Bitcoin Finance Company DeFi Technologies Applauds Report of Stock Plunge

One of the highest-rising cryptocurrency stocks crashed back to earth this week after a report said it wasn’t rising for “the right reasons.” Today the company announced a strong defense of its business.

In a publication on Tuesday, cryptocurrency newsletter CoinSnacks outlined an extensive marketing campaign undertaken over the past few months to provide positive coverage of DeFi Technologies (DEFI). DEFI is a Toronto-based cryptocurrency fund provider publicly traded on Canada’s Chicago Board Options Exchange (CBOE).

Following the massive success of MicroStrategy (MSTR), currently the top institutional holder of BTC, DEFI stock prices have soared along with other companies adopting Bitcoin as their primary treasury reserve asset. Amid the excitement, some analysts waxing optimistic We argue that DEFI is extremely undervalued for fundamental reasons.

On the Monday before the report was released, DEFI was trading at $3.30 CAD, up 202% since May 31. As of Tuesday’s close, the stock was down 35% at $2.24 CAD per share.

CoinSnacks reported that it received endorsements from prominent cryptocurrency investors Anthony Pompliano and Will Clemente of market analytics firm Reflexivity Research, as well as a paid email and influencer campaign to get the company’s name in the headlines among its 50,000 subscribers. It was acquired by DeFi Technologies last January.

“Between the influencer pumps, email campaigns, and glossy publicity mentioned on CNBC, there is now strong evidence that the stock price is not bouncing back for the right reasons,” CoinSnacks wrote.

DeFi Technologies responded to the CoinSnacks report in a public press release Wednesday, calling it “defamatory, selective and inaccurate” and containing “misleading statements” about the company’s practices and financial condition.

In fact, the company speculated that the report may have been commissioned by short sellers looking to drive down the stock price.

DeFi Technologies said on June 10 that it had been approached by a Canadian investment bank with a proposed buy deal worth US$15 million. This is an unusual proposition given the new strength of the company’s finances and its lack of need to raise more capital. On the same day, DeFi Technologies reported that it had US$51 million in cash on its balance sheet and an additional US$7.9 million in Bitcoin (110 BTC).

“The company believes that the concerted efforts of short sellers and issuing misleading reports about public companies constitute market manipulation,” DeFi Technologies wrote.

CoinSnacks later answered “We have not currently received any money from any short-selling firm, and our team has never held a position at DEFI,” it told DeFi Technologies.

By Wednesday’s close, the company’s shares had rebounded slightly 6% to $2.30 CAD per share.

The CoinSnacks newsletter did not cover DeFi Techology’s recent financial performance extensively, instead referring to it as a “penny stock” for 2023 after generating a net loss of C$18.9 million for the year.

The company points to its year-to-date profits as evidence that its stock is a worthwhile investment.

DeFi Technologies said its assets under management have grown significantly this year along with the broader cryptocurrency market, which has also increased the rewards earned from investing in its cryptocurrency funds. This includes exchange-traded funds for Solana, Bitcoin and dozens of other assets that allow companies to hold stakes and earn returns. You earn an average return of 7-10% on your holdings.

“Our assets averaged about $400 to $450 million in the first quarter, and we expect them to average $600 to $650 million in the second quarter,” said Russell Starr, head of capital markets at DeFi Technologies. decryption.

With equal assets under management (AUM), the company’s operating businesses generated revenue of US$10 million in the first quarter, enough to cover costs for the full year, Starr said. He said he expects DeFi Technologies to earn at least $15 million in net profits over the next three quarters, given its current AUM is 50% higher.

Meanwhile, Starr said the company’s newly launched DeFi alpha trading desk generated $85 million in the second quarter of 2024 alone. This brought net profits up to $100 million in the company’s first six months. This is over 20% of its current market capitalization of $477 million.

For context, other crypto companies like Coinbase and Robinhood currently trade at 30x and 40x annual earnings.

“If you look at the article they wrote, they didn’t address anything fundamental,” Starr said. “The reason is that if you took the time to talk about the basics, you would have realized very quickly that there was no story.”

This article has been updated to correct DeFi Technologies’ reported cash and bitcoin holdings. Edited by Ryan Ozawa.