Digital asset treasuries (DATs) emerged in 2020 with a foundational strategy centered on buying and holding Bitcoin (BTC). This initial approach has led to the creation of treasuries with market capitalizations exceeding $80 billion.
Following this trend, numerous companies began adopting a similar buy-and-hold strategy. These new DATs often raise substantial capital to acquire their chosen digital assets before merging with publicly traded companies, thereby offering investors exposure to cryptocurrency through stock ownership.
However, the market has experienced significant shifts. In certain economic conditions, a pure buy-and-hold strategy can fall short of shareholder expectations. More critically, these efforts miss a significant opportunity for DATs to act as a crucial source of patient capital, which the cryptocurrency ecosystem urgently needs.
Doing Nothing With Crypto on the Balance Sheet is Not a Strategy
The success of Bitcoin accumulation models, exemplified by Strategy's approach, spurred the launch of many DATs. Unfortunately, these entities often failed to replicate the capital market strategy and merely held onto their assets. This passive approach exposes companies to foreign exchange and management risks, rather than building a strategy to generate a return on investment (ROI) for shareholders.
DATs should not base their future solely on the assumption that Bitcoin and other cryptocurrency prices will perpetually increase. This is not treasury management; it is leveraged speculation. Such a stance leaves these companies vulnerable to market downturns and potential regulatory classification as investment companies, which could introduce compliance and classification risks in various jurisdictions.
Meanwhile, their cryptocurrency holdings remain idle, contributing nothing to enhance liquidity, stability, or adoption within the broader ecosystem. None of these DATs are actively deploying capital back into the ecosystem or the technologies that sustain their assets. They are not supporting Bitcoin's financial infrastructure, improving Lightning liquidity, or funding development that strengthens the network.
There is no inherent value in corporate holding of assets for its own sake. While individuals can pursue such strategies, a company must possess a defined strategy that benefits both its investors and the community upon which it depends.
The DAT 2.0 Approach Leverages Crypto to Support the Ecosystem
Instead of relying on the prospect of ever-increasing crypto prices, a more effective DAT strategy involves leveraging crypto into initiatives and companies that enhance and safeguard the ecosystem. For Bitcoin, this would entail investing in infrastructure related to mining, custody, payments, lending, and liquidity that directly supports the Bitcoin ecosystem.
Rather than depending on a continuous rise in Bitcoin's price, DATs 2.0 will diversify their investments across projects that contribute to the sustained growth and longevity of the Bitcoin network. This, in turn, makes a price increase more probable. It is important to remember that, at its core, Bitcoin is a proof-of-work system.
This positions DATs 2.0 to fulfill a role analogous to that which banks have served in traditional finance for 140 years: acting as a foundational source of patient capital.
DATs Can Become the Source of Slow Capital
Traditional finance relies on trillions of dollars in patient, permanent capital that underpins major institutions like Chase, JPMorgan, and Goldman Sachs, which are pillars of the economy. If cryptocurrency is to evolve beyond an alternative asset class, it also requires patient, slow capital at its core to support the entire ecosystem. DATs present this opportunity, distinct from venture capital or hedge funds.
Venture capitalists and hedge funds are ill-suited for this crucial role for several reasons. A hedge fund must achieve a 10-15% ROI to retain its investors. Venture capital, even with the longest investment horizons, typically requires a five-year public equity event for capital realization. Retail investors are not typically motivated by low-risk, low-yield opportunities; it falls outside their investment objectives. This represents a fourth type of capital that has not yet been prominent in the cryptocurrency space.
DATs 2.0 could function more like long-term ecosystem financiers, deploying investment capital to support the broader ecosystems of cryptocurrencies that DATs 1.0 previously only acquired and held.
This presents a potential long-term strategy for DATs and the broader crypto ecosystem.