Are Coin-Hoarding Stocks Safe Investments Despite Bear Market Buying? [Bitcoin Now]

Average Stock Price Decline of 30% in February
Multiple Risks Emerge Amid Bitcoin Downturn
"Are They Only Seeking the Theme Stock Premium Over Core Business?"

Since last year, the stock prices of KOSDAQ-listed companies that have been purchasing Bitcoin (BTC) in order to enjoy a share price premium have been moving like a 'rollercoaster' in response to Bitcoin's price fluctuations. These companies, which are pursuing Digital Asset Treasury (DAT) strategies, plan to continue buying Bitcoin at lower prices in hopes of making a profit despite the recent decline in Bitcoin prices. However, investors should exercise caution when investing in these stocks. When Bitcoin is rising, expectations of leverage or perceptions of these companies as theme stocks can attract speculative demand, resulting in significant price surges. In contrast, during a downtrend, losses can be even greater.

Stock Prices Sway with Bitcoin’s Price... Still, Companies Continue to Buy BTC

According to the Korea Exchange on March 3, the average share price decline of KOSDAQ-listed companies Bitmax, Parataxis Korea, Bitplanet, and Appten in February (as of 9:07 a.m. on the 27th) was 29.2%. Their share prices had been falling until the 25th, but temporarily rebounded as Bitcoin's price surged approximately 7% compared to the previous day. However, when the price of Bitcoin fell again on the 27th, the stock prices dropped as well.

All of these companies are pursuing DAT strategies. DAT refers to a strategy in which cryptocurrencies such as Bitcoin are held not merely as investment assets but as financial assets. The core idea is to manage all or part of their cash in digital assets to hedge against inflation and currency value risks, while leveraging corporate value. Companies raise funds through bond or convertible bond issuance, or by issuing stock, and then buy Bitcoin-not just as a simple investment, but to transform their valuation model itself. Notable examples include Strategy in the United States and Metaplanet in Japan.

Despite the downward trend in Bitcoin’s price, these companies have either actually purchased more or announced their intention to do so. On the 6th, Parataxis Korea purchased an additional 50 BTC, bringing its total Bitcoin holdings to more than 200. Bitplanet, which already owns 265 BTC, is reported to have a long-term goal of holding 10,000 BTC.

Risks of Share Dilution from New Share Issuance and Coin-Backed Loans

It remains uncertain whether repeatedly buying more BTC at lower prices to increase holdings will be successful. These companies often issue new shares to finance their Bitcoin purchases. In fact, from the second half of last year through February this year, Bitmax and Parataxis Korea conducted paid-in capital increases, while Bitplanet and Appten issued convertible bonds. When a company issues more shares, the total number of shares increases, which dilutes the value per share.

DAT companies also often use an 'ATM' (at-the-market) method to steadily issue and sell new shares in the market as their stock prices rise. For example, when Bitcoin's price rises, these companies are seen as Bitcoin-themed stocks, attracting speculative capital and driving up share prices. Rather than conducting large-scale rights offerings all at once, they use the ATM method to sell shares gradually and minimize market impact. The problem is that as the company sells shares and new supply enters the market, the upward momentum of the share price slows and the price ceiling is pushed down again. While total assets may grow, the per-share value may not increase as much as expected. For investors, this means that even in a rising market, the increase in the number of shares issued can result in lower-than-expected returns.

Investors may also have to bear the risks associated with coin-backed loans. When these companies borrow cash or other assets using Bitcoin as collateral, a decline in Bitcoin's price can lead to liquidity crises. At the end of last year, Parataxis Korea signed a loan contract for 10.25 million Tether (USDT), using its Bitcoin holdings as collateral. The loan amount is KRW 15.3 billion, equivalent to 20.94% of the company's equity capital. Coin-backed borrowing contracts typically include a collateral maintenance ratio condition. If the collateral value falls below a certain threshold, the lender can demand additional collateral (a margin call) or loan repayment. For instance, if Bitcoin's price drops, the value of the company's Bitcoin collateral also falls. If the company lacks additional Bitcoin to pledge or cash to repay, the collateral (Bitcoin) may be liquidated. Companies pursuing DAT strategies generally do not have good cash flows. According to Parataxis Korea's cash flow statement for the third quarter of last year, cash flow from operations and investing activities were negative KRW 10.2 billion and negative KRW 8.5 billion, respectively. In contrast, cash from financing activities was KRW 35.3 billion, with KRW 29.4 billion from paid-in capital increases and KRW 4.9 billion from convertible bond issuance. In other words, instead of generating cash consistently through operations, these companies rely on temporary factors for cash inflow.

Pursuing 'BTC Theme Stock' Premium Rather Than Core Business

This indicates that these companies lack competitiveness in their core businesses or have weak operational performance. In other words, they lack the capacity to withstand a decline in Bitcoin prices. For this reason, critics argue that the adoption of DAT strategies by listed companies is aimed more at reaping the 'Bitcoin theme stock' premium, rather than fostering growth through their primary businesses.

All of these companies changed their largest shareholders and company names, while simultaneously adding virtual asset businesses from March to October last year, during a period of rising Bitcoin prices. Bitmax is a company whose name was changed from Maxst, an XR company that entered KOSDAQ through a technology special listing, and added virtual asset investment as a new business. Its largest shareholder is Metaplatform Investment Association, with Satoshi Holdings and Playque jointly holding a 50% stake. Satoshi Holdings also previously operated a women's underwear business, but last year, it changed its name after adding a number of new businesses such as digital assets and unmanned aerial vehicles. Bitplanet is a company that changed its name from SGA, an IT service provider, in August last year, after being acquired by Asia Strategy Partners, which founded Metaplanet in Japan. Asia Strategy Partners is operated by Sora Ventures, a blockchain-focused venture capital firm. Through a paid-in capital increase, activist fund KCGI also became a shareholder.

Bridge Biotherapeutics, a bio company, also adopted a DAT strategy in the same month after being acquired by the US hedge fund Parataxis Holdings. The company has also acquired cybersecurity firm Sinsiway, changed its name to Parataxis Ethereum, and added new business operations. Appten, after being acquired by Aprogen and changing its company name, also added a virtual asset business as a new line of business.

This content was produced with the assistance of AI translation services.