The narrative surrounding crypto treasuries has emerged as a significant aspect of the current market cycle, mirroring investor sentiments from the dotcom bubble of the late 1990s and early 2000s, which saw the stock market plunge by about 80%, as noted by Ray Youssef, founder of the peer-to-peer lending platform NoOnes app.
The same overly enthusiastic investor mentality that resulted in excessive investments in early internet and tech firms during the dotcom crash still lingers today, even with financial institutions entering the crypto scene, Youssef shared with Cointelegraph. He stated:
“The dotcoms were a groundbreaking phenomenon in the budding IT market. While significant companies with serious ideas and long-term strategies emerged, the race for investment capital also attracted enthusiasts, opportunists, and dreamers, as compelling and forward-thinking visions are enticing to the general public.
Today, the global financial landscape is fueled by the concepts of cryptocurrency, decentralized finance, and the Web3 revolution,” he added.
He anticipated that many crypto treasury companies would eventually collapse and need to offload their holdings, setting the stage for the next crypto bear market. However, he believes that a select few will endure and continue accumulating crypto at substantial discounts.
During the current market cycle, crypto treasury companies have made headlines, with institutional investments being touted as a sign of crypto’s evolution from a niche concept to a global asset class sought after by nations and corporations.
Related: Crypto markets are down, but corporate proxies are faring significantly worse
Not all crypto treasury companies are doomed; prudent management can cushion downturns
Crypto treasury firms can lessen the impacts of a market decline and even prosper if they practice sound treasury and risk management.
Significantly reducing a company’s debt load greatly lowers the probability of bankruptcy. Companies that issue new equity, as opposed to corporate debt, are generally more likely to survive downturns since equity holders lack the same legal rights as creditors.
If a company opts to incur debt to finance crypto acquisitions, structuring the debt repayment schedule wisely, such as spacing out repayment periods, is crucial.
For instance, if a company is aware that Bitcoin (BTC) tends to follow a four-year cycle, it can plan debt repayments to be due in five years, avoiding pressure to pay back loans during market dips.
Companies should also focus on investing in supply-capped cryptocurrencies or established digital assets that consistently rebound between cycles, rather than altcoins that can plummet by as much as 90% between market cycles and may never recover.
Ultimately, firms with operational businesses that generate revenue are in a stronger position than those solely focused on treasury activities, which lack revenue streams to support crypto acquisitions and depend on funding to operate.
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