Through 2025, Digital Asset Treasuries (DATs) have garnered a lot of attention.
This was a business model fostered by Michael Saylor and Microstrategy. The idea was to use debt and equity sales to purchase Bitcoin (in this case) and ride the wave of value higher. As the Bitcoin increased in price, the assets "backing" the company grew. It allowed for the issuing of more debt (or dilute the shareholders through equity sales).
People investing in these companies were willing to undergo the latter. The reason why dilution was embraced is the net impact on the balance sheet, of a rising asset, meant more value.
When the bull is running all is well.
The question was always what happens during market downturns. Crypto assets are known for their large pullbacks. A 50% move down on Bitcoin is not a rarity. It happened on a number of occasions over its lifetime.
We saw a move south over the last two months. The crypto markets were torched. Because of this DATs are falling out of favor.
Does this mean they are dead?
Here is where we get opinions on both sides of the discussion. There are some who believed, from the start, that it was an unsustainable model. Others feel that some, at least larger entities, will be able to weather the storm through the issuance of more debt. Naturally, this conjures up the image of a Ponzi scheme.
At the core of this issue, in my view, is the idea of revenues. It appears to be something that is not discussed by most. Debt and equity are the two paths pushed forth. There is a reason for this.
If we look at most of these companies, they are generating a profit. There are no revenues to speak of in most instances. Even in the case of Saylor, who had a company for decades, the core operations are losing money.
Many of the others do not even have revenue streams.
This only adds to the risk, something many believe only adds to the uncertainty surrounding crypto.
Market downturns get everyone on edge. As the markets settle down, whenever that might be, will the uncertainty around DATs diminish?
This is a grand experiment. Like most things of this nature, there are going to be failures. Does that mean the entire concept is dead?
My guess is DATs are here to stay. That said, we could see some major implosions over the next year or so. Would something like StrategyB be at risk?
The question comes down to the risk appetite for investors. There are so many major players involved that it is likely they will keep funding it through any downturn. But what about smaller entities?
Here is where some could crash out. They might lack the ability to keep accessing the financial markets for capital. If there is no profitability, calls could come in. Hence, they could ultimately be liquidated.
Is there excess? It appears to be that way. Not only is there a massive expansion of Bitcoin DATs but other assets are being used.
Ironically, the latter might fare better. Since they are a bit unique, at least for the moment, they might find a niche audience. Investors might keep finding some tied to SOL or BNB since those are popular with certain groups of people.
DATs are a leverage play on the underlying asset. This is crucial. On the run up, it will outperform. Hence, MSTR has offered a larger return than $BTC over the last 5 years.
However, when things go the other way, the losses outpace the asset. We are witnessing this right now.
My conclusion is the concept will survive although many of the individual entities will not.
