The crypto treasury phenomenon has emerged as a significant aspect of the current market cycle, echoing the investor moods from the dotcom era of the late 1990s and early 2000s, which led to a stock market decline of roughly 80%, according to Ray Youssef, founder of the peer-to-peer lending platform NoOnes app.
The same exuberant investor mindset that fueled excessive investments in early internet and tech firms during the dotcom crash remains prevalent, even with financial institutions now involved in crypto, Youssef told Cointelegraph. He stated:
“Dotcoms represented an innovative wave in the emerging IT market, attracting not only major companies with viable ideas and long-term visions but also enthusiasts, opportunists, and dreamers, as bold, futuristic concepts easily capture the public’s imagination.
Today, the global financial landscape revolves around cryptocurrency, decentralized finance, and the Web3 revolution,” he added.
He forecasted that many crypto treasury firms may collapse and be compelled to liquidate their assets, setting the stage for the next crypto bear market, though a few will endure and continue to accumulate crypto at advantageous prices.
Crypto treasury firms have been at the forefront of discussions this market cycle, as institutional investments signal a shift of crypto from a niche trend to a globally recognized asset class sought after by nations and corporations.
Related: Crypto markets are down, but corporate proxies are performing far worse
Not all crypto treasury firms face doom; prudent management can alleviate downturn impacts
Crypto treasury firms can lessen the repercussions of a market downturn and even prosper if prudent treasury and risk management practices are adhered to.
Reducing a company’s debt load can significantly lower the likelihood of bankruptcy, and corporations that opt for new equity rather than corporate debts have higher survival prospects during downturns since equity holders lack the same legal rights as creditors.
If a company decides to incur debt to finance crypto acquisitions, it’s crucial to space out repayment obligations effectively.
For instance, if a business recognizes Bitcoin (BTC) operates within four-year cycles, it can structure its debt repayments over five years to avoid payouts during low crypto price periods.
Firms should prioritize investments in scarce cryptocurrencies or robust digital assets that consistently rebound between cycles, rather than altcoins that can drop up to 90% in value across market cycles and might not recover.
Ultimately, companies with operational businesses generating revenue are in a stronger position compared to pure treasury plays that lack revenue sources for crypto acquisitions and instead function as publicly traded entities reliant on financial backing.
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