Recently, the stock prices of cryptocurrency treasury companies like SharpLink Gaming (holding Ethereum) and Upexi (holding Solana) have plummeted more than 60% shortly after their stock registration filings were approved by the U.S. Securities and Exchange Commission (SEC). Although these companies have raised millions of dollars through private investment in public equity (PIPE), SEC approval allows PIPE investors to take profits, leading to a significant drop in stock prices.

How PIPE works and its impact on stock prices

PIPE allows companies to quickly raise capital by selling shares privately to institutional or accredited investors. However, these shares are not traded immediately. PIPE investors #PIPE must wait until the company's stock registration becomes effective before they can sell the shares. In the case of SharpLink and Upexi, the stock value surged compared to the PIPE offer price, creating opportunities for investors looking to profit quickly.

Brian Rudick, Chief Strategy Officer of Upexi, stated that the effectiveness of the stock registration is "a huge positive in the long term" as companies need a large amount of shares outstanding and liquidity if they want to become the next MicroStrategy. However, this also creates a bit of "game theory": if PIPE investors suspect that other participants will take profits, they may be incentivized to try to sell their shares first.

Before a cryptocurrency treasury company's stock registration becomes effective, its stock may resemble a "meme stonk," with significant volatility when the number of shares outstanding is small. This is similar to how a low cryptocurrency supply can inflate its fully diluted value, resulting in "absurd" valuations on paper. The effectiveness of the stock registration can be compared to unlocking a token.

Expert opinions and advice for investors

When SharpLink's stock dropped 70% earlier this month, Ethereum co-founder and SharpLink Board Chairman Joseph Lubin said that people were "misunderstanding" this profile, claiming it was a "standard."

Zach Pandl, Head of Research at Grayscale, advises investors to note that these products, like closed-end funds, can trade at prices above or below the cryptocurrency asset value on the company's balance sheet. For investors seeking exposure to cryptocurrency in a traditional brokerage account, spot ETFs, with an open-end fund structure, will often closely track the price of the underlying token. #anhbacong