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One of the most high-flying crypto stocks came back down to earth this week after a report argued that it wasn't rising for “the right reasons.” Today, the company issued a serious defense of its business.
In its Tuesday edition, crypto newsletter CoinSnacks described an extensive marketing campaign over the past few months to provide positive coverage for DeFi Technologies ( DEFI )—a Toronto-based crypto fund provider that is publicly traded on Canada's Chicago Board Options Exchange (CBOE).
DEFI's stock price has now risen sharply following the huge success of MicroStrategy (MSTR), the largest institutional owner of BTC, along with other companies that have adopted Bitcoin as their primary treasury asset. Amidst all the excitement, some analysts started shouting at DEFI that it was undervalued on fundamental grounds.
On the Monday before the report was released, DEFI traded at CAD $3.30, a 202 percent increase since May 31. By Tuesday's close, the stock had returned 35% to CAD $2.24 per share.
The company's promotional efforts included a paid email and influencer campaign to put its name in the headlines, with CoinSnacks reaching 50,000 subscribers, as well as endorsements from Anthony Pompiano and Will Clemente, a market analysis firm, Reflexivity Research. Acquired by Defy Technologies in January.
“Between influencer pumps, mentions on CNBC, email campaigns and pumping, there is now strong evidence that the stock is not rallying for the right reasons,” CoinSnacks wrote.
DeFi Technologies responded to the CoinSnacks report in an open press release on Wednesday, calling it “defamatory, selective, inaccurate” and containing “misleading statements” about the company's operations and financial situation.
In fact, the company speculated that the report may have been sent by short sellers hoping to drive down the stock price.
Defy Technologies was offered a deal to be bought by a Canadian investment bank for US$15 million on June 10 – an unusual move given the strength of the company's treasury and lack of interest in raising additional funds. On the same day, DeFi Technologies reported holding $51 million in cash and another $7.9 million in Bitcoin (110 BTC) on its balance sheet.
“The company believes that the concerted efforts of short-sellers and false reports on public companies constitute market manipulation,” Defy Technologies wrote.
CoinSnacks later responded to DeFi Technologies saying “not currently, nor have we ever been paid, by a short seller to cover any company” nor does the group hold a position in DEFI.
By late Wednesday, the company's stock was back a modest 6% to CAD $2.30.
The CoinSnacks newsletter did not cover DeFi technology's recent financial performance extensively, instead referring to the dates in 2023 as a “coin stock,” resulting in a net loss of CAD $18.9 million for the year.
The company's profit this year is proof that the stock is a worthwhile investment.
DeFi Technologies has seen a significant increase in its assets under management this year alongside the broader crypto market, increasing the rewards from its investments in crypto funds. These funds are exchanged for Solana, Bitcoin and dozens of other assets that the company is allowed to hold and produce, earning an average of 7 to 10 percent on the assets it holds.
“Our assets averaged US$400 million to US$450 million in Q1, and in Q2, we averaged US$600 million to US$650 million,” Russell Starr, head of capital markets at Diffie Technology, told Decrypt.
Those assets under management (AUM) generated $10 million in operating income for the company in the first quarter, enough to cover its expenses for the rest of the year, Starr said. With current AUM now 50% higher, Diffie Technologies said it expects to generate at least US$15 million in net profit for the next three quarters.
Meanwhile, Starr said the firm's new venture, Diffie Alpha's trading desk, earned $85 million in the second quarter of 2024 alone. That would bring the company's net profit to $100 million in the first six months — 20 percent more than its current market cap of $477 million.
For context, other crypto firms like Coinbase and Robinhood currently trade at 30x and 40x their annual earnings.
“If you look at what they wrote, they didn't say anything fundamental,” Starr said. “Because if they had taken the time to learn the basics, they would have quickly realized that they had no history at all.”
This article has been updated to correct reported cash and Bitcoin holdings of DeFi technologies. Edited by Ryan Ozawa.
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