We’re all sold this idea that debt can be a tool. If used responsibly and strategically, it can power an economic recovery, grow businesses, broaden horizons and build new prosperity. In the traditional world, that's often true. In the likewise-hyper-volatile and yet-still-nascent world of crypto, debt is shaping up to be a new focus of harm. Looking to mergers and acquisitions, it has become more of a ticking time bomb than a helpful tool. And honestly, the industry just isn’t discussing it enough.

Is Debt Really a Sign of Maturity?

You’re going to hear from the cheerleaders that the increase of debt financing in crypto M&A means we’ve hit a certain level of maturity. They’ll counter with the claim that this proves the space is attracting serious institutional capital. Lenders are just now starting to feel confident enough to lend to crypto companies. Don't buy it. Ask yourself: is it really maturity, or just a desperate scramble for funding in a bear market? Think about it. When venture capital at last runs out, where are these companies going to turn other than the government’s open checkbook?

Explore our new dashboard tracking Capital Activity. It shows every M&A, venture round, and an increasing number of debt financings. It’s an impressive picture that it indeed paints, but it should come with context. Real world context that explains the why behind the figures. What’s driving the rush of companies to debt, especially convertible notes? Is it because their underlying businesses are secretly brilliant and ready to take off like a rocket? Or is it because they’re flat out bleeding cash and can’t raise equity at sensible valuations?

This isn't just about theoretical risk. This is about real people's money. Your money. If the company makes itself too indebted to support an acquisition, it is doomed. If the overall market goes down, the tokens you purchased could become worthless. Are you comfortable with that?

Leverage Amplifies Volatility—Always

Here’s an unexpected connection for you: Remember the 2008 financial crisis? What was at the heart of it? Over-leveraged institutions making bets they couldn't afford. Now, imagine that scenario playing out across crypto. It’s a volatile landscape with much less regulatory oversight. That's the potential future we're sleepwalking towards.

Debt amplifies everything. It, of course, magnifies losses when the market is declining. When the market inevitably corrects, it brings with it devastatingly amplified losses. Let's be honest, corrections in the crypto market aren't exactly gentle. They're often brutal, swift, and unforgiving.

Consider the players on the other side of these M&A transactions. The downside is, almost all of them are predicated on unproven business models. Without any actual intrinsic value, they depend on ongoing hype and speculation to generate profits. What happens when the hype fades? What goes on after the speculators have moved on to the next shiny object? The debt remains. And someone has to pay it back.

Is this fear-mongering? Maybe. But it’s just a common sense approach to understanding the risks.

  • Crypto Company A acquires Crypto Company B using a significant amount of debt.
  • The market turns bearish.
  • Both companies' revenues plummet.
  • They struggle to service their debt.
  • They're forced to sell off assets at fire-sale prices.
  • Token holders get wiped out.

The troubling thing is the lack of accountability, and that’s what scares me at the core. Who’s watching the average investor when these deals inevitably go bad? Who’s minding the store, making sure corporations are transparent about how much debt they’re taking on and their plans for repayment. The answer, unfortunately, is often no one.

Who's Accountable When The Music Stops?

While the data from the dashboard paints a compelling picture, it’s only half of the story. We need more transparency from companies. We need more scrutiny from regulators. Perhaps most importantly of all, we need more critical thinking from the investors.

Stop falling for the myth that debt financing of infrastructure is somehow a measure of success. Ask tough questions. Demand answers. And then, be ready to walk away if the answers aren’t to your taste.

This isn't about being anti-crypto. It's about being pro-responsible growth. It's about ensuring that the crypto market doesn't repeat the mistakes of the past. It’s not just about the bottom line today, it’s about safeguarding your investments today and creating a more sustainable future for the industry. We mustn’t let crypto debt be the stealthy crypto killer. We have to be cognizant of the stealthy crypto killer: debt. If we don’t, we might all pay— financially and otherwise.

… it’s time to stop punishing the public for misguided debt-fueled corporate decisions and start holding these companies accountable. The future of crypto depends on it.

It is time to start holding companies accountable for their debt-fueled decisions. The future of crypto depends on it.