Nikou Asgari in Financial Times.
“My main problem with this strategy is that I don’t really understand where it ends,” adds Benoist. “The company is in a loop where it has to continually feed that loop with additional purchases, go back to the market to purchase more — this cycle has to continue to justify the premium.”
The biggest risk is how deep the damage will be if — or when — the price of crypto collapses. Inevitably, a crypto downturn means companies whose share prices are linked to tokens will slide too.
Those that have raised debt face greater risks as they will need to pay interest to investors, and may be forced to raise more money or then sell their crypto holdings in order to meet debt obligations.
“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.
