Metaplanet has raised over $1.6 billion so far this year to fund its buying spree via a stock acquisition rights agreement with Evo Fund, a boutique investment firm that’s part of US-headquartered Evolution Financial Group.
The arrangement involves Metaplanet selling equity to Evo via moving strike warrants, which grant holders the right to acquire shares at an initially agreed-upon price that changes over time based on the underlying stock.
The ‘Flywheel’ Slows
Gerovich calls this funding strategy the “flywheel,” using a term common among crypto hoarders.
It works well when the stock is rising — if shares rise above the pre-determined price, Evo Fund can exercise its rights at a profit. Metaplanet pays Evo “almost zero” in administrative and legal fees for the transactions, according to Gerovich.
Evo declined to comment on the arrangement.
But Metaplanet’s recent stock slump — its shares are down 54% through Aug. 29 from a June 16 high, even as Bitcoin rose 2% — has made it less compelling for Evo to exercise its warrants, according to Mark Chadwick, a former Jefferies analyst who now publishes Japan equity research on SmartKarma.
“The flywheel has slowed,” Chadwick said.
Metaplanet’s Bitcoin holdings ballooned more than 160% in the two months through June 30, but have grown by less than 50% since, according to data published on its website.
As the company’s shares fall, each Evo exercise generates less capital to buy Bitcoin, Chadwick said.