The narrative surrounding crypto treasuries has emerged as a significant aspect of the current market cycle, reflecting investor sentiments reminiscent of the dot-com era of the late 1990s and early 2000s, which resulted in an approximate 80% decline in the stock market, according to Ray Youssef, founder of the peer-to-peer lending platform NoOnes app.
The same excessive investor psychology that precipitated over-investment in early internet and technology companies during the dot-com crash persists today, despite the involvement of financial institutions in the crypto space, Youssef told Cointelegraph. He remarked:
“Dotcoms were an innovative phenomenon within the emerging IT market, alongside major firms with serious concepts and long-term strategies, the pursuit of investment capital also attracted enthusiasts, opportunists, and visionaries, as bold and futuristic visions are easily marketable.”
“Today, the global financial landscape is influenced by the concepts of cryptocurrency, decentralized finance, and the Web3 revolution,” he continued.
He anticipates that most crypto treasury companies will dwindle and be compelled to liquidate their holdings, setting the stage for a forthcoming crypto bear market, although a select few might endure and continue to acquire cryptocurrencies at significant discounts.
Crypto treasury companies have dominated recent headlines, as institutional investments are viewed as an indication that crypto has transitioned from a niche interest to a global asset class attracting the attention of nations and corporations.
Related: Crypto markets are down, but corporate proxies are doing far worse
Not all crypto treasury companies face doom; prudent management can cushion downturns
Crypto treasury firms can alleviate the impacts of market downturns and potentially thrive through the implementation of responsible treasury and risk management strategies.
Significantly reducing a company’s debt burden can greatly decrease the likelihood of bankruptcy, and corporations that issue new equity rather than corporate debt are more likely to weather a downturn since equity holders lack the same legal claims as creditors.
If a company opts to incur debt to finance crypto acquisitions, structuring the debt appropriately, such as staggering repayment terms, is crucial.
For instance, if a company acknowledges that Bitcoin (BTC) tends to operate in four-year cycles, it should arrange for its debt to mature in five years to avoid repayments during periods of depressed crypto prices.
Companies should prioritize investments in supply-capped cryptocurrencies or established digital assets that consistently recover between cycles, rather than altcoins that may lose up to 90% of their value between market cycles and sometimes fail to recover.
Moreover, firms with operational businesses generating revenue have a competitive edge over pure treasury models that lack revenue streams, relying solely on funding for crypto acquisitions.
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