Bitcoin Treasury Companies Face Significant Risks Due To PIPE Deals
By: Isha Das
Bitcoin treasury companies are facing a precarious situation as stock prices hover near or fall below the issuance levels defined in their private investment in public equity (PIPE) agreements. This trend suggests potential declines as severe as 55% for current investors, according to a report by analytics platform CryptoQuant. The companies involved have utilized PIPE deals to quickly gain access to substantial capital, which is essential for acquiring Bitcoin in significant quantities. However, the potential selling pressure once the PIPE shares become tradable poses major risks to the companies' stock values.
The report elaborates on the challenges faced by specific companies. For instance, one company, often cited as a dramatic example, saw its stock initially soar from $1.88 to a high of $34.77 after announcing a PIPE transaction at only $1.12 per share. Unfortunately, the stock plummeted 97% back to $1.16 soon after the PIPE shares were unlocked. Similar patterns can be seen with other companies, indicating that a significant markdown from peak stock prices is not uncommon.
Forewarned by CryptoQuant, companies like Empery Digital and Cantor Equity Partners, which have already lowered below or hover precariously near their original PIPE prices, highlight the considerable volatility in this financial strategy. Empery, for instance, trades at a 21% discount to its PIPE price, emphasizing the dilution risks and pressure unlock periods place on share values. These financial maneuvers are vital for acquiring Bitcoin, yet they underscore the inherent vulnerabilities when market conditions are not favorable.
The success of these companies in stabilizing and potentially increasing their market performance heavily depends on the broader rally and recovery of Bitcoin prices. Institutional investors who bought their shares at discounts may be inclined to cash out, intensifying the sell-off pressure. Thus, a strengthening Bitcoin market is crucial if these treasury firms are to avoid further stock devaluations.
