Upexi and SharpLink Stocks Plunge Over 60% After SEC Filings

In recent weeks, the stock prices of Upexi and SharpLink Gaming experienced significant declines following the effectiveness of their registration-of-shares filings with the U.S. Securities and Exchange Commission. This development allowed private investment in public equity (PIPE) investors to sell their shares, leading to a sharp drop in the companies' stock prices. Both firms had previously announced plans to accumulate Ethereum and Solana, which had driven up their stock prices. However, the effectiveness of the SEC filings provided an opportunity for PIPE investors to realize quick gains, resulting in a plunge of over 60% in their stock prices.

The PIPE process enables companies to raise capital swiftly by selling shares privately to institutional or accredited investors. However, these shares are not immediately tradable and must wait until the registration-of-shares filing becomes effective. For fast-money investors, such as hedge funds, this presents an opportunity to lock in profits. SharpLink’s PIPE investors, for instance, saw the value of their holdings surge by 429% in just over two weeks, leading to short-term profit-taking.

Brian Rudick, Upexi’s Chief Strategy Officer, highlighted that the effectiveness of a registration-of-shares filing is a significant long-term positive for crypto treasury firms. It allows companies to have a large, liquid float, which is crucial for becoming a major player in the market. Additionally, it opens the door for companies to raise capital again if the PIPE included a standstill agreement. However, there is a strategic element involved: if PIPE investors suspect that others will sell their shares to lock in gains, they may be incentivized to do so first.

Before the effectiveness of a registration-of-shares filing, a crypto treasury firm’s stock can exhibit high volatility due to a tiny float. This dynamic is somewhat similar to how a cryptocurrency’s low circulating supply can inflate its fully diluted value, leading to inflated valuations on paper. The effectiveness of a registration-of-shares filing can be compared to a token unlock, where a sudden increase in the circulating supply can lead to a drop in value.

When SharpLink’s stock plummeted by 70% earlier this month, Ethereum co-founder and Consensys CEO Joseph Lubin, who is also the Chairman of the Board at SharpLink, clarified that the filing was standard and that people were misinterpreting it. Crypto treasury firms often aim to maximize shareholder value by increasing the amount of digital assets they own per share. While their stock prices partially reflect the value of their crypto holdings, this relationship is constantly changing.

Investors should be aware that these products, similar to closed-end funds, can trade at premiums and discounts to the value of the crypto assets on the company's balance sheet. For those seeking crypto exposure in a traditional brokerage account, spot ETFs, as an open-end fund structure, will typically closely track the price of the underlying token, according to Grayscale’s Head of Research Zach Pandl.