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Recently, there have been frequent occurrences of companies in the US stock market soaring due to holding cryptocurrencies, seemingly creating a path to wealth for small companies trying to achieve high returns: buying large amounts of cryptocurrencies and then enjoying soaring stock prices, followed by issuing stocks for financing and continuing to increase their digital asset holdings. This "cryptocurrency treasury strategy" appears to be perfectly operational, but many investors clearly have cast opposing votes on its third link—especially regarding the potential equity dilution effects.
Retail investors, who hold a significant proportion of these listed companies, go on a selling spree whenever companies submit equity issuance filings, causing related stocks to plummet rapidly from high valuations. Last Thursday, biotech company ETHZilla (formerly known as 180 Life Sciences, ETHZ.US) announced plans to raise $500 million through stock issuance, and its stock price plummeted by 29%. Just two days earlier, this company, which transformed into an Ethereum holding platform, had just disclosed a $350 million Ethereum holding, creating a miracle of a 200% single-day surge.
Other cryptocurrency asset holding companies are similarly unable to escape misfortune. SharpLink Gaming (SBET.US) experienced a single-day plunge of 72% after filing with the SEC on June 13 to allow specific investors to sell shares. In July, BitMine Immersion Technologies (BMNR.US) directly triggered a 40% evaporation of market value by applying to issue $2 billion in securities.
Retail investors view these financing filings as exit signals. They worry about the risk of equity dilution and anticipate that the registered stocks will all flood into the market (although this is not a foregone conclusion), so they choose to take profits. What makes them even more uneasy is that these companies' valuations are often several times higher than the actual value of their cryptocurrency assets—which undoubtedly sounds alarm bells for those companies that emulate Bitcoin whale Michael Saylor's holding strategy and hoard digital tokens.
"When companies holding cryptocurrencies submit stock filings, some shareholders panic sell, believing they will face a flood of stock supply," said Daniel Forman, a partner at Lowenstein Sandler LLP. "But in many cases, this is not the reality. Moreover, at that point in time, investors may not even be able to sell their stocks because the filing has not yet taken effect."
Ethereum co-founder and SharpLink chairman Joe Lubin attempted to reassure the market in June when the company's stock price fell due to the filing. The head of this company, which holds over $3 billion in Ethereum and has a market value of about $3.5 billion, emphasized on social platform X: "This is just the standard process for private investment in public equity (PIPE) in traditional finance and does not represent actual selling behavior." He specifically stated that the main investor Consensys and he himself have not reduced their holdings. Nevertheless, the company's stock price still plummeted by more than two-thirds the next day and has yet to recover.
Faced with recent stock price adjustments, ETHZilla chairman McAndrew Rudisill appeared calm. He believes this is a reasonable return of stock prices after experiencing a surge, reflecting the value of the company's Ethereum holdings. "A price-to-book ratio of 2-3 times may be a more reasonable valuation range; we are currently in this band," Rudisill stated in an interview.
Despite experiencing intense volatility, cryptocurrency asset holding strategies have still brought excess returns to some companies. ETHZilla has risen 136% since announcing its transformation plan at the end of July; SharpLink, which previously focused on sports betting technology, has surged 210% since its transformation in late May.
Retail investor anxiety
Retail investor Reza Ibrahim stated that he invested in several cryptocurrency holding companies but anticipates the industry is about to peak. After achieving a 150% return from SharpLink, he has liquidated all his shares and plans to fully withdraw before the expected decline in cryptocurrencies in the fourth quarter of this year. "This field urgently needs deep adjustments," the 26-year-old investor admitted.
56-year-old Juan Plasencia chose to lock in some profits—due to relatively low valuations compared to peers, he only reduced half of his SharpLink holdings. But after BitMine submitted a filing for 80.2 million shares of additional issuance, he immediately liquidated all his holdings. "Private investors cannot maintain high valuation holdings for long," Plasencia pointed out. Even after experiencing a crash, BitMine still has a market value of nearly $10 billion, with a premium of about 45% over its net cryptocurrency asset value.
"The end of the lock-up period is the starting point for selling," analyzed Plasencia. "Their profits have long been locked in." Although he understands that companies may not fully issue the registered stocks, this uncertainty is enough to prompt him to exit early. "The difficulty lies in not being able to predict the actual scale of financing and issuance, so I assume the filing amount will be fully realized."
Some investors make trading decisions based solely on discussions on social media. Forman pointed out that the actual implications of these filing documents are much more complex than the news headlines suggest, "Emerging investor groups are learning to understand this mechanism."
As the competition grows increasingly crowded, Gregory Sichenzia, founder of Sichenzia Ross & Friedman LLP, predicts: "90% of companies will be eliminated. After the bubble bursts, stock prices crash, and financing channels dry up, only truly execution-oriented companies will survive."
