Nasdaq takes action! Regulation of crypto-related stocks upgraded—shareholder approval required for issuing new shares to buy crypto.

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Nasdaq is stepping up its scrutiny of listed companies boosting their stock prices by raising funds to buy cryptocurrencies.

On Thursday, according to media reports based on company documents and sources, 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 frenzy, which is pushing more and more alternative tokens into the mainstream market. The vast majority of crypto concept stocks are traded on Nasdaq, and the exchange wants companies to slow down before transforming into crypto stocks to ensure investors fully understand the associated risks.

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

Stricter Regulation 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 crypto advisory firm Architect Partners, of which 94 stocks are listed on Nasdaq and only 17 traded on the New York Stock Exchange.

Companies are scrambling to accumulate as many tokens as possible, seeking to become the preferred stock for specific tokens. Their success largely depends on the speed of financing and share issuance. This strategy works best in a rising crypto market, so any delay could cause companies to miss their window of opportunity.

Nasdaq's stringent review represents a balancing act—profiting from company listings while fulfilling regulatory responsibilities.

Dan Kahan, partner at King & Spalding, said that through the shareholder approval requirement, Nasdaq is essentially indicating that if you invest in a Nasdaq company, shareholders generally have a say before the company undergoes truly transformative ownership or operational changes.

Imitating MicroStrategy's Strategy Raises Risks

These companies are imitating the strategy of Michael Saylor's MicroStrategy. This software maker's main business is now buying bitcoin, having accumulated $71 billion worth of cryptocurrency over the past five years, making it a hot stock.

Recently, companies have started turning to buying smaller, newer, and less liquid tokens, which may be more volatile or easier to manipulate. Of the 124 crypto stocks tracked by Architect Partners, nearly half are buying these smaller tokens, including the Trump family's World Liberty token. Critics argue that these transactions may be a way for token holders to sell to inexperienced stock market investors.

Heritage Distilling serves as a typical example of Nasdaq's new rules' impact. This craft distillery listed on Nasdaq, mainly producing military-themed whiskey, plans to accumulate a relatively new crypto token, IP, the native token of the Story blockchain. Heritage raised funds from investors such as a16z Crypto and Polychain Capital, with part of the financing in the form of IP, the native token of the Story blockchain. Heritage raised funds from investors such as a16z Crypto and Polychain Capital, with part of the financing in the form of IP tokens.

Nasdaq informed Heritage that its plan requires shareholder approval. Last month, the company changed its transaction structure, offering investors prepaid warrants rather than shares; investors can only exercise these warrants after Heritage obtains shareholder approval. Heritage stated in securities filings that this move is to comply with Nasdaq listing rules and has scheduled a shareholder meeting for September 18.

Stephen Alicanti, partner at DLA Piper, stated that this is a new and continuously evolving topic in recent weeks and months. Some companies have had to change their deal structures after announcing transactions. You must be very careful to comply with Nasdaq rules, because if you run into problems a few weeks after completing the transaction, you may end up in a bad situation where you might need to unwind the deal.

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