Beware of the "PIPE Price Gravity" Trap: Companies Holding Encryption Assets May Face Up to 50% Big Dump in Stock Prices

The stocks of publicly traded companies in the cryptocurrency industry that raise funds through private equity public issuance (PIPE) transactions are facing enormous downward pressure. Blockchain analytics company CryptoQuant warns that as the lock-up period for these PIPE transactions ends, the stocks of related companies could experience a big dump of up to 50%. This phenomenon, known as "PIPE price gravity," is due to private investors dumping stocks to lock in profits after the lock-up period ends. Furthermore, at least seven small-cap companies are turning to debt to buy back shares in an attempt to support stock prices, highlighting serious doubts in the market about the sustainability of the "crypto treasury" strategy.

PIPE Price Gravity Effect: The Fundamental Cause of Stock Big Dump

(Source: Galaxy)

PIPE transactions allow private investors to purchase newly issued shares at a price lower than the current market price, providing companies with quick cash flow, but the aftermath is becoming apparent. Once the lock-up period ends, these investors sell their shares to realize profits, and the huge selling pressure will cause the stock price to fall to the original PIPE transaction price.

Catastrophic Case: Kindly MD (NAKA)

After the healthcare company Kindly MD (NAKA) shifted to a Bitcoin treasury asset strategy, its stock price soared from $1.80 to nearly $35 following the announcement of PIPE financing in April and May.

1. Market Crash Data: However, after the PIPE stock was unlocked, NAKA's stock price fell by 97% in just a few months, dropping to $1.16, nearly returning to its PIPE issuance price of $1.12.

2. Price Attraction Verification: The case of NAKA has become an extreme illustration of the "PIPE price attraction" referred to by CryptoQuant.

Risk warning from other companies

Other companies that adopt similar financing strategies are also facing the same problems and may continue to be under pressure in the coming months:

1. Strive Inc. (ASST): The company's stock price has fallen to $2.75 after peaking at $13 in May, a decline of 78%. CryptoQuant predicts that given its PIPE price of $1.35, the stock price could fall another 55% when the lock-up period ends next month.

2. Cantor Equity Partners (CEP): The company's PIPE issuance price is $10, and the stock price has fallen nearly 70% from its peak, dropping below $20. CryptoQuant predicts that once PIPE investors start selling, the stock price may face a further fall of 50%.

From "Buying Tokens" to "Borrowing Money to Buy Time": The Dilemma of Debt Repurchase

In order to stop the continuously falling stock prices, at least seven small-cap companies are borrowing funds to finance stock buyback programs. These companies are trying to support market performance when stock prices are below their encryption asset net value.

High-risk operations of ETHZilla

The entity originally named 180 Life Sciences renamed itself to ETHZilla after purchasing Ethereum, but its stock price has fallen 76% since August.

1. Debt buyback: The company recently obtained $80 million in debt financing from Cumberland DRW to support its $250 million stock buyback plan.

2. Analyst interpretation: Kaiko analyst Adam Morgan McCarthy commented: "They are borrowing money to buy time, not to purchase tokens." This indicates that these companies are struggling to cope with challenges rather than succeeding in their encryption strategies.

The paradox of undervaluation of encryption assets

The value of some companies' digital assets even exceeds their market value, yet investors still cast votes of no confidence in these companies' stocks.

1. Empery Digital: The company holds Bitcoin worth $476 million, but its market value is only $378 million. Nevertheless, it still had to expand its debt financing limit to $85 million.

2. Market Sentiment: This phenomenon of "market value being lower than the net value of cryptocurrency assets" indicates that investors' valuation of the company's operations and management strategies is lower than the digital assets they hold.

Market Confidence Weakens: Net Asset Value Premium Significantly Shrinks

Companies like SharpLink Gaming, Ton Strategy, and CEA Industries are also utilizing similar debt support strategies. Analysis from research firm K33 reveals a systematic weakening of investor confidence:

decline in the premium of Net Asset Value (NAV)

1. Trading discount: K33 research shows that a quarter of listed Bitcoin treasury companies are currently trading below their net asset value (i.e., net worth of encryption assets).

2. Valuation multiple: The average NAV multiple at which investors are paying a premium for the company's encryption assets has decreased from 3.76 in April to 2.8. This indicates that the premium investors are willing to pay for these companies is significantly decreasing.

This trend indicates that the strategy of encryption treasury is losing its effectiveness in boosting stock prices, and the market is repricing these companies' stocks with a more cautious and conservative attitude.

Conclusion

The price gravity of PIPE is becoming the sword of Damocles hanging over the heads of cryptocurrency treasury companies, and the collapse of Kindly MD (NAKA) is just a severe warning. As more PIPE lock-up periods approach their end, the selling pressure and valuation risks faced by related stocks will continue to escalate. At the same time, some companies' behavior of supporting stock prices through debt buybacks reflects a crisis of confidence among investors in the "cryptocurrency treasury" strategy. The market is no longer blindly paying high premiums but is returning to fundamentals and profitability. For investors, focusing on the PIPE issuance price and lock-up periods, as well as whether the company relies on debt to support stock prices, is key to avoiding potential big dump risks.

Disclaimer: This article is for news information only and does not constitute any investment advice. The encryption market is highly volatile, and investors should make cautious decisions.