Small public companies claiming to form crypto reserves worth hundreds of millions of dollars are likely attempting to fraudulently pump their stock prices. This was stated by Matthew Sigel, head of digital assets at VanEck, in an interview with The Block.
“There are numerous insider attempts at Pump & Dump. If the market capitalization is minimal and there is no information about new anchor investors, I believe it’s a scam,” he said.
Sigel highlighted the issue back in May. He commented on a Bloomberg report about Addentax Group’s intention to acquire bitcoins and TRUMP meme tokens worth about $800 million. He noted that the market value of the firm, listed in the US but entirely managed by Chinese interests, is only $3 million.
In early June, Classover announced raising $500 million to create a corporate treasury reserve in Solana. The initiative expanded the funds for the digital asset purchase program through the issuance of shares and convertible notes to $900 million. At the time of writing, the firm’s capitalization barely reaches $63.5 million.
Singapore’s Trident Digital announced plans to raise $500 million to form the “world’s first corporate treasury in XRP.” The company intends to secure funds through the placement of shares and other financial instruments. The market valuation of the Web3-focused enterprise is $16.2 million.
Chinese Webus International outlined a plan in a report to the SEC to create an XRP reserve of $300 million. The company’s value is $60 million.
Most of the mentioned enterprises managed to temporarily boost their stock prices. The shift to a crypto strategy had the most noticeable effect on DeFi Development’s stock. The firm announced an agreement to sell $5 billion in shares to form a fund in SOL.
“Entering June, DeFi Dev Corp remains focused on executing our Solana treasury strategy,” the company noted.
Since March, the company’s capitalization increased from approximately $7 million to $379 million. The partner for the securities placement program is RK Capital Management, which reports $500 million under management.
Experts Sound the Alarm
Analysts at Coinbase Institutional identified the growing popularity of corporate reserves, primarily in bitcoin, as a systemic risk to the digital asset market.
The boom was facilitated by changes in financial accounting rules in the US. New standards allowed companies to reflect digital assets at fair market value.
Already, 234 firms hold a total of 820,542 BTC. About 20 of them use a capital-raising model through debt obligations, first applied by Michael Saylor’s Strategy.
During periods of market stress, they may face the need for forced sales to cover obligations, potentially triggering panic among investors.
An analyst under the pseudonym Lowstrife compared Strategy’s approach to a financial pyramid, which will inevitably lead to collapse.
Standard Chartered also concluded that Strategy’s imitators could potentially become a source of selling pressure in the market.
Economist and author of “The Bitcoin Standard,” Saifedean Ammous, warned that bitcoin is approaching the peak of the current market. Historical data suggests the subsequent cryptocurrency downturn could reach up to 80%, so he advised corporations investing in the asset to assess their readiness for such a scenario.
Binance’s founder, Changpeng Zhao, has also highlighted the risks associated with the widespread creation of corporate reserves based on bitcoin.