Cryptocurrency treasury companies are at risk of collapsing like the dotcom bubble in the 2000s.

The story of cryptocurrency treasury has become a prominent factor in the current market cycle, akin to investor sentiment during the dot-com era in the late 1990s and early 2000s, when the stock market fell by about 80%, according to Ray Youssef, the founder of the peer-to-peer lending platform NoOnes app.

According to Youssef, the overly exuberant investment psychology that previously led to over-investment in technology and internet companies during the dot-com crash still exists, despite the involvement of financial institutions in the cryptocurrency space. He shared:

"Dotcom is an innovation phenomenon in the emerging information technology market. Alongside large corporations with serious ideas and long-term strategies, the race for investment capital has also attracted many enthusiastic investors, opportunists, and dreamers, because bold and futuristic visions are very easy to market to the general public."

"Today, the global financial market is being driven by concepts of cryptocurrency, decentralized finance, and the Web3 revolution," he emphasized.

Overview of the cryptocurrency treasury sector | Source: GalaxyHe predicts that most cryptocurrency treasury companies will face difficulties and be forced to liquidate their assets, creating conditions for another downturn in the cryptocurrency sector. However, a few companies will rise and continue to accumulate cryptocurrency at favorable prices.

In the current context, cryptocurrency treasury companies have dominated the headlines, as investment from institutions is seen as a sign that cryptocurrency has evolved from a niche phenomenon into a global asset sought after by countries and large enterprises.

Not all cryptocurrency treasury companies are destined to fail

These companies have the ability to minimize the negative impact of a market downturn and may even thrive if they manage funds and risks responsibly.

Reducing a company's debt burden will significantly lower the likelihood of bankruptcy. Companies that issue new shares instead of borrowing are often more likely to survive during tough times, as shareholders do not have the same legal rights as creditors.

If a company decides to borrow money to finance the purchase of cryptocurrency, structuring the debt term, that is, determining when each debt installment must be paid, is very important.

For example, if a company notices that Bitcoin often operates in a four-year cycle, they may plan for debts to mature after five years, in order to avoid having to pay debts when the price of cryptocurrency is falling.

A detailed analysis of digital assets used by corporations for treasury purposes | Source: GalaxyMoreover, companies should invest in cryptocurrencies with limited supply or sustainable blue-chip digital assets that have resilience across cycles, rather than altcoins that can lose up to 90% of their value across market cycles and sometimes never recover.

Ultimately, companies that have revenue-generating business activities will be in a more advantageous position compared to those companies that focus solely on asset funds without any income to invest in purchasing cryptocurrencies, and often operate as publicly traded acquisition vehicles dependent on funding sources.

Mr. Teacher