Nasdaq takes action! Regulatory upgrades for cryptocurrency concept stocks, new shares and buying coins require shareholder "approval"

Nasdaq is strengthening its scrutiny of listed companies that inflate stock prices by purchasing cryptocurrencies through financing.

On Thursday, media reports based on company documents and informed sources revealed that the exchange now requires some companies to obtain shareholder approval before issuing new shares to purchase cryptocurrencies.

This regulatory move could slow down the current cryptocurrency craze, which is pushing an increasing number of alternative tokens into the mainstream market. The vast majority of cryptocurrency concept stocks are traded on Nasdaq, and the exchange hopes companies will slow down before transforming into cryptocurrency stocks to ensure investors fully understand the associated risks.

Nasdaq's new requirements include procedures such as shareholder voting, and industry participants indicate this could delay transactions and bring uncertainty to the cryptocurrency frenzy in the stock market. If companies do not comply with the relevant regulations, Nasdaq has the right to delist or suspend trading.

Regulatory Tightening Affects Financing Pace

So far this year, 124 U.S. listed companies have announced plans to raise over $133 billion to purchase cryptocurrencies, according to data from cryptocurrency consulting firm Architect Partners, of which 94 stocks are listed on Nasdaq and only 17 are traded on the New York Stock Exchange.

Companies are racing to accumulate as many tokens as possible, trying to become the preferred stock for specific tokens, with their success largely depending on the speed of financing and issuing shares. This strategy works best in a rising cryptocurrency market, so any delays could cause companies to miss opportunity windows.

Nasdaq's strict scrutiny represents a balancing act—profiting from companies going public while also fulfilling regulatory responsibilities.

Dan Kahan, a partner at King & Spalding law firm, stated that by requiring shareholder approval, Nasdaq is essentially indicating that if you invest in Nasdaq companies, shareholders typically have a say before the company undergoes truly transformative ownership or operational changes.

Mimicking MicroStrategy Strategy Raises Risks

These companies are mimicking the strategy of MicroStrategy under Michael Saylor. This software manufacturer’s primary business currently is purchasing Bitcoin, having accumulated $71 billion worth of cryptocurrency over the past five years, becoming a hot stock.

Recently, companies have begun to turn to purchasing smaller, newer, and less liquid tokens, which may be more volatile or easier to manipulate in the market. Among the 124 cryptocurrency stocks tracked by Architect Partners, nearly half are purchasing these smaller tokens, including the World Liberty token associated with the Trump family. Critics argue that these transactions may be a way for token holders to sell tokens to immature stock market investors.

Heritage Distilling has become a typical case of the impact of Nasdaq's new regulations. This craft distillery listed on Nasdaq, which specializes in military-themed whiskey, plans to accumulate relatively new cryptocurrency IP, which is the native token of the Story blockchain. Heritage has raised funds from investors such as a16z Crypto and Polychain Capital, with part of the financing being in IP, which is the native token of the Story blockchain Heritage raised funds from investors such as a16zCrypto and Polychain Capital, with some of the financing conducted in the form of IP tokens.

Nasdaq informed Heritage that its plan requires shareholder approval. The company modified the transaction structure last month, offering investors prepaid warrants instead of shares, which investors can only exercise after Heritage obtains shareholder approval. Heritage stated in its securities filings that this move is to comply with Nasdaq listing rules and has scheduled a shareholder meeting for September 18.

Stephen Alicanti, a partner at DLA Piper, stated that this is a new and evolving topic over the past few weeks and months. Some companies have had to change their transaction structures after announcing deals. You must be very careful to comply with Nasdaq rules because if you encounter problems weeks after completing the transaction, you could find yourself in a bad situation that may require you to unwind the deal