The landscape for crypto treasury companies is shifting dramatically, as recent research reveals that firms raising capital through Private Investment in Public Equity (PIPE) deals are facing significant risks to their share prices. According to analytics provider CryptoQuant, a combination of share dilution, investor exit strategies, and market uncertainties has set the stage for potentially sharp declines across the sector.
Understanding PIPE Deals in Crypto Treasury Firms
PIPE (Private Investment in Public Equity) deals have become a popular mechanism for crypto treasury companies seeking to bolster their cash reserves quickly and efficiently. In essence, PIPEs allow private investors to purchase new shares directly from a public company at prices below current market levels. For companies in volatile and competitive industries—like the burgeoning crypto sector—this model offers quick access to capital without the protracted timelines or complexities associated with traditional public offerings.
However, while PIPE deals provide a rapid influx of funds, they come with inherent risks. Chief among these is share dilution: as new shares are issued to private investors, existing shareholders find their holdings diluted. When those new shares come out of lock-up and can be resold, a wave of selling can follow—driving share prices down toward, or even below, the PIPE offering price itself.
The “Overhang Effect” and Share Price Dynamics
CryptoQuant’s recent market analysis highlights the “overhang effect”: the pressure exerted on a stock’s price when a large tranche of potentially cheaper shares is about to hit the open market. PIPE investors, typically institutional players or sophisticated private parties, aim to lock in profits once their lock-up periods expire. Their selling can trigger a cascade of downward pressure as the market absorbs additional shares, compounding the dilution impact.
The report makes clear that such overhangs can have “negative effects for a company’s stock performance.” Even in cases where optimism ran high at the time of a PIPE announcement, reality often sets in when the new shares are unlocked—sometimes resulting in dramatic decreases in share price.
Case Study: Kindly MD’s Dramatic Plunge
One of the most telling examples cited in CryptoQuant’s research is the case of Kindly MD (NAKA). Originally a medical firm, Kindly MD pivoted to a focus on Bitcoin treasury management and raised funds through a PIPE deal. When the PIPE was announced, shares surged from around $1.80 in late April to an intraday high of nearly $35 in late May—an almost twentyfold gain on speculation and optimism.
However, this rally proved short-lived. As soon as the PIPE shares became eligible for sale, a tremendous influx of supply met the open market. Within a single day, Kindly MD’s stock plummeted by more than 50%. Over a few weeks, it dropped by a stunning 97%, hitting a low of $1.16—a hair’s breadth from its PIPE issuance price of $1.12. This collapse underscored the dangers that lurk beneath PIPE-fueled rallies: what comes up on speculative fervor can quickly come crashing down under the weight of profit-taking and dilution.
Other Crypto Treasury Firms Show Similar Patterns
Kindly MD is far from alone in this phenomenon. CryptoQuant’s deep dive into the sector revealed a pattern of post-PIPE drawdowns among other notable companies handling crypto treasuries. For instance, Strive Inc. (ASST) experienced a sharp downturn—shares that reached $13 in May tumbled to close at $2.75 on a recent Thursday, representing a 78% drop from its peak.
Strive’s PIPE was set at an issuance price of $1.35 per share, yet the publicly traded price remained considerably above this level as the next lock-up expiration approached. CryptoQuant anticipates that when PIPE investors gain the freedom to sell in the coming month, the market may see a further downward move, potentially falling by as much as 55% from current prices to align with the PIPE offering price.
Other firms are under similar pressures. For example, Cantor Equity Partners (CEP), which is in the process of merging with treasury manager Twenty One Capital, priced its PIPE at $10 per share. Despite once trading close to $70, Cantor Equity Partners’ price has tumbled to below $20—almost a 70% drop. Should selling pressure from PIPE investors continue, the stock could fall another 50% toward its PIPE issue price, continuing the pattern observed across the sector.
Sector-Wide Implications: Is Trouble Ahead?
The implications of these trends reach beyond individual firms. CryptoQuant and other market analysts warn that even well-established crypto treasury companies are not insulated from the downward pressures wrought by PIPE deals and the dynamics of their underlying assets.
A key factor is the value relationship between a company’s holdings in Bitcoin or other cryptocurrencies and its market capitalization. As the value of crypto holdings approaches or even overtakes the total value of the company itself, investors begin to question whether it makes sense to buy shares at a premium versus simply holding the underlying crypto asset. This narrowing gap can spark additional waves of selling as investors “arbitrage” the difference away, further accelerating drawdowns.
Moreover, a lack of sustained bullish movement in the price of Bitcoin may act as a further drag. “A sustained rally in Bitcoin is the only likely catalyst that could prevent further declines in these stocks. Without it, many are poised to continue trending toward—or below—their PIPE prices,” the CryptoQuant report states.
Investor Behavior and PIPE Lock-Up Expirations
The cyclical nature of PIPE deal impacts is closely tied to the expiry of lock-up periods—predetermined intervals after which PIPE investors can resell shares into the open market. This impending expiration generates anticipation and, often, pre-emptive selling that front-runs the anticipated flood of supply.
For many crypto treasury companies, the timeline of these lock-up periods dictates stock performance. Optimism and upward momentum may prevail in the weeks following a PIPE announcement or the immediate capital raise, but as the lock-up expiration draws near, “sell-the-news” behavior predominates. Short-term traders aim to exit ahead of potential dumps, while institutional holders prepare to liquidate their discounted positions for profit.
Market Strategies: Cautious Optimism or Stark Warning?
In light of these recurring patterns, market participants are increasingly cautious. Some view the sector as presenting special opportunities for value investing—where sharp, irrational sell-offs can occasionally produce bargains, especially if Bitcoin or other underlying assets stage robust rallies. However, the prevailing sentiment remains pessimistic for firms with upcoming PIPE unlock dates and those whose share prices remain far above their PIPE issuance levels.
The underlying question persists: are crypto treasury companies innovating or simply riding the fortunes of the digital assets they hold? As PIPE deals continue to act as double-edged swords—providing short-term capital at the cost of longer-term stability—companies and investors alike are re-evaluating strategies for navigating this high-risk, high-reward environment.
Looking Forward: What’s Next for Crypto Treasury Equities?
CryptoQuant’s research underscores the need for both vigilance and skepticism when approaching shares of crypto treasury companies, especially those recently involved in PIPE capital raises. The “overhang effect,” share dilution, and correlation with underlying crypto prices are not merely theoretical risks—they are driving market behavior in real-time and, in many cases, leading to severe value destruction for investors.
Until substantial and sustained upward moves in leading cryptocurrencies occur—or until new models of capital raising minimize the destructive side effects of PIPEs—the sector is likely to remain turbulent. Investors are urged to closely monitor lock-up schedules, company fundamentals, and broader market trends when allocating capital to this corner of the financial markets.
Ultimately, while PIPE deals can offer quick fixes to immediate capital needs, the long-term consequences may outweigh the short-term benefits. As the sector continues to evolve, both companies and investors must adapt strategies to mitigate these risks in an ever-changing market environment.
