Companies that switched their business focus to holding digital currencies are now using borrowed money to buy back their own shares, suggesting the “crypto treasury” trend may be falling apart.
Businesses ranging from online gaming firms to golf cart makers changed their strategies to purchase cryptocurrencies just two months ago. Now these same companies are trying to boost their falling stock prices through share buybacks. Some are even taking on debt to pay for these stock purchases.
Seven companies have made these moves in recent weeks. Five of them now have stock values lower than what their cryptocurrency holdings are worth. Investors are getting worried about too many companies doing the same thing and questioning whether this business approach actually works.
“It’s probably the death rattle for a few of these companies,” said Adam Morgan McCarthy, who works as a senior research analyst at Kaiko, a company that studies cryptocurrency data.
On Monday, Vivek Ramaswamy’s investment firm Strive Asset Management purchased Semler Scientific. This healthcare technology company had switched to collecting bitcoin. This deal shows how companies trading below their crypto values are becoming targets for takeovers.
This year, dozens of companies rushed to borrow money or sell new shares to raise cash for buying cryptocurrencies like Bitcoin, Ether, and Solana. Some of these companies have backing from President Donald Trump and his family members. They followed the example of Michael Saylor, a well-known crypto investor. His company MicroStrategy saw its value climb above $100 billion this year after it started buying bitcoin in 2020.
Crypto treasury companies are losing money
Most crypto treasury companies are losing money or are basically empty shell companies. The only thing driving their stock prices up is executives and investors believing their digital tokens will gain value.
A biotech firm called 180 Life Sciences renamed itself ETHZilla last month and started buying ether tokens. Its stock has dropped 76 percent from its August high point. The company is worth $416 million, even though it owns about $460 million worth of ether.
Last week, ETHZilla borrowed $80 million using its ether holdings as collateral from Cumberland DRW, the crypto division of market maker DRW run by Don Wilson. The company plans to use this money to buy its own shares as part of a $250 million buyback program.
“We continue to view repurchasing shares as opportunistic and an accretive use of capital,” said McAndrew Rudisill, who serves as ETHZilla’s chief executive.
However, some experts think these buybacks show the crypto treasury business model might be finished.
“It’s only been six months and we’re already talking about their demise,” said Elliot Chun, a partner at crypto advisory firm Architect Partners. “A very small percentage are going to succeed.”
Chun explained that raising money to buy back shares instead of spending it on tokens goes against the whole crypto treasury idea.
Public companies have been doing more share buybacks in recent years. Company leaders usually do this when they think their stock is undervalued. Real estate investment trusts often buy their own shares when their market value drops below what their properties are worth. But crypto treasury companies built their business on the idea that their stock value would rise faster than their crypto holdings.
For companies now doing buybacks, this is not happening anymore. Morgan McCarthy from Kaiko said the companies are “just trying to buy time, sustain things, tide things over until they can capitalize on that next wave of crypto prices rising.”
“It’s very circular,” he said about these buyback operations. “A lot of these companies are like a house of cards and are going to collapse very quickly.”
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