Crypto Treasury Companies Are Chasing Obscure Tokens—And That's Raising Red Flags About Market Volatility

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As Bitcoin’s shine dulls and market saturation squeezes returns, a new breed of publicly traded crypto treasury companies is making a risky pivot that has analysts sounding alarm bells about heightened volatility ahead.

The trend marks a dramatic shift for digital asset treasury companies, which exploded in popularity following the meteoric success of Strategy (NASDAQ:MSTR) and its founder, Michael Saylor. While early DATs focused on stockpiling Bitcoin and other major cryptocurrencies, newer entrants are increasingly turning to esoteric, volatile tokens in a bid to amplify returns as Bitcoin sags.

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At least 200 DAT companies now exist with a combined market capitalization of around $150 billion, up over threefold from a year earlier, according to an analysis by law firm DLA Piper.

The Pivot to Fringe Tokens

Recent weeks have seen a flurry of announcements from companies moving beyond Bitcoin. Greenlane (NASDAQ:GNLN), OceanPal (NASDAQ:OP) and Tharimmune (NASDAQ:THAR) are all reportedly planning to acquire BERA, NEAR and Canton Coin, respectively, according to Reuters.

The shift illustrates how the volatile world of cryptocurrencies is becoming more entwined with traditional markets, creating potential hazards for investors who may not fully understand the risks involved.

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“DATs are expanding towards more exotic and less liquid cryptocurrencies, and that’s exactly where the risk could be much higher,” Moody's Ratings Senior Analyst Cristiano Ventricelli told Reuters. “When markets drop, there is more pressure on the equity of these companies.”

The PIPE Problem

Since April, numerous DATs have financed token acquisitions through private investment in public equity deals, selling shares directly to private investors—often at a discount. According to Reuters, at least 40 DATs raised a combined total of over $15 billion via PIPEs between April and November, with only five of these targeting Bitcoin. This occurred as Bitcoin experienced its first monthly decline in October since 2018.

While PIPEs allow companies to quickly access cash, they create vulnerability. Shareholder dilution and potential share resales when lockup periods end often trigger stock price volatility. Because many DAT companies are heavily reliant on PIPEs, they face heightened risk when markets fall.

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Trading Below Value

The stakes are substantial. According to Standard Chartered analysts, as Reuters reported, DAT companies hold about 4% of all Bitcoin, 3.1% of all Ether, and 0.8% of all Solana—meaning their fortunes could have significant implications for coin prices.

Forward Industries (NASDAQ:FORD) Chair Kyle Samani said in a statement that the company’s buyback provides “flexibility to return capital to shareholders when we believe our stock trades below intrinsic value.”

Some DAT executives maintain their success will come from smart investing decisions. “You’re betting on the management team to go do interesting things, and that’s what we’re trying to do,” Samani, co-founder of Multicoin Capital and an investor in Forward Industries' September PIPE, told Reuters.

But Marius Barnett, chair of SUI Group (NASDAQ:SUIG), which stockpiles Sui, offered a stark warning about DATs that simply buy and hold tokens: “long term, you’re going to get absolutely decimated,” he told Reuters.

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This article Crypto Treasury Companies Are Chasing Obscure Tokens—And That's Raising Red Flags About Market Volatility originally appeared on Benzinga.com