Why do we invest in SBET? The undervalued Ethereum Beta, a new starting point for CeDeFi fusion.

Author: Yetta (@yettasing), Investment Partner at Primitive Ventures; Sean, Liquidity Partner at Primitive Ventures

Introduction:

This article was written in May 2025. In May, we completed our PIPE investment in SharpLink, marking a significant achievement in our focused exploration of the PIPE market since the beginning of the year. Primitive Ventures has been actively positioning itself since the start of this year, capturing the trend of CeDeFi integration with a forward-looking perspective, and has been the first to focus on PIPE transactions related to digital asset reserves (Digital Asset Treasury PIPE). Within this framework, we systematically studied all representative transaction cases, and SharpLink is undoubtedly the most critical and representative investment we have made to date.

Full text:

We are pleased to announce that Primitive Ventures has participated in SharpLink Gaming, Inc. (NASDAQ: SBET)'s $425 million PIPE (Private Investment in Public Equity) transaction. This investment provides us with a unique investment exposure—investing in a native enterprise that reserves Ethereum as a strategy. The investment structure combines option attributes with long-term capital appreciation potential, reflecting our strong belief in Ethereum's strategic position in the U.S. capital markets, and aligning with our overall judgment on the institutional development trend of crypto assets.

Why we invest

ETH vs BTC: The Divide of Productive Value

Compared to BTC, which lacks native yield generation capabilities, Ethereum, as an income-generating asset, inherently possesses the characteristic of producing staking yields. Strategies based on BTC, such as MicroStrategy, mainly rely on financing to purchase coins, lacking self-generated asset income, which increases leverage risk. In contrast, SBET has the potential to directly utilize the staking yields of ETH and the DeFi ecosystem to achieve compound growth on-chain, creating real value for shareholders.

Currently, there are no ETH staking ETFs approved under the existing regulatory framework, making it difficult for the public market to capture the economic potential of the Ethereum yield layer. We believe SBET offers a differentiated path: supported by Consensys, the company has the opportunity to implement protocol-native strategies, thereby achieving substantial returns on-chain, with its model expected to even outperform the future ETH staking ETF performance.

In addition, the implied volatility of Ethereum (69) is much higher than that of Bitcoin (43), introducing asymmetric upside options for equity-linked structures. This is particularly attractive for investors executing convertible bond arbitrage and structured derivatives strategies—in this framework, volatility becomes a monetizable asset rather than a source of risk.

Strategic Participation of Consensys

We are very proud to partner with Consensys, which is the lead investor in this $425 million PIPE financing. As the most effective executor of Ethereum commercialization, Consensys has unique advantages in technical authority, product ecosystem depth, and operational scale, making it an ideal investor to promote SBET as a native enterprise carrier of Ethereum.

Consensys was founded by Ethereum co-founder Joe Lubin in 2014 and has played a key role in transforming Ethereum's open-source foundation into scalable real-world applications: from EVM and zkEVM (Linea) to the MetaMask wallet, which has brought tens of millions of users into Web3. Consensys has raised over $700 million from top investment firms such as ParaFi and Pantera and has a wealth of successful strategic acquisition experience, making it one of the most deeply embedded commercial operators in the Ethereum ecosystem.

Joe Lubin serving as chairman is not just symbolic. As one of the co-architects of Ethereum's core design and a leader of one of the most important infrastructure companies today, Joe has a unique and comprehensive understanding of Ethereum's product roadmap and asset structure. His early career experience on Wall Street has also equipped him with the proficiency to navigate capital markets, allowing SBET to smoothly integrate into the institutional financial system.

With SBET, we see a unique combination of assets and the most capable investors. This synergy forms a powerful positive flywheel: driven by the protocol's native reserve strategy and its native leaders. Under the leadership of Consensys, we believe SBET has the potential to become a flagship case, showcasing how Ethereum's productive capital can achieve institutionalization and scalability in traditional capital markets.

Market Valuation Comparison

To understand the investment opportunities of SBET, we analyzed the cryptocurrency reserve strategies of different listed companies:

MicroStrategy: Pioneer of Crypto Reserve Strategy

MicroStrategy has set the industry benchmark for cryptocurrency reserve strategies. As of May 2025, it has accumulated 580,250 Bitcoins, worth approximately $63.7 billion at that time's market value. MSTR's strategy is to purchase Bitcoins through the issuance of low-cost debt and equity financing, a model that has sparked a wave of corporate imitation, fully demonstrating the feasibility of crypto assets as reserve assets.

As of May 2025, MSTR holds 580,250 Bitcoins (approximately $63.7 billion), and its stock trades at 1.78 times the mNAV (market cap/net asset value), highlighting strong investor demand for regulated, leveraged exposure to crypto assets through publicly listed stocks. This premium is the result of multiple factors, including the upside potential brought by leverage, eligibility for index inclusion, and the ease of acquisition compared to direct holding of coins.

From historical data, between August 2022 and August 2025, MSTR's mNAV fluctuated between 1x and 4.5x, reflecting the significant impact of market sentiment on valuation. When the multiple reaches 4.5x, it is usually accompanied by a Bitcoin bull market and large purchases of MSTR, indicating a high level of investor optimism; while when the multiple falls back to 1x, it often occurs during market consolidation phases, revealing the cyclical fluctuations of investor confidence.

Comparison of Similar Companies

We conducted a horizontal analysis of several listed companies that adopt the BTC reserve strategy:

• In terms of BTC net assets (BTC NAV), which is the total value of Bitcoin held by the company, MicroStrategy ranks first with 580,250 BTC (approximately $63.7 billion), followed by Metaplanet (7,800 BTC, approximately $857 million), SMLR (4,264 BTC, approximately $468 million), ALTBG (847 BTC, approximately $9.3 million), and SWC (59 BTC, approximately $6.4 million).
• In terms of the ratio of market value to BTC NAV (mNAV), SWC has the highest premium, reaching 27.06 times, which is mainly due to its small BTC holding base and strong market enthusiasm. ALTBG's mNAV is 8.32 times, and Metaplanet is 5.29 times, also maintaining a high level; in contrast, MSTR is 1.78 times, and SMLR is 1.25 times, with a more moderate valuation premium due to its large asset scale and existing debt.
• BTC Yield YTD %( (diluted adjusted, percentage growth per BTC) shows that small-cap companies have exhibited a higher growth rate per BTC due to continuous accumulation, with ALTBG reaching 431% and SWC at 300%. These yield figures reflect their capital efficiency and compounding ability.
• Based on the current BTC reserve growth rate )Days/Months to Cover mNAV(, ALTBG and SMLR can theoretically accumulate enough BTC within 5 months to cover their current mNAV premium, which provides potential alpha space for NAV convergence trading and relative mispricing.
• In terms of risk, the debt of MSTR and SMLR accounts for 15.7% and 21.3% of their BTC NAV, respectively, thus facing higher risks when BTC prices fall; whereas both ALTBG and SWC have no debt, making their risks more manageable.

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)# Japan Metaplanet Case: Valuation Arbitrage in Regional Markets

Valuation differences often stem from the varying scales of asset reserves and capital allocation frameworks. However, the dynamics of regional capital markets are equally crucial and are an important factor in understanding these valuation discrepancies. One highly representative example is Metaplanet, a company often referred to as "Japan's MicroStrategy."

Its valuation premium reflects not only the Bitcoin assets it holds but also the structural advantages related to the domestic market in Japan.

• Advantages of the NISA Tax System: Japanese retail investors are actively allocating Metaplanet stock through NISA (Nippon Individual Savings Account). This mechanism allows for tax-free capital gains of up to approximately $25,000, which is significantly more attractive compared to the maximum tax rate of 55% on directly holding BTC. According to data from Japan's SBI Securities, as of the week ending May 26, 2025, Metaplanet was the most purchased stock in all NISA accounts, driving its stock price up by 224% over the past month.
• Dislocation in the Japanese Bond Market: Japan's debt accounts for as much as 235% of GDP, and the 30-year government bond (JGB) yield has risen to 3.20%, indicating that the Japanese bond market is facing structural pressures. Against this backdrop, investors increasingly view the 7,800 bitcoins held by Metaplanet as a macro hedging tool to cope with yen depreciation and domestic inflation risks.

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) SBET: Layout global ETH leading assets

When operating in the public market, regional capital flows, tax systems, investor psychology, and macroeconomic conditions are as important as the underlying asset itself. Understanding the differences between these jurisdictions is key to uncovering asymmetric opportunities in the combination of crypto assets and public equity.

SBET, as the first publicly listed company with ETH capital at its core, also has the potential to benefit from strategic judicial arbitrage. We believe that SBET has the opportunity to further unleash regional Liquidity and mitigate the risk of narrative dilution by achieving dual listing in Asian markets such as the Hong Kong Stock Exchange or Nikkei. This cross-market strategy will help SBET establish its position as one of the most representative Ethereum native listed assets globally, gaining recognition and participation at the institutional level.

The institutionalization trend of crypto capital structure

The integration of CeFi and DeFi marks a key turning point in the evolution of the crypto market, signifying its increasing maturity and gradual incorporation into a broader financial system. On one hand, protocols like Ethena and Bouncebit are exemplifying this trend by extending the utility and accessibility of crypto assets through the combination of centralized components with on-chain mechanisms.

On the other hand, the integration of crypto assets with traditional capital markets reflects a deeper macro-financial transformation: that is, crypto assets are gradually establishing themselves as a compliant asset class with institutional-grade quality. This evolution process can be roughly divided into three key stages, each representing a leap in market maturity:

• GBTC: As one of the earliest BTC investment channels for institutions, GBTC provides regulated market exposure but lacks a redemption mechanism, leading to a long-term divergence from net asset value (NAV). Despite its pioneering nature, it also reveals the structural limitations of traditional wrapped products.
• Spot BTC ETF: Since receiving SEC approval in January 2024, the spot ETF has introduced a daily creation/redemption mechanism that allows the price to closely track NAV, significantly enhancing Liquidity and institutional participation. However, due to its essentially passive nature, it cannot capture key aspects of the native potential of crypto assets, such as staking, yield, or actively creating value.
• Corporate Treasury Strategy: Companies like MicroStrategy, Metaplanet, and now SharpLink have further advanced the strategy by incorporating crypto assets into their financial operations. This stage goes beyond passive holding, starting to employ strategies such as compound returns, asset tokenization, and on-chain cash flow generation to enhance capital efficiency and drive shareholder returns.

From the rigid structure of GBTC, to the mechanism breakthroughs of spot ETFs, and now to the rise of a reserve model oriented towards yield optimization, this evolutionary trajectory clearly demonstrates that crypto assets are gradually embedding themselves into the framework of modern capital markets, bringing stronger Liquidity, higher maturity, and more value creation opportunities.

Risk Warning

Although we are confident in SBET, we remain cautious and pay attention to two major potential risks:

• Premium Compression Risk: If the SBET stock price remains below its net asset value for an extended period, it may lead to subsequent equity financing dilution.
• ETF Substitution Risk: If the ETH ETF is approved and supports staking features, it may provide a more convenient compliant alternative, attracting some capital outflows.

However, we believe that SBET, with its native ETH yield capabilities, can outperform ETH ETFs in the long run, achieving a positive combination of growth and returns.

In summary, our investment of $425 million in SharpLink Gaming via PIPE is based on a strong belief in the strategic role of Ethereum in corporate treasury strategies. With the support of Consensys and the leadership of Joe Lubin, SBET is expected to represent a new phase of value creation in the crypto space. As the integration of CeFi and DeFi reshapes the global market, we will continue to support SBET to achieve long-term excellent returns, fulfilling our mission of "discovering high-potential opportunities."