The narrative surrounding crypto treasuries has emerged as a significant element of the current market cycle, mirroring investor sentiment from the dotcom boom of the late 1990s and early 2000s, which resulted in an approximately 80% decline in the stock market, as noted by Ray Youssef, founder of the peer-to-peer lending platform NoOnes app.
The same excessive investor psychology that fueled over-investment in early internet and tech firms during the dotcom crash persists, despite the involvement of financial institutions in crypto, Youssef stated in an interview with Cointelegraph. He remarked:
“Dotcoms represented an innovative wave in the developing IT sector, alongside major firms with solid concepts and long-term strategies. This competition for investment capital also attracted enthusiasts, opportunists, and dreamers, as selling bold and futuristic visions to the mass market is relatively easy.
Today, the global financial landscape revolves around the concepts of cryptocurrency, decentralized finance, and the Web3 revolution,” he added.
He anticipated that most crypto treasury firms would falter, necessitating the liquidation of their holdings and laying the groundwork for the next crypto bear market, though a select few would endure and continue to accumulate crypto at significantly discounted prices.
During the current market cycle, crypto treasury companies have captured headlines, as institutional investment is heralded as evidence that crypto has evolved from a niche pursuit to a global asset class sought after 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 firms can alleviate the impacts of a market downturn and even prosper with responsible treasury and risk management practices.
Reducing a company’s debt load significantly decreases the risk of bankruptcy, and companies that issue new equity rather than corporate debt have a better chance of weathering a downturn since equity holders lack the same legal rights as creditors.
If a firm opts to incur debt to fund crypto acquisitions, it is crucial to structure the debt in a way that staggers repayment deadlines.
For instance, if a company recognizes that Bitcoin (BTC) typically operates in four-year cycles, it can arrange its debt to mature in five years, thus avoiding the need to repay loans when crypto prices might be low.
Companies should also focus on investing in supply-capped cryptocurrencies or established digital assets that consistently recover between cycles, rather than altcoins that may plummet by up to 90% during market fluctuations and occasionally fail to bounce back.
Lastly, firms with operational businesses generating revenue are better positioned than pure treasury entities that lack revenue streams for funding crypto investments and operate as publicly traded acquisition vehicles reliant on external financing.
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