Why Did Solana and Ethereum Treasury Stocks Plunge on Routine SEC Filings?

As crypto treasury companies raise millions, some investors funding their pivot are cashing in as soon as they can, causing the firms’ stock prices to plummet.

Within the past two weeks, SharpLink Gaming and Upexi have become notable examples, with their stock prices plunging over 60% moments after registration-of-shares filings were deemed effective by the U.S. Securities and Exchange Commission. The companies have relinquished most of the gains they accrued after announcing plans to stockpile Ethereum and Solana, according to Yahoo Finance.

Both firms raised funds via a private investment in public equity, or PIPE. The process allows firms to quickly raise capital by selling shares privately to institutional or accredited investors, but those shares aren’t immediately tradable.

Decrypt reached out to Upexi and SharpLink for comment.

Instead, PIPE investors must wait until a firm’s registration-of-shares filing becomes effective before they can consider selling shares, which in the case of SharpLink and Upexi, had ballooned in value compared to their PIPE offering prices. For fast-money investors, such as hedge funds, it can be an opportunity to notch quick gains.

SharpLink’s PIPE investors saw the value of their holdings surge 429% in just over two weeks, a move that ultimately led to “short-term profit taking,” Brian Rudick, Upexi’s Chief Strategy Officer, said on X, formerly Twitter.

Rudick said that the effectiveness of a crypto treasury firm’s ​​registration-of-shares filing “a huge long-term positive” because companies need a large, liquid float if they want to become the next Strategy, formerly MicroStrategy. It also means that a company could soon raise capital again if the PIPE included a so-called standstill agreement, he added.

There’s a bit of game theory involved: If PIPE investors suspect that other participants will lock in gains, they may be more incentivized to try and sell their shares first.

Before a crypto treasury firm’s registration-of-shares filing becomes effective, its stock can also resemble a “meme stonk,” Taproot Wizards co-founder Udi Wertheimer said on X. There’s more volatility when “the float is tiny,” he said.

In some ways, the dynamic mirrors how a cryptocurrency’s low circulating supply can inflate its fully diluted value, leading to eye-popping valuations on paper. The effectiveness of a registration-of-shares filings could be compared to a token unlock.

When SharpLink’s stock plummeted 70% earlier this month, Ethereum co-founder, Consensys CEO, and SharpLink Chairman of the Board Joseph Lubin said that people were “misinterpreting” the filing on X. It was “standard,” he added. (Disclosure: Consensys is one of 22 investors in an editorially independent Decrypt.)

Crypto treasury firms often seek to maximize shareholder value by growing the amount of a digital asset they own per share. Although their stock prices partially reflect the value of their crypto holdings, that relationship is constantly in flux.

“Investors should be mindful that these products, like closed-end funds, can trade at premiums and discounts to the value of the crypto assets on the company’s balance sheet,” Grayscale’s Head of Research Zach Pandl told Decrypt. “For investors seeking crypto exposure in a traditional brokerage account, the spot [ETFs], as an open-end fund structure, will typically closely track the price of the underlying token.”

Edited by James Rubin