ETHZilla, the Ethereum treasury company, announced a $250 million stock buyback after the company's shares fell almost 30% last week. This caused a brief increase, alleviating concerns about stock dilution.
However, this type of move will not directly allow for the next purchase of Ethereum. ETHZilla holds about $489 million in ETH, representing a recent acquisition, but it needs to continue increasing that stock.
ETHZilla's Ethereum Plan
Ethereum has performed well lately, reaching an all-time high last Friday, and corporate investment is driving this trend. The token is receiving a lot of institutional confidence, and a recent development illustrates this.
Although ETHZilla's stock plummeted after its last Ethereum purchase, the company is preparing to do it again:
“At ETHZilla, we continue to allocate capital to accelerate our Ethereum treasury strategy with discipline and record speed. As we continue to expand our ETH reserves and seek differentiated yield opportunities, we believe that an aggressive stock buyback program at the current price underscores our commitment to maximizing value,” said McAndrew Rudisill, Executive Chairman.
Specifically, the company is conducting a $250 million stock buyback to stabilize its valuation. Despite Ethereum's strong performance, concerns about stock dilution have undermined the confidence of ETHZilla's investors.
Last week, the company planned to offer 74.8 million shares to finance ETH purchases, representing a 46% increase in the total number of shares.
In other words, stock dilution means that ETHZilla investors could lose money even if Ethereum continues to rise.
To remedy this, the company's $250 million stock buyback plan helped to temporarily stabilize things, paving the way for future acquisitions:
ETHZilla Price Performance. Source: Google Finance
A brief relief
SEC documents related to this buyback reveal that ETHZilla currently holds about $489 million in Ethereum, making it a significant private investor.
This is significantly higher than the company's reported positions last week, indicating a solid recent purchase.
However, a $250 million stock buyback will also reduce its purchasing capacity. ETHZilla attracted corporate investment, but selling shares is its main means for ETH acquisitions.
These purchases, in turn, are the only way to promise future value to potential investors.
There is an inherent contradiction here. If this deal collapses due to diminishing returns, it could cause serious problems.
Stock buybacks can bring temporary stability, but they cannot drive real growth.
Staking its vast ETH treasury could provide passive income, but Vitalik Buterin warned that this may also not be sustainable.
In other words, ETHZilla may now be in a situation similar to that of Strategy.
Last week, Saylor's company stated that it would start selling shares for reasons other than BTC acquisition. This generated some negative reaction and fears that the company is losing its momentum.
ETHZilla's new buyback program is equally detached from Ethereum, although unverified rumors on social media claim that the company bought $35.2 million in ETH today.
Between this supposed acquisition and last week's purchase, the company shows some resistance. However, it must always continue to move forward.
Otherwise, the inherent risks of a DAT strategy may backfire on ETHZilla.
The article ETHZilla buys more Ethereum even with falling shares was first seen on BeInCrypto Brazil.
