Bitwise chief investment officer Matt Hougan has stated that digital asset treasuries (DATs) need to adopt more challenging strategies to differentiate themselves. Otherwise, investors might find greater value in investing in crypto exchange-traded funds (ETFs).
Hougan emphasized that a key indicator for evaluating a digital asset treasury is to assess whether it is undertaking difficult initiatives. He argued in an X post on Wednesday that simply acquiring a crypto asset and placing it on a balance sheet is no longer a complex task, as it once was. If this is the sole activity of a DAT, Hougan suggests that investors would be better served by owning an ETF, especially since ETFs now also offer staking capabilities.
Bitwise itself has introduced a variety of crypto-linked ETFs, including one for Solana (SOL) that incorporates staking services.
Key Differentiators for Digital Asset Treasuries
Hougan outlined several ways DATs can distinguish themselves. These include actively participating in the decentralized finance (DeFi) ecosystem through mechanisms like smart loans, and engaging in other income-generating strategies such as writing covered calls against their crypto holdings.
He acknowledged that these strategies are not universally beneficial and may not be executed successfully by all. However, he stressed that they are not simple endeavors, and effective implementation could lead to significant rewards.
Conversely, DATs that adopt a passive approach, merely buying and holding a crypto asset, will likely trade at a discount relative to the asset's actual value.
MicroStrategy: A Case Study in Strategic Treasury Management
Hougan highlighted Michael Saylor's Bitcoin-hoarding company, MicroStrategy, as an example of a DAT that is "doing something hard." MicroStrategy is considered a leading DAT and is by far the largest holder, with 641,205 Bitcoin (BTC), valued at over $66 billion.
Hougan explained that MicroStrategy's strategy involves issuing debt against its substantial Bitcoin holdings. He described the process of managing $56 billion in Bitcoin equity as complex and challenging, particularly when contrasted with the difficulty of raising equivalent equity capital to purchase Bitcoin within a traditional, debt-free corporate structure.
Furthermore, holding such a significant amount of Bitcoin equity enables MicroStrategy to engage in activities like selling convertible debt and preferred shares, which can facilitate further Bitcoin acquisitions. Under certain market conditions, these actions may allow the company to trade at a premium.
The Fleeting Nature of Stock Gains for Digital Asset Treasuries
The number of companies establishing crypto treasuries has seen a considerable increase this year. A Bitwise report from October indicated that 48 new companies added Bitcoin to their balance sheets, bringing the total to 207. Collectively, these entities hold over one million Bitcoin tokens, valued at more than $101 billion.
However, questions are being raised about whether some companies are adopting crypto as a public relations tactic to revitalize struggling balance sheets and boost stock prices. A report by CoinGecko published on Wednesday found that DATs initially experience a stock price surge within the first ten days of their pivot to crypto.
According to CoinGecko, these initial gains are often short-lived, as the majority of DAT stocks begin to decline in the days following their strategic shift.
Hougan concluded that ultimately, DATs are simply companies. He stated that strong companies are rewarded over time for successfully executing difficult tasks, while poorly performing companies or those that pursue simplistic routes to wealth will face consequences. He believes this principle will also apply within the realm of digital asset treasuries.