The concept of crypto treasuries has emerged as a significant trend in the current market cycle, reminiscent of investor attitudes during the late 1990s dotcom boom, which ultimately led to an approximately 80% decline in the stock market, as articulated by Ray Youssef, founder of the peer-to-peer lending platform NoOnes app.
The same excessive investor mentality that propelled over-investment in early internet and technology firms during the dotcom meltdown persists today, bolstered by financial institutions’ involvement in crypto, Youssef informed Cointelegraph. He remarked:
“Dotcoms represented an innovative wave in the nascent IT market, but the pursuit of investment capital also drew in enthusiasts, opportunists, and visionaries, due to the ease of marketing bold and futuristic ideas to the general audience.”
“Currently, the global financial landscape is influenced by the concepts of cryptocurrency, decentralized finance, and the Web3 movement,” he added.
He anticipates that most crypto treasury firms will eventually collapse and have to liquidate their holdings, thereby setting the stage for the next crypto bear market; however, a handful are expected to endure and keep accumulating crypto at significant discounts.
Crypto treasury companies have captured considerable media attention this market cycle, as institutional investment is viewed as evidence that crypto has evolved from a niche market into a global asset class attracting the interest of nation-states and corporations.
Related: Crypto markets are down, but corporate proxies are doing far worse
Not every crypto treasury company is doomed; prudent management can soften downturns
Crypto treasury firms can alleviate the impact of a market downturn and even prosper through sensible treasury and risk management practices.
Reducing a company’s debt load can significantly decrease the likelihood of bankruptcy, and firms that opt for new equity instead of corporate debt are more likely to endure downturns because equity holders lack the same legal claims as creditors.
If a firm decides to incur debt for crypto investments, it is crucial to extend the debt’s term, spreading out the repayment schedule.
For instance, knowing that Bitcoin (BTC) tends to follow four-year cycles, a company might arrange its debt to mature in five years, thus avoiding repayments during low crypto price periods.
Firms should prioritize investments in supply-capped cryptocurrencies or established digital assets that consistently rebound between market cycles, rather than altcoins that may plummet by up to 90% during downturns and sometimes fail to recover.
Ultimately, businesses generating revenue are in a more advantageous position compared to pure treasury plays that lack income streams for crypto acquisitions and serve primarily as publicly traded investment vehicles dependent on external funding.
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