Bit Digital CEO warns secured debt could ‘destroy’ treasury firms in a bear market, urges DATs to rethink leverage
Quick Take
- Bit Digital CEO Sam Tabar told The Block that DATs should use unsecured debt financing instead of secured debt.
- Bit Digital, an Ethereum treasury firm, announced an upsized $135 million convertible notes offering earlier this week.
Bit Digital's CEO said digital asset treasury (DAT) companies should consider using unsecured debt financing over secured debt financing to better prepare for a potential bearish market.
"The easiest way to buy more crypto per share is to finance it with debt," Sam Tabar, CEO of Bit Digital and artificial intelligence firm WhiteFiber, said in an interview with The Block on Wednesday at Token2049 in Singapore.
"Shares stay constant while crypto holdings go up. However, there are important nuances. The wrong type of leverage can very easily kill a company," said Tabar.
Tabar warned that many companies building Ethereum treasuries have issued secured debt, and said "it's clear that this type of debt is extremely risky."
"When the assets go down, which is Ethereum, the creditors are going to go after the company and the assets," he said. "Debt is amazing, but you've got to keep it unsecured."
Tabar's comments followed Bit Digital's Tuesday announcement of an upsized $135 million convertible notes offering. The senior, unsecured notes will carry a 4% annual interest rate, paid semiannually in arrears.
Bracing for winter
In August, WhiteFiber, an AI company initially under Bit Digital, completed its initial public offering, raising $159.4 million. The Nasdaq-listed stock has since gained 77% as of Tuesday, according to Google Finance data.
Bit Digital currently holds about 71% stake in WhiteFiber, according to Tabar. WhiteFiber is now carved out of Bit Digital and operates as a separate public company upon the completion of its IPO.
"For us, the best position to be in is to have exposure to Ethereum and to artificial intelligence. And the way we have that exposure is by stacking ETH on the balance sheet and by owning 71% on Whitefiber," said Tabar.
Tabar added that when a bear market occurs, creditors of the DATs who have issued secured debt would go after the underlying assets. "All these secured debt notes are going to destroy a lot of ETH treasury companies in a bear market. And that's going to be a real problem," he said.
In June, Bit Digital shifted from bitcoin mining to become an Ethereum staking and treasury firm. Tabar said the company is drawing inspiration from Michael Saylor's Strategy, which has also used convertible notes to raise money to accumulate crypto.
As of the end of August, Bit Digital held roughly 121,252 ETH, worth about $521.5 million at current market prices. Ethereum traded up 3.3% in the past 24 hours at $4,302 at the time of writing, according to The Block's price page.
"Now, our average cost of price of ETH is about $2,400, which is very low. And we've been stacking ETH since 2023," Tabar said.
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