TLDR
- Several companies are shifting from building crypto treasuries to using borrowed funds for share buybacks.
- Falling stock prices are forcing companies to use crypto holdings as collateral for debt to repurchase their shares.
- The crypto treasury model is facing criticism and uncertainty as many companies struggle to make profits.
- Experts warn that only a small percentage of companies relying on crypto treasuries will succeed in the long run.
- The trend of using digital currencies as a primary asset is rapidly declining with many companies reconsidering their strategies.
The crypto treasury trend is losing momentum as companies that once focused on accumulating digital currencies now struggle with falling stock prices. In recent weeks, several companies have turned to borrowing money to repurchase their shares. This shift marks a significant change for businesses that once bet on cryptocurrencies like Bitcoin and Ether as a primary asset class.
Companies Facing Declining Stock Prices Turn to Share Buybacks
Several companies, ranging from online gaming firms to golf cart makers, once focused on building large crypto holdings. However, many of these companies now find themselves turning to borrowed funds to repurchase their shares. With stock values lower than the worth of their cryptocurrency holdings, these companies are seeking ways to boost their stock prices.
Some companies, including ETHZilla, are borrowing significant amounts to buy back their shares. ETHZilla borrowed $80 million using ether as collateral to fund a $250 million buyback program. CEO McAndrew Rudisill stated,
“We continue to view repurchasing shares as opportunistic and an accretive use of capital.”
The shift from holding digital currencies to repurchasing shares has sparked concern about the long-term viability of the crypto treasury model. Experts suggest that these companies are struggling to capitalize on the value of their digital tokens.
“It’s probably the death rattle for a few of these companies,” said Adam Morgan McCarthy, senior research analyst at Kaiko.
The trend toward using borrowed money for buybacks contradicts the core idea of crypto treasuries. These companies initially aimed to leverage the value of their crypto assets to fuel business growth. Now, with stocks underperforming, some are turning away from their crypto holdings to buy back shares, potentially signaling the end of this business approach.
As Elliot Chun, a partner at crypto advisory firm Architect Partners, points out,
“A very small percentage are going to succeed.”
Many crypto treasury companies are losing money or operating as empty shell businesses. This shift suggests that the optimism surrounding cryptocurrency as a business strategy might be fading.
Crypto Treasury Businesses Struggle to Adapt
The concept of crypto treasury companies was built on the expectation that digital assets would rapidly appreciate in value. As many of these companies now face financial difficulties, they are increasingly relying on stock buybacks as a lifeline. Experts like Morgan McCarthy from Kaiko suggest that this is a temporary measure, as companies attempt to sustain their operations until the next wave of crypto price increases.
Many of these companies, with their stock values tied to fluctuating cryptocurrency prices, face a precarious future. The buybacks, while offering short-term relief, may not be enough to turn things around.
“A lot of these companies are like a house of cards and are going to collapse very quickly,” McCarthy said.
