Retail Traders Ditch Crypto Holders on Dilution Fear

2025-08-19 17:17:55

(Bloomberg) -- For small companies seeking big gains, the play was easy: start buying cryptocurrency, watch your shares soar and sell stock to fund more purchases. That’s the crypto treasury blueprint — but some investors don’t seem to like that third step, or even the idea of it.

Retail traders, who make up much of the investor base in these companies, have begun selling off their shares after crypto accumulators register equity offerings, sending those stocks tumbling from their sky high valuations.

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On Thursday, 180 Life Sciences Corp., which does business as ETHZilla, saw its shares slide 29% after announcing an agreement to sell as much as $500 million of its stock. Two days earlier, the stock soared 200% in a single day as the biotechnology firm turned Ethereum treasury declared its Ether holdings, worth about $350 million at the time.

Other crypto treasuries have seen a similar fate. SharpLink Gaming Inc.’s stock plunged 72% on June 13, when it filed a statement to the US Securities and Exchange Commission allowing a group of investors to sell shares. In July, BitMine Immersion Technologies Inc. dropped 40% after filing to sell up to $2 billion in securities.

 Many retail investors see these actions as a signal to sell. They’re taking profits on fears of dilution and expecting that the shares being offered in the filings will all be sold, which isn’t a guarantee. They also worry that the stocks may be overpriced, with valuations sometimes at a multiple of a company’s crypto assets. It’s a challenge for the gaggle of firms getting into the business of buying and holding digital tokens, trying to mimic the success of Michael Saylor’s Strategy, a Bitcoin behemoth.

When crypto treasuries register shares, some holders fear a flood of sales soon after, Lowenstein Sandler LLP partner Daniel Forman said in an interview.

“In many cases, that’s not the case, and an investor couldn’t even sell at that point in time because there isn’t an effective registration statement,” Forman said.

SharpLink Chairman Joe Lubin — also a co-founder of Ethereum — tried to assuage investors’ worries when the company’s shares fell after a filing in June. The company holds more than $3 billion in Ether, and has a market cap of about $3.5 billion.

Story Continues“This is standard post-PIPE procedure in tradfi, not an indication of actual sales,” he wrote in an evening post on X. “Neither Consensys nor I have sold any shares,” he added, referring to a major investor. Still, shares lost more than two-thirds of their value the next day, and haven’t fully recovered since.

At ETHZilla, Chairman McAndrew Rudisill is taking the recent losses in stride. He sees them as a normalization of the company’s valuation compared to the value of its Ether holdings after the shares skyrocketed.

“It’s probably a sweet spot of normalization between like two and three times market net asset value, and we’re in that band now, so it kind of makes sense,” Rudisill said in an interview.

Even with the sharp drops, the crypto treasury strategy has paid off for a number of firms. ETHZilla is up 136% since revealing its plan at the end of July. SharpLink, which used to focus on sports betting technology, is up about 210% since its pivot in late May.

Retail Jitters

Retail trader Reza Ibrahim said he has invested in several crypto treasury companies, but sees the top coming soon. He already sold his position in SharpLink after making a 150% return on his investment, and plans to fully exit the sector by the fourth quarter of this year, when he expects cryptocurrency prices to decline.

“It’s due for a major correction,” Ibrahim, 26, said in an interview.

Juan Plasencia, a 56-year-old retail investor, says he sold half of his SharpLink position to take a profit, and held onto the rest because of its lower valuation compared to other crypto accumulators. But he says he sold all his BitMine shares after the company filed to offer up to 80.2 million shares in July. He didn’t expect that private investors would keep holding onto the stock at its high valuation. Even after sharp declines, BitMine’s market cap is almost $10 billion, about a 45% premium over its crypto pile.

“Whenever their lockout period ends is when they start selling,” he said in an interview. Their “value is secured.”

Plasencia knows that a company may not actually sell all of the shares listed in a filing, but the uncertainty gives him pause.

“The hard part is knowing how much cash has been raised and shares issued,” he said. “So I always assume 100% of approved equity sale.”

Some investors make their decisions to sell based on discussions on X or Reddit, but Forman at Lowenstein Sandler said these filings are more nuanced than a headline, especially if small-time investors don’t really understand these types of deals.

“It’s just, I think, a new segment of the population is looking at them and kind of becoming familiar with how this works,” Forman said about the filings.

With the sector getting more crowded, it isn’t surprising to see investors sell, said Gregory Sichenzia, a founding partner at Sichenzia Ross Ference Carmel.

“90% of these companies will not survive. The bubble will burst, the stock will crash, their access to capital will dry up, and there’ll be a few left that really did execute.”

(Corrects name of law firm in the penultimate paragraph.)