volatility

As companies focused on buying bitcoin and major cryptocurrencies face challenges from market oversaturation and negative sentiment, new players are exploring less popular, riskier tokens, raising concerns about volatility. Following U. S. President Donald Trump’s supportive stance on cryptocurrencies and the success of Michael Saylor’s investment strategy, the number of public companies investing in cryptocurrencies has surged. By September, there were over 200 digital asset treasury (DAT) companies, primarily invested in bitcoin, with a total value of around $150 billion, tripling from the previous year according to DLA Piper.

Many new companies, often penny stocks looking for profit increases, are emerging daily. As bitcoin prices decline, these companies are turning to more volatile tokens to enhance returns, with firms like Greenlane, OceanPal, and Tharimmune announcing plans to invest in assets such as BERA, NEAR, and Canton Coin. This shift indicates a growing connection between the cryptocurrency market and traditional sectors, which could pose risks for investors. Moody’s analyst Cristiano Ventricelli warns that the move toward less stable cryptocurrencies could lead to higher risks, especially when markets decline.

Since April, many DAT companies have raised funds for token purchases through private placements (PIPEs), selling shares to private investors at discounted prices. Between April and November, more than 40 DATs collectively raised over $15 billion through these PIPEs, with only a handful focusing on bitcoin. Bitcoin itself saw its first monthly loss since 2018 in October. Notable crypto investors involved in these deals include Winklevoss Capital and Kraken. While some institutional investors can directly buy tokens, DATs provide regulated exposure to cryptocurrencies for more cautious investors. However, reliance on PIPEs can cause stock price fluctuations, particularly during market downturns.

This vulnerability was highlighted on October 10, when tensions between the U. S. and China caused market declines, leading to significant drops in share prices for companies like BitMine and Forward Industries. Peter Chung from Presto Research noted that while initial hype around DATs has decreased, there is potential for a rebound. Some companies, such as OceanPal, are promoting their token acquisitions for their technological advantages, while Greenlane chose not to comment.

Earlier this year, many DAT companies traded at higher prices than their crypto holdings, as investors believed they could leverage credit for more purchases. However, as bitcoin prices have diminished and competition from similar strategies has risen, some companies are struggling, with at least 15 trading below their assets’ net value. Retail investors incurred losses of about $17 billion from investments in these companies, while others face pressure to repurchase shares to support stock prices.

Overall, DATs hold 4% of all bitcoin, 3.1% of all ether, and 0.8% of all solana, which could significantly influence coin values. Analysts project further consolidation in the sector. Company executives emphasize the importance of making prudent investment choices to ensure long-term success. Companies like SUI Group are also diversifying by launching stablecoins to boost shareholder value, warning that merely acquiring tokens without strategic actions could lead to failures in the long run.

With information from Reuters