Explosive Growth Myth Falls to "Equity Dilution" Panic: Are US Stock "Crypto Treasury" Strategies Failing?

Stock News
08/19

Recently, the US stock market has witnessed numerous companies soaring due to their cryptocurrency holdings, seemingly creating a wealth-generating pathway for small companies seeking high returns: purchase large amounts of cryptocurrency, enjoy the stock price surge, then issue additional shares for financing and continue accumulating digital assets. While this "crypto treasury strategy" blueprint appears perfect, many investors have clearly voted against its third component—particularly the potential equity dilution effects. Retail investors, who hold significant portions of these public companies, frantically sell off whenever companies file equity issuance registrations, causing related stocks to plummet from valuation peaks.

Last Thursday, biotech company ETHZilla (formerly 180 Life Sciences, ETHZ.US) announced plans for a $500 million stock offering, causing shares to crash 29%. Just two days earlier, this company that transformed into an Ethereum holdings platform had achieved a miraculous 200% single-day surge after disclosing $350 million worth of Ethereum holdings.

Other cryptocurrency asset holding companies have similarly faced misfortune. SharpLink Gaming (SBET.US) saw its stock plunge 72% in a single day on June 13 after filing with the SEC to allow certain investors to sell shares. In July, BitMine Immersion Technologies (BMNR.US) filing for a $2 billion securities issuance directly triggered a 40% market cap evaporation.

Retail investors view these financing filings as exit signals. They worry about both equity dilution risks and anticipate that all registered shares will flood the market (although this isn't a certainty), prompting them to take profits. More unsettling is that these companies' valuations often exceed their actual cryptocurrency asset values by multiples—sounding alarm bells for companies following Bitcoin whale Michael Saylor's holding strategy by massively accumulating digital tokens.

"When crypto-holding companies file stock registrations, some shareholders panic and sell, believing they'll face a flood of stock supply," notes Daniel Forman, partner at Lowenstein Sandler LLP. "But in many cases, this isn't true. And at that point, investors can't even sell shares because the registration hasn't taken effect."

Ethereum co-founder and SharpLink Chairman Joe Lubin attempted to calm markets when the company's stock fell due to filings in June. The head of this company, which holds over $3 billion in Ethereum with a market cap of approximately $3.5 billion, emphasized on social platform X: "This is just standard PIPE (private investment in public equity) process in traditional finance, not actual selling behavior." He specifically stated that major investor Consensys and he personally had not reduced holdings.

Nevertheless, the company's stock still plummeted more than two-thirds the next day and has yet to recover.

Facing recent stock pullbacks, ETHZilla Chairman McAndrew Rudisill remains composed. He views this as a reasonable return toward the company's Ethereum holdings value after explosive growth. "A 2-3x price-to-book ratio might be a reasonable valuation range, and we're currently in that band," Rudisill said in an interview.

Despite experiencing severe volatility, cryptocurrency asset holding strategies have still brought excess returns for some companies. ETHZilla has gained 136% cumulatively since announcing its transformation plan in late July; SharpLink, formerly focused on sports betting technology, has risen 210% since its transformation in late May.

Retail investor Reza Ibrahim, who has invested in multiple crypto holding companies, predicts the industry is approaching its peak. After achieving 150% returns with SharpLink, he has already cashed out and plans to completely withdraw before the anticipated cryptocurrency decline in Q4. "This sector urgently needs deep correction," the 26-year-old investor admits.

56-year-old Juan Plasencia chose partial profit-taking—due to relatively low valuations compared to peers, he only reduced half his SharpLink holdings. However, after BitMine filed for an 80.2 million share offering, he immediately cleared all positions. "Private investors can't maintain high-valuation holdings long-term," Plasencia points out.

Even after the crash, BitMine's market cap remains nearly $10 billion, trading at about a 45% premium to its cryptocurrency asset net value. "The day lock-up periods end is when selling begins," Plasencia analyzes. "Their profits are already locked in."

While understanding companies may not issue all registered shares, this uncertainty is enough to prompt early exit. "The difficulty is not knowing the actual financing scale and issuance volume, so I assume the full registered amount will be realized."

Some investors make trading decisions based solely on social media discussions. Forman notes that the actual meaning of these filing documents is far more complex than news headlines suggest, "Emerging investor groups are learning to understand this mechanism."

As the sector becomes increasingly crowded, Gregory Sichenzia, founder of Sichenzia Ross & Friedman LLP, predicts: "90% of companies will be eliminated. After bubbles burst, stock crashes, and financing channels dry up, only companies with real execution capability will survive."

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