The share prices of Digital Assets Treasury (DAT) companies that acquired Bitcoin as a strategic asset have dropped significantly, increasing the possibility of a new headwind in Bitcoin prices.
A new report from on-chain data platform Cryptoquant shows that continuing Bitcoin pricing performance could result in a negative feedback loop.
What is a pipe?
The Cryptoquant report focuses on Bitcoin holding companies that raised capital through private investment in the Public Equity (PIPE) program. The company’s analysis of the stock performance of these companies has found significant downtrends.
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A pipe is a private product in which a public company sells newly issued shares (or convertible securities) to a select group of certified or institutional investors. This way, companies can quickly raise capital by selling stocks at a discounted market price.
Many Bitcoin data companies raised capital this year. A significant disadvantage of this method is diluting existing shareholders and putting downward pressure on stock prices, but was largely ignored by the strong upward trend of Bitcoin at the time. Cryptoquant says Bitcoin companies using the pipe program are experiencing a significant drop in stock prices.
The vicious cycle of decline
For example, kind MD (NAKA), Bitcoin Dat Company, was seen as a 18.5-fold increase in stock prices, with a surge in price at $34.77 in less than a month, from $1.88 in late April. However, the stock has since plummeted 97% to a low of $1.16, and is currently trading near the $1.12 pipe price.
Cryptoquant explained that other Bitcoin trust companies, including Strive (ASST), Cantor Equity Partners (CEP), and Empery Digital (EMPD), are seeing their share prices falling from 42% to 97%. Some stocks still trading above the issue price of the pipe face the possibility of a decline of up to 50%.
These data companies may have accumulated a large amount of cryptocurrency, but market valuations are falling even faster. This trend is seen in the rapid decline in market value relative to net asset value (MNAV).
Domino effect
The stock price of DAT companies will fall as Bitcoin remains weak. This decline will lead to sales by pipe investors. If we continue, businesses have lost their main way of raising additional operating capital, leaving them with the only option to sell Bitcoin Holdings in cash.
This puts further downward pressure on the price of Bitcoin, creating a vicious cycle in which Bitcoin prices and DAT companies shares become tandem. Cryptoquant claims that the sustained Bitcoin rally is the only catalyst to prevent further declines in these stocks. Without this move, the company’s analysts believe many crypto stocks will fall or fall towards pipe prices.
