows into the market.

We’re currently achieving mid-teens equivalent returns through more cautious strategies, like buying locked Solana at discounts. We see no need to take on additional risk for marginal yield.

Then there’s the increasing trend of mergers and acquisitions. My feelings are mixed. If a company is trading below NAV, why sell to another firm for less than its token worth when a direct liquidation yields NAV? Conversely, why pay a premium for someone else’s assets when you can acquire the same tokens in the open market?

M&A also brings transaction risks, including the necessity for bankers, lawyers, and extended timelines, along with the ever-present uncertainty about market reactions. A recent instance is Strive’s acquisition of Semler. Although the deal seemed advantageous on a per-Bitcoin basis, Strive’s stock dropped 40% immediately afterward—highlighting the inherent risks involved.

Nonetheless, there could still be valid reasons for pursuing M&A transactions. If a buyer struggles to raise cash independently but can offer stock, and the seller is open to equity, it could be beneficial—especially if the merged entity gains increased visibility or trading volumes, facilitating future equity capital raises.

Ultimately, we’ll learn a lot from upcoming M&A ventures. If they’re well-received, we might witness a wave of consolidation; if not, activity will likely remain muted. Our focus will stay the same: maintaining discipline, raising capital in a manner that adds value, staking judiciously, and consistently compounding SOL per share. This method is effective and minimizes unnecessary risks.