Summary BTCS trades at a significant discount to its net ETH holdings, presenting an attractive arbitrage opportunity despite some operational risks. The company's AAVE borrowing strategy remains profitable, even with rising borrowing costs and lower ETH staking yields. Dilution and high short interest are key risks, but the current valuation more than compensates for these concerns. Given the net ETH metric and discounted share price, I now rate BTCS as a 'buy' for ETH Treasury exposure. I initiated coverage of BTCS Inc. ( BTCS ) for Seeking Alpha a little over a month ago, given the company's pivot to a digital asset treasury business. At that time, I rated the stock a 'hold' and specifically mentioned dilution as a concern because of some of the language in the ATM prospectus. Most notably, BTCS wouldn't provide specifics regarding how much capital from the ATM would be utilized for Ethereum ( ETH-USD ) purchases. Since then, we have a Q2 earnings report to assess as well as clearer data regarding ETH acquisitions. In this update, we'll look at that data, and I'll explain why I think an upgrade is warranted despite the risks. Q2 Earnings Data by YCharts For the quarter ended June, BTCS reported $2.8 million in top-line revenue, all from blockchain infrastructure operations. The company separates its blockchain ops revenue into two different buckets: NodeOps and Builder+. NodeOps derives revenue from natively staking assets on-chain as well as through delegation. Builder+ works a bit differently, as BTCS is purchasing block space and then bundling mempool transactions that it then proposes to validators. This is how the company explains the process for Ethereum in the 10-Q: Revenue recognition for these activities, conducted through Builder+, entails the recognition of gas fees (or "transaction fees") and priority fees (or "tips") earned in exchange for successfully constructing blocks of bundled transactions and having these blocks selected and proposed by a validator to the Ethereum network for validation and successfully finalized on the network. The breakout between NodeOps and Builder+ for both the quarter ended and six months ended June looks like this: Revenue by Segment (BTCS Inc 10-Q) At 86% of blockchain ops revenue so far this year, Builder+ is by far the biggest driver of BTCS's top line. NodeOps generates income from multiple different smart contract chains, including Ethereum, Cosmos ( ATOM-USD ), Solana ( SOL-USD ), NEAR Protocol ( NEAR-USD), and Axie Infinity ( AXS-USD ). Builder+ generated revenue primarily from ETH, with $3.5 million of the $3.9 million Builder+ revenue this year coming from Ethereum; the remainder came from BNB Chain ( BNB-USD ). While Builder+ drives top-line, the margins for these businesses are quite different according to the 10-Q: Revenue H1 2025 H1 2024 NodeOps $602,263 $903,692 Builder+ $3,858,870 $108,886 Cost of Rev H1 2025 H1 2024 NodeOps $60,021 $99,367 Builder+ $4,361,771 $230,106 Margin H1 2025 H1 2024 NodeOps 90.03% 89.00% Builder+ -13.03% -111.33% Source: BTCS, 10-Q The margins for NodeOps are fantastic. Margins for Builder+, while much better in 2025, indicate that the segment actually loses money. The company says that the cost of revenues for Builder+ includes node maintenance employee salaries as well as infrastructure hosting. In any case, it looks as though BTCS Inc. would be better off doing nothing at all and sitting on its ETH rather than consolidating transactions - at least in a low-fee environment. As I understand the model, the company purchases block space through 'a fixed, non-negotiable' fee paid to network validators. This could theoretically make transaction bundling profitable for BTCS in a higher-fee environment. But we'll have to see how that plays out should Ethereum ever return to a fee-growth network. ETH Treasury and AAVE Strategy Subsequent to earnings, BTCS has disclosed owning over 70k ETH. At current Ethereum prices, the company's ETH holdings have a market value of just under $300 million: BTCS ETH Holdings (StrategicETHreserve.xyz) Yet, the market cap of just $208.5 million seemingly presents an arbitrage. With most of the other 'ETH Treasury' companies in the equity market trading at premiums to NAV, BTCS trades at a 30% discount to ETH holdings. Screaming buy? It's a bit more complicated than that. Subsequent to the company's earnings report and ETH purchases, BTCS borrowed an additional $47 million from lending protocol Aave ( AAVE-USD ): As of August 12, 2025, the Company had approximately $51,702,000 in outstanding borrowings, inclusive of accrued interest, collateralized by approximately 38,400 ETH with a fair market value of approximately $176,062,000, based on the ETH closing price of $4,584 on that date. It would be straightforward arbitrage to buy BTCS at a 30% discount to holdings if the ETH was natively staked and earning passive yield. However, I think the discount for BTCS is likely due to concerns about the company's AAVE borrowings, even though BTCS's AAVE loan is overcollateralized. Admittedly, AAVE yields have moved against BTCS since it took out its latest loans: USDT Borrow Rates through AAVE (DeFi Lllama) At present, borrowing Tether ( USDT-USD ) through AAVE has an APY of 6.5% percent. During the time period that BTCS took out the loans, AAVE USDT APYs were closer to 5.5%. Meaning, BTCS has already seen its borrowing cost increase in less than two weeks. The reason for this spike in borrowing cost is that the amount of USDT available to borrow through AAVE has fallen from $1.4 billion on August 1st to just $442 million as of article submission. But as yields from borrowing increase, so too does the yield from providing liquidity. Thus, I expect AAVE's USDT borrow rates may actually come back down as more liquidity chases dollar-denominated yields that exceed the rate of t-bills. Even though BTCS is staking the ETH to generate yield, staking rewards from the Ethereum blockchain have fallen below 3%. So on the surface, the company is borrowing at 6.5% to stake (or lend, if that helps) at 3% while the value of the asset being staked may have peaked temporarily. But even still, I think the discount for BTCS shares is too extreme given what the company has actually been doing. The table below is my rough estimate of what the company would generate in earnings given current borrow cost, supply cost, and staking yield: ETH Strategy ETH $ Value Rate Annual Pledged ETH 38,400 $163,776,000 2.30% $3,766,848 Purchased with Borrowed USDT 16,100 $68,666,500 2.92% $2,005,062 Borrowed USDT -$52,000,000 6.50% -$3,380,000 Net Earnings From ETH Strategy $2,391,910 Source: BTCS, Analyst's estimates at $4,265 ETH price Even at sub-3% staking yields, 6.5% USDT borrow cost, and 2.3% from collaraterlized ETH, this strategy is well in the black by my math. In fact, even if ETH fell to $3,500 and USDT borrow costs through AAVE rose to 9%, this strategy would still be slightly profitable. So what is BTCS worth? I think the right way to look at BTCS valuation is 'net ETH' rather than the market cap to Treasury holdings metrics that we generally see with these kinds of companies. BTCS 'net ETH' Calculation Total ETH 70,140 Loan $ Value $52,000,000 Loan in ETH 12,381 Net ETH 57,759 $ Value at $4,200 $242,588,000 Shares outstanding 48,000,000 Net ETH Per Share $5.05 True Discount 14.72% Source: BTCS Inc., Analyst's estimates The math in the table above shows a hypothetical situation in which BTCS sells $52 million in ETH to pay off its AAVE loan. This would require 12,381 ETH at current prices, leaving almost 58k ETH and a gain of nearly 4k ETH on the loan. It also indicates that at an ETH price of $4,200 per coin, BTCS has a 'net ETH' value slightly above $5 per share. Key Risks As I mentioned in my first piece covering BTCS shares, dilution remains a major concern for BTCS shareholders. We've already seen shares outstanding explode since the end of Q2: Data by YCharts Furthermore, the company had a small fraction of the ETH it currently has when I last covered the company in July, yet the share price is essentially flat. Data by YCharts Something else to consider is that short interest in this stock is getting aggressive, with nearly 14% of shares outstanding currently sold short. This is a larger level of short interest currently than what we see in other ETH Treasury companies like SharpLink Gaming ( SBET ) or Bitmine Immersion ( BMNR ). From where I sit, it's hard to blame the bears for this level of conviction given BTCS's history of operating losses. Closing Thoughts This may come as a surprise to some of my readers, but I'm actually much less pessimistic about BTCS at this point in time. That change in sentiment is mainly due to the equity valuation relative to the ETH held in reserve. Sure, some of this has been pledged as collateral. But given the company's collateralization ratio, ETH would likely have to fall below $2,000 per coin before any loan liquidation fears would manifest. I don't think that's a concern short of an economic calamity akin to COVID. If we observe the company's valuation through the net ETH metric, BTCS shares are trading at a discount and should likely be closer to $5. I've changed my mind on BTCS. I actually think it's an interesting ETH Treasury spec on its AAVE strategy alone. Factor in that it's trading at a discount to net ETH value, and I think it's one of the better ways to play ETH treasuries in the market right now. To be sure, the negative margins from Builder+ are a concern. But those losses are more than made up for by the spread from the company's AAVE protocol usage. Short interest is high and growing. I don't mind being contrarian here. In my view, BTCS is a 'Buy.'