Duck, You Sucker!
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After 40 years of financial innovations, it's hard to be shocked by anything in the financial press, but FT has a piece, Why struggling companies are loading up on bitcoin. All you can say is saints preserve us!
"In the year to August 5, some 154 public companies have either raised or committed to raise a combined total of $98.4bn in order to buy crypto, according to crypto advisory firm Architect Partners. Before this year, $33.6bn had been raised by just 10 companies."
"Biotechs, gold miners, hoteliers, an electric vehicle company and a vape maker are among those rushing to buy crypto tokens, backed by investors who see an opportunity to grab a slice of the crypto pie without risking touching digital assets directly."
“I was looking for ways to unlock the value of the company” said one executive.
"This success, along with US President Donald Trump’s full-throated support for the digital asset industry, has encouraged booming numbers of so-called crypto treasury companies to launch worldwide."
Say what you will about Trump, but he's a guy that fully understands a scam.
"The multiplicity of new companies in the space also raises worries about what happens if, or when, the price of these tokens tumbles, and how deep the spillover effects will be. Companies that are taking on billions of dollars in debt to fund their purchases could quickly find themselves unable to repay creditors."
Ya think?
Kevin de Patoul, chief executive of crypto market maker Keyrock, says investors should be realistic about what this is. “You’re injecting a huge amount of risk into a system that, in the end, has almost nothing backing it except the continued appreciation of the asset.”
"Crypto market maker," funny, funny stuff. Amusing ain't it, how crypto has so quickly come to completely resemble the established financial system? It gets better.
"For investors, “bitcoin per share”, or how many bitcoins they hold per share of the company, is the metric of success. If the company buys more tokens quickly, the equity investors therefore indirectly hold more crypto per share of the company they own — a reason why investors are paying premiums early on, in the hope of cashing in on more bitcoins per share in the future."
"The majority of companies buying bitcoin are simultaneously running separate businesses, but a new wave of deals involves shell companies that are loading up on or committing to buy crypto tokens. These operate as special-purpose acquisition companies (Spacs) that raise capital to buy or merge with existing corporations."
And finally the conclusion,
“Structurally this is very unhealthy if you’re paying your existing debt by raising other debt. That makes me very uneasy,” says the head of a crypto hedge fund, adding: “You may end up with systemic risk as there are too many of these weak structures which have to unwind fully or partially, and that creates pressure on the market.
“I’d like this to be under watch by some regulators rather than everyone building treasuries on the assumption that the market is going to rise forever,” he adds.
Duck, You Sucker!
Life in the 21st century is reader supported, please subscribe and make life sustainable.