The Mystery of Crypto Asset Valuation: Why is the Stock Market Willing to Buy at a High Premium?

There is an interesting phenomenon in the current US stock market: investors are willing to buy Crypto Assets valued at 1 dollar using stocks valued at 2 dollars. This seemingly irrational trading model has sparked widespread discussion. Some small listed companies have doubled their market value by holding large amounts of crypto assets. This strategy was pioneered by a technology company that currently holds about 70 billion dollars in Bitcoin, with a market value of 138 billion dollars.

There are mainly three explanations for this phenomenon:

1. The Crypto Assets held by enterprises have additional value. Companies can leverage these assets for lending, leveraging, and other operations to create more value.

2. Institutional investors find it difficult to directly purchase Crypto Assets, so they are willing to invest indirectly through these "crypto vault-type companies", even if it requires paying a premium.

3. Retail investors may lack sufficient awareness and blindly chase stocks labeled with "encryption".

Although companies often emphasize the first interpretation, the second interpretation may be closer to the truth. Many large asset management institutions may want exposure to Crypto Assets but are subject to various restrictions. For example, certain funds can only invest in stocks and cannot directly purchase Bitcoin or Bitcoin ETFs. In this case, buying shares of "encryption vault-type companies" becomes their only viable option.

Interestingly, some passive index funds have also become major shareholders of these types of companies. Although a large asset management company publicly criticizes Crypto Assets, it has become the largest shareholder of a "Bitcoin shadow company" due to its index investment strategy. The stocks of this company have been included in multiple small-cap, mid-cap, momentum, value, and growth index products.

This phenomenon has sparked reflection on the nature of index investing. Index funds do not purchase assets that investors or fund managers desire, but rather acquire assets recognized by the market. Nowadays, the market seems to increasingly favor Crypto Assets. Even if investors or asset management companies do not wish to include encryption assets in their portfolios, they must accept this reality as long as they follow an index investment strategy.

In the future, Crypto Assets are likely to become an important component of market portfolios. While direct purchases of Crypto Assets or investments through ETFs already exist, for those seeking simple, passive investment strategies, purchasing an overall stock market index that includes "crypto vault companies" may be the most convenient way. This reflects the market's recognition of Crypto Assets and highlights the essence of index investing as "accepting market choices."