The crypto treasury trend has emerged as a significant aspect of the current market cycle, mirroring investor sentiment from the dotcom period of the late 1990s and early 2000s, which led to a roughly 80% decline in the stock market, as noted by Ray Youssef, founder of the peer-to-peer lending platform NoOnes app.
The same exuberant investor psychology that drove excessive investments in early internet and tech firms during the dotcom crash is still present today, despite the involvement of financial institutions in crypto, Youssef informed Cointelegraph. He stated:
“Dotcoms were an innovative phenomenon of the emerging IT market, alongside major companies with substantial ideas and long-term strategies. The quest for investment capital also attracted enthusiasts, opportunists, and dreamers, as bold and futuristic visions are easily marketed to the masses.
Currently, the global financial market is propelled by the concepts of cryptocurrency, decentralized finance, and the Web3 revolution,” he added.
He anticipated that most crypto treasury companies would dwindle and be compelled to liquidate their holdings, setting the stage for the next crypto bear market, yet a handful would persevere and continue to accumulate crypto at considerable discounts.
During the current market cycle, crypto treasury companies have made headlines, as institutional investments are viewed as evidence that crypto has transitioned from a niche phenomenon to a global asset class pursued by nation-states and corporations.
Related: Crypto markets are down, but corporate proxies are doing far worse
Not all crypto treasury companies are doomed; responsible management can mitigate downturns
Crypto treasury companies can alleviate the impact of market downturns and may even flourish if they adopt responsible treasury and risk management practices.
Reducing a company’s debt burden significantly lessens the likelihood of bankruptcy, and corporations that issue new equity instead of corporate debt have a higher survival rate during downturns because equity holders lack the same legal rights as creditors.
If a company opts to incur debt for crypto purchases, it is essential to space out the repayment of each debt tranche.
For instance, if a company understands that Bitcoin (BTC) tends to follow four-year cycles, it can arrange its debt to mature in five years, thereby dodging repayments during periods of depressed crypto prices.
Companies should also focus on investing in supply-capped cryptocurrencies or reputable digital assets that consistently recover between cycles, rather than altcoins that can plummet by up to 90% between market cycles and sometimes fail to recover.
Ultimately, companies with operational businesses that generate revenue are in a stronger position than pure treasury models that lack revenue streams for crypto investments and operate primarily as publicly traded acquisition vehicles relying on funding.
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