A report Tuesday (Sept. 23) by the Financial Times (FT) notes that companies that had hoarded cryptocurrencies are now initiating share buybacks to juice their stock prices.
At least seven companies have gone this route in the past few weeks, the report said, with five seeing their market value slide below that of their crypto holdings. Inventors, the FT added, are concerned about market saturation and questioning the crypto treasury business model.
“It’s probably the death rattle for a few [of these companies],” said Adam Morgan McCarthy, senior research analyst for crypto analytics firm Kaiko.
Several companies have this year scrambled to raise debt or issue equity to finance crypto purchases, the report added. They take their inspiration from crypto magnate Michael Saylor, whose company Strategy began purchasing bitcoin in 2020. Five years later, its market value has skyrocketed to north of $100 billion.
Now, the FT report said, this trend seems to be falling, with some analysts viewing the buybacks as a sign that the business model behind crypto treasury companies could be at an end.
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“It’s only been six months and we’re already talking about their demise,” Elliot Chun, partner at crypto advisory firm Architect Partners, told the FT. “A very small percentage are going to succeed.”
Raising funds to buy back shares rather than spending it on digital tokens was “antithetical” to the crypto treasury concept, he added.
Writing about this trend earlier this year, PYMNTS argued that bitcoin’s increasing role in corporate treasuries is a sign of a fundamental re-thinking of how businesses store value, deal with inflation risk and allocate capital.
As bitcoin matures, other companies might follow in Strategy’s footsteps, PYMNTS added, but perhaps taking a more measured and diversified approach.
“Rather than going all-in on bitcoin, CFOs may choose a hybrid treasury model, maintaining a mix of cash, fixed-income assets and bitcoin to balance liquidity needs with long-term appreciation potential,” that report added.
In a report earlier this month, PYMNTS examined the potential risks CFOs face in holding bitcoin on the company balance sheets. That report cited a study by British economists this year which analyzed 39 bitcoin-holding public companies.
It found that between corporate equities and bitcoin returns, some companies exceeded a beta of 1, which means their stock returns were more volatile than bitcoin itself.
“The data underscores that crypto-rich treasuries expose shareholder value to crypto’s wild swings,” PYMNTS added. “The logic follows that firms with relatively larger crypto positions are more exposed to volatility.”
