Canadian investors are witnessing a dramatic reversal in corporate cryptocurrency strategy as companies that once proudly hoarded digital assets are now frantically dumping their holdings. This fire sale comes as a $1 trillion rout in cryptocurrency markets exposes the vulnerabilities of the much-hyped "digital asset treasury" business model that gained popularity during the bull market.
The Unraveling of a Business Model
The trend began to unravel this autumn as cryptocurrencies bore the brunt of a broader sell-off in speculative assets. This represents a sharp reversal for a sector that had been buoyed by former President Donald Trump's pledge last year to turn the United States into a "bitcoin superpower."
According to industry data publication The Block, approximately $77 billion has been wiped from the stock market value of these crypto-hoarding companies since their peak valuation of $176 billion in July. These businesses typically raise debt and equity to fund purchases of cryptocurrency, creating what was once seen as a virtuous circle of rising crypto prices and massive share issuance.
Leading Companies Hit Hard
Michael Saylor's MicroStrategy, the world's largest corporate bitcoin holder, has seen its shares tumble 50 percent over the past three months. The decline has dragged down scores of copycat companies that emerged across various industries including film production, vaping, and electric vehicles.
The situation has become so severe that MicroStrategy is now valued at less than the bitcoin it holds, raising serious questions about the sustainability of its business model. "There's going to be a fire sale at these companies; it's going to get worse," warned 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."
Global Impact and Response
The sell-off has affected crypto-treasury companies worldwide. Japan's biggest bitcoin holder Metaplanet has seen its shares plunge 80 percent since their June peak. The company recently raised a $130 million loan backed by its bitcoin holdings, which it said would be used for purposes including buying back stock.
In the United Kingdom, The Smarter Web Company, that nation's largest bitcoin buyer, has experienced a 44 percent stock price drop this year. The company is currently valued at £132 million while the bitcoin it holds is worth approximately $232 million.
Several companies have already begun selling their crypto stockpiles to fund share buybacks and shore up their stock prices, effectively putting the crypto treasury model into reverse. North Carolina-based ether holder FG Nexus sold about $41.5 million of its tokens recently to fund its share buyback program. Similarly, Florida-based life sciences company turned ether buyer ETHZilla recently sold approximately $40 million worth of its tokens, also to fund its share repurchase initiative.
Jake Ostrovskis, head of OTC trading at Wintermute, commented on the situation, stating, "It was inevitable. It got to the point where there's too many of them." While bitcoin and ether sellers can still find buyers in the current market, companies holding more niche tokens will find it significantly more difficult to raise money from their cryptocurrency holdings.
