For a period, accumulating cryptocurrencies proved a surefire method for relatively unknown companies to significantly boost their share prices. Currently, this strategy has largely transformed into a liability. Over the past year, the largest digital asset treasuries (DATs) have experienced a median decline of 62 per cent, surpassing even the substantial falls observed in Bitcoin. Consequently, a considerable proportion of DATs are trading at a discount relative to the underlying value of their cryptocurrency holdings, suggesting that shareholders might benefit more from company liquidation.
This situation marks a stark contrast to the peak of the DAT phenomenon, when companies holding, for instance, $US100 million in Bitcoin could command valuations of $US150 million or $US200 million on the stock market. Even Strategy, a company which pioneered the DAT strategy, has seen its share price affected as the excitement around DATs faded in tandem with cryptocurrency prices. Currently, it trades at a premium of 9 per cent relative to its Bitcoin holdings, a significant drop from its peak of over 300 per cent.
Michael Lebowitz, a portfolio manager at RIA Advisers, noted the cyclical nature of speculative bubbles since 2020, including meme stocks, tokens, and SPACs. He identified digital asset treasury companies as another instance of such a bubble, with the premium collapsing. The challenge for DATs is that Bitcoin doesn’t generate yield. Companies with weakening share prices and looming debt obligations now find themselves compelled to sell their crypto assets to generate income – a scenario previously considered improbable.
Lebowitz stated that he wasn’t surprised by the steep decline in the price and premium for DATs. He suggests that investors wanting to own Bitcoin should simply invest in Bitcoin directly, a realisation that he believes investors have started to grasp. Essentially, he thinks the appeal of holding Bitcoin indirectly through these companies has diminished as the cryptocurrency market has matured.
