Cryptocurrency Investments Stir Valuation Debates in Stock Market
According to PANews, the trend of companies investing in cryptocurrencies has become a notable strategy for boosting market valuations, overshadowing traditional business operations. This phenomenon, often referred to as the 'buying coins' strategy, raises questions about its sustainability and long-term impact on corporate value.
In the traditional valuation framework, a company's market value is determined by its profitability, asset-liability structure, growth potential, and free cash flow. However, the recent surge in cryptocurrency investments has shifted this paradigm. Companies incorporating cryptocurrencies like Bitcoin into their balance sheets have seen their valuations influenced by the volatility and speculative nature of these digital assets. This approach places liquidity narratives above core business operations, transforming financial allocations into a primary capital maneuver.
While entering the cryptocurrency market can temporarily boost stock prices, the long-term benefits remain uncertain. For instance, Cango, an automotive trading service provider, announced its entry into Bitcoin mining in November 2023, investing $400 million in computing power. This move led to a 280% surge in its stock price. Similar trends have been observed in other companies with lackluster core business performance, attempting to leverage the 'buying coins' narrative for market reevaluation.
Market data shows that the 'buying coins equals a surge' phenomenon has occurred multiple times. The introduction of a 'cryptocurrency asset' concept often attracts short-term capital inflows. However, without continuous cryptocurrency purchases or other positive news, many 'coin-holding companies' face stock price corrections.
Despite the short-term excitement, the ability of the 'buying coins' strategy to translate into long-term competitiveness and sustained growth remains questionable. The market is skeptical of companies that rely on sporadic cryptocurrency purchases or vague 'coin-holding plans' to gain attention.
Some key players appear to be capitalizing on this trend. Strategy, a proponent of the 'infinite growth' theory, has seen its executives selling off shares. Data from SecForm4.Com indicates that since June 2023, Strategy insiders have been in a selling spree, with sales totaling $40 million in the past 90 days, outpacing purchases by a factor of ten.
Similarly, Upexi, which raised $100 million to establish a Sol treasury, recently faced a 61.2% stock plunge due to investor registration for selling 43.85 million shares. Meanwhile, stablecoin issuer Circle saw its stock price soar to nearly $300 post-listing, but Ark Invest, a major pre-listing supporter, has been reducing its stake, selling over 36% of its holdings.
As 'buying coins' becomes a narrative tool for valuation, it is unlikely to serve as a universal solution for all companies. While the market currently supports 'financial allocations,' future scrutiny may return to genuine growth and profitability.
