Stanley Druckenmiller Just Bought a Company That Holds Hyperliquid. Should You?

On Aug. 14, Stanley Druckenmiller's Duquesne Family Office disclosed a new $23.2 million stake in Hyperliquid Strategies (NASDAQ: PURR), a digital asset treasury (DAT) company whose only line of business is accumulating Hyperliquid (CRYPTO: HYPE), the native token of the most popular decentralized on-chain exchange for derivatives. The stake is worth just a little over 0.4% of Duquesne's reported holdings.

When a legendary macro investor like Druckenmiller invests, there's probably some meat on the bone of the bull thesis. Let's dig into why Druckenmiller took an interest in the treasury company, and why it likely also means he has an interest in Hyperliquid.

Image source: The Motley Fool.

The thesis has a margin of safety, but it's narrow

In case you aren't familiar, a digital asset treasury company is a business dedicated solely to raising capital and using it to buy cryptocurrency. The DAT's net asset value (NAV) reflects the value of its underlying holdings, making it one of the most important financial metrics to watch in cases like this one.

As of July 30, Hyperliquid Strategies holds 29.2 million HYPE, worth about $1.7 billion. With its 227 million shares outstanding, those tokens gave it a NAV of close to $7.56 per share at that time. Now for the interesting part: The stock was priced near $6.93 as of Aug. 19, and by Aug. 24, it was priced at $10.86.

So, for a time, there was a gap between the asset's price and the per-share value of its hoard of Hyperliquid tokens.

In other words, shares of Hyperliquid Strategies were priced at around only 91.7% of the fair market value of their Hyperliquid tokens, though that gap has since closed. Druckenmiller probably saw the gap as evidence of a margin of safety in an investment in the treasury company, since the market would likely eventually recognize the discrepancy between value and price and close it -- and it did.

From that perspective, it seems there's free money on the floor right now.

There's an important nuance here

The catch is that this discount has a counterparty -- an actor on the other side of the trade that can affect the outcome of taking it by changing their behavior.

Through July 15, Hyperliquid Strategies issued about 76.1 million shares of its stock, raising a total of $647 million in net proceeds to buy more tokens. Its common share count grew by 61% in under four months -- which is a lot -- and there's still more of its $1 billion issuance facility to use. Furthermore, Hyperliquid Strategies has at least another 27.4 million warrants outstanding, each of which is a claim on new stock and carries an exercise price of $9.375, $12.50, or $18.75. The stock repricing upward toward its NAV sends it directly into that waiting supply, which could ultimately cap the payoff for investors.

Owning the coin directly heads off this entire risk. Plus, holders of Hyperliquid itself don't need to pay for a company's overhead, as the traders on the platform handle that via transaction fees, nor do they need to worry about their value getting diluted by new issuance.

I happen to own Hyperliquid Strategies because I wanted exposure to it before its exchange-traded funds became available. But you probably shouldn't follow Druckenmiller's example here. Just buy the coin itself if you want exposure.

Alex Carchidi has positions in Hyperliquid and Hyperliquid Strategies. The Motley Fool has positions in and recommends Hyperliquid. The Motley Fool has a disclosure policy.