Crypto-hoarding companies are ditching their holdings in a bid to prop up their sinking share prices, as the craze for “digital asset treasury” businesses unravels in the face of a $1 trillion cryptocurrency rout.
Shares in Michael Saylor-led Strategy, the world’s biggest corporate bitcoin holder, have tumbled 50 percent over the past three months, dragging down scores of copycat companies.
With Saylor’s company now worth less than the bitcoin it holds, investors worry that a business model that relied on a virtuous circle of rising crypto prices and massive share and debt issuance is now unraveling.
“There’s going to be a fire sale at these companies; it’s going to get worse,” said Adam Morgan McCarthy, senior research analyst at crypto data firm Kaiko. “It’s a vicious cycle. As soon as the prices start tanking, it’s a race to the bottom.”
Saylor’s software business inspired a raft of copycats in industries including film production, vaping, and electric vehicles, after its pivot to a “bitcoin treasury” strategy drove a huge increase in its share price. Purchases by such companies have been a big driver of bitcoin hitting a record high last month.
But the craze has soured as cryptocurrencies bore the brunt of a sell-off in speculative assets this autumn, in a sharp reversal for a sector that had been buoyed by President Donald Trump’s pledge last year to turn the US into a “bitcoin superpower.”
“It was inevitable,” said Jake Ostrovskis, head of OTC trading at Wintermute, referring to the sell-off in digital asset treasury stocks. “It got to the point where there’s too many of them.”
Several companies have begun selling their crypto stockpiles in an effort to fund share buybacks and shore up their stock prices, in effect putting the crypto treasury model into reverse.
Georges Karam, chief executive of Sequans, said the sale was a “tactical decision aimed at unlocking shareholder value given current market conditions.”
While bitcoin and ether sellers can find buyers, companies with more niche tokens will find it more difficult to raise money from their holdings, according to Morgan McCarthy. “When you’ve got a medical device company buying some long-tail asset in crypto, a niche in a niche market, it is not going to end well,” he said, adding that 95 percent of digital asset treasuries “will go to zero.”
Strategy, meanwhile, has doubled down and bought even more bitcoin as the price of the token has fallen to $87,000, from $115,000 a month ago. The firm also faces the looming possibility of being cut from some major equity indices, which could heap even more selling pressure on the stock.
But Saylor has brushed off any concerns. “Volatility is Satoshi’s gift to the faithful,” he said this week, referring to the pseudonymous creator of bitcoin.
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