When "purchasing Crypto Assets" becomes a market capitalization boosting strategy for listed companies

Recently, a special trend has emerged in the U.S. stock market: publicly traded companies are enhancing their market capitalization by purchasing Crypto Assets. This practice has led some companies' main businesses to take a backseat, while digital assets have become the new engine for market capitalization growth. However, whether this valuation game using the name of encryption can continue to gain market recognition remains a thought-provoking question.

How Does Buying Crypto Assets Affect Enterprise Value?

The act of purchasing Crypto Assets can be seen as an experiment in valuation shift constructed by market sentiment, liquidity of funds, and narratives. Traditional corporate valuation models are usually based on core indicators such as a company's profitability, capital structure, growth potential, and free cash flow. However, during this round of "coin buying frenzy", companies have triggered a reassessment of their valuation by holding Crypto Assets as part of their financial allocation.

When companies incorporate Bitcoin or other mainstream Crypto Assets into their balance sheets, the market often assigns them an additional valuation premium, which is based on the volatility of Crypto Assets prices and expectations of their tradability. In other words, a company's market capitalization comes not only from the actual value it creates but also includes a leveraged amplification of the potential for the price of Crypto Assets to rise.

This approach essentially places the "liquidity narrative" above the actual operations of the enterprise, transforming financial allocation into the primary means of capital operation.

The short-term stimulus effect is significant, but the long-term impact is questionable.

Undeniably, venturing into the encryption field can indeed stimulate a rise in stock prices in the short term. For example, an automotive trading service company announced in November 2023 its entry into Bitcoin mining, investing $400 million to purchase 50 EH/s of computing power resources, after which the company's stock price soared by 280%. Similarly, many companies with lackluster main business performance or even facing financial difficulties are also trying to seek opportunities for revaluation in the capital market through the "coin purchase" narrative.

From the market performance perspective, the phenomenon of "buying Crypto Assets leads to a surge in stock prices" has occurred multiple times. As long as a company proposes the concept of "Crypto Assets", short-term funds will quickly flood in. However, after a rapid short-term increase, many companies holding Crypto Assets face pressure for stock price correction. Without continuous purchasing of Crypto Assets or other favorable news to stimulate, it is difficult to maintain the increase.

Therefore, although the "coin purchase" strategy can stimulate market enthusiasm in the short term, there is still great uncertainty about whether it can be transformed into the long-term competitiveness and sustained growth of the enterprise. The market also finds it difficult to genuinely recognize those followers who merely seek attention through one or two purchases of Crypto Assets or vague "holding plans."

Are speculators starting to take profits?

While the narrative of "buying Crypto Assets to boost valuation" continues to gain traction, some key players appear to be quietly cashing out.

Since June 2023, internal executives at a major Crypto Assets investment company have been in a concentrated selling phase. According to reports, in just the past 90 days, executives have sold a total of $40 million worth of stocks, with the number of sell transactions being 10 times that of buy transactions.

Another company that previously raised $100 million to establish a Crypto Assets treasury recently faced pressure, with its stock plummeting 61.2% intraday due to investors registering to sell 43.85 million shares, equivalent to its initial float in April.

Meanwhile, a prominent investment firm has been continuously reducing its holdings in a stablecoin issuer's stock after the company went public. The investment firm has reportedly sold off over 36% of its holdings in four consecutive sales.

When "buying Crypto Assets" becomes a package, a market capitalization tool, or even a narrative shell to avoid fundamental questioning, it is destined to not become the "key to pass" for all enterprises. Today's market may be willing to pay for "financial configuration," but tomorrow's market may return to questioning the real growth and profitability of enterprises.

Buying behavior in the secondary market does not necessarily indicate recognition; it is more likely a rotation of chips by short-term speculators.