PIPE Deals Could Trigger Mass Selloffs in Crypto Treasury Stocks

Steve Erlick's research reveals how PIPE funding mechanisms create massive dilution risks for crypto treasury company investors.

Key Takeaways

• Four crypto treasury companies face potential price crashes due to PIPE deal dilution events
• Apexi and Sharplink already dropped 70% when private investors gained selling rights
• PIPE shares can increase circulating supply by 10-20x, creating inevitable sell pressure
• Bitmine crashed 39% just from filing to raise $2 billion, before any actual dilution
• Professional investors recommend retail avoid nav guessing games until dilution completes
• Companies include Bitmine (Ethereum), Asset Entities (Bitcoin), Tron merger, and Nakamoto merger
• Convertible debt offers alternative but risks forced crypto liquidation during downturns
• Market has become hypersensitive to any signs of future share issuance

The PIPE Deal Dilution Time Bomb

Steve Erlick's investigation into crypto treasury companies reveals a systematic risk facing investors who participated in the massive runups of companies like Apexi and Sharplink. Both companies experienced roughly 70% price drops when PIPE (Private Investment in Public Equity) investors gained the ability to sell their shares to the public market.

• The research identified four additional companies following similar playbooks: Bitmine focused on Ethereum, Asset Entities merging with Strive Bitcoin, Justin Sun's Tron company merging with SRM Holdings, and David Bailey's Nakamoto merging with Kindly MD for Bitcoin accumulation strategies.
• Each company raised at least $100 million through PIPE deals to kickstart their crypto accumulation phases, targeting penny stock firms with minimal traditional businesses, small revenues, and tiny circulating share bases as acquisition vehicles.
• PIPE deals create massive dilution because the acquiring companies typically have very small existing shareholder bases, sometimes leading to 10-20x increases in total shares outstanding, with Sharplink experiencing nearly 90x dilution before its crash.
• The structure functions as "a time bomb waiting to go off" because private investors eventually gain registration rights to sell their shares publicly, flooding the market with new supply that dwarfs the original float.

Why PIPE Beats Other Funding Methods Despite Risks

Brian Rudik, who helped lead Apexi's funding deal while at GSR and now serves as the company's chief strategy officer, explained the strategic reasoning behind choosing PIPE deals over alternatives like convertible debt or public offerings.

• PIPE deals allow companies to raise large amounts quickly through brokers or placement agents without dealing with public market complexities or educating unfamiliar retail shareholders about crypto treasury strategies and business models.
• Speed and scale matter enormously in crypto accumulation strategies, making the immediate access to capital worth the potential dilution risks that management teams clearly understood could materialize later.
• Convertible debt, popularized by Michael Saylor's MicroStrategy, offers an alternative but carries liquidation risks if companies struggle or trade below net asset value, potentially forcing crypto sales to repay principal when bonds mature.
• Equity raises through PIPE avoid forced liquidation scenarios since companies don't need to repay principal or sell crypto holdings to meet debt obligations, making it a "Goldilocks scenario" for many treasury strategies.

Despite the severe price drops, both Apexi and Sharplink remain above their starting points before the massive runups, suggesting the corrections eliminated unsustainable speculation rather than destroying fundamental value.

Bitmine's Crash Reveals Market Hypersensitivity

Bitmine's 39% crash following Erlick's Wednesday publication demonstrates how spooked investors have become regarding any potential dilution signals, even when no actual share issuance occurs immediately.

• The company filed an S3 ASR registration form to potentially raise up to $2 billion in securities, marking its first filing as a "well-known seasoned issuer" that can immediately trade new shares without waiting periods.
• Private PIPE investors confirmed they remained restricted from trading their shares, meaning the market reaction stemmed purely from anticipated future dilution rather than immediate selling pressure from existing shareholders.
• The filing represented a "golden ticket" status allowing immediate resale of any newly issued securities, contrasting with traditional PIPE shares that require separate registration statements before private investors can sell publicly.
• Market participants appear to have either misinterpreted the filing as similar to the registration events that triggered Apexi and Sharplink crashes, or simply grew fearful of future dilution given the hypersensitive trading environment.

The incident continued with additional 20% declines the following day, illustrating how quickly sentiment can shift when investors anticipate dilution events in low-float crypto treasury stocks.

Investment Strategies and Risk Management

Professional investors who participated in both Sharplink and Apexi PIPE rounds offer contrasting perspectives on how retail investors should approach these volatile crypto treasury plays.

• One PIPE investor chose not to sell during the crashes, reasoning that good companies should maintain net asset value over time despite initial price bloat, while holding for over one year converts ordinary income tax into more favorable capital gains treatment.
• The same investor characterized crypto treasury investing as "a game for hedge funds and real professional investors" who understand complex mechanics, advising retail investors to avoid the nav guessing game entirely.
• His recommendation suggests waiting until all dilution events complete and strong float develops, allowing genuine price discovery to establish actual net asset value rather than speculation-driven pricing.
• The key metric for evaluation remains the crypto yield calculation popularized by Michael Saylor, tracking accumulation rates relative to share dilution to determine whether companies create value despite increasing share counts.

Companies could theoretically implement voluntary lockup agreements among institutional investors or encourage proactive share restrictions to calm market fears, though legal experts note few practical constraints exist to prevent immediate selling once registration rights activate.

Erlick emphasizes that companies followed standard capitalist practices by identifying market opportunities and structuring deals to achieve their goals, with the extreme volatility representing inevitable consequences of FOMO-driven speculation meeting low-float penny stock dynamics rather than fundamental business problems.