The true test of the swift growth of cryptocurrency treasury firms may come shortly.
Galaxy Digital warns of consolidation and closures
Galaxy Digital cautioned in its annual report that as market conditions tighten, five or more Digital Asset Treasury businesses (DATs) may soon have to sell assets, combine with bigger firms, or close their doors completely. According to the report, companies who jumped into cryptocurrency markets without having sound long-term plans are facing increasing pressure.
Earlier this year, as cryptocurrency prices rose and financing became more accessible, digital asset treasuries—publicly traded firms that include assets like Bitcoin or Ethereum on their balance sheets—rose dramatically. However, that enthusiasm is quickly waning.
mNAV drops below important levels
Galaxy brought attention to a significant change in market-to-net asset value (mNAV), a crucial indicator that contrasts the market value of a business with the value of its cryptocurrency holdings. Many DATs with a concentration on Bitcoin, Ethereum, and Solana are currently selling at mNAVs below 1, indicating that investors place a lower value on these businesses than its underlying assets.
“The next phase will separate durable DATs from those without clear plans or asset management capabilities, following the rush of enterprises across disparate business lines transforming into DATs to capitalize on market financing conditions,” stated Jianing Wu of Galaxy.
Issuing new shares becomes dilutive whenever mNAV drops below 1, which restricts a company’s capacity to raise money and increase its cryptocurrency holdings.
Reality faces a congested trade
Bullish markets and more lenient U.S. regulations drove the DAT boom, even as investors had easier access to cryptocurrency through ETFs. Using methods like stock issuance and staking strategies, many DATs sought to beat spot cryptocurrency prices. However, such models are under pressure as prices drop.
Analysts at Macquarie cautioned that the sustainability of an equity premium to NAV is crucial to DATCOs’ success. “The model faces serious difficulties if this premium erodes or turns to a discount.” The strongest might be the only ones to survive.
Who may survive the downturn
According to Galaxy, companies like Strategy and Japan-based Metaplanet that have size, solid financial structures, and liquidity planning may be able to weather the slump. Others might not, particularly those that arrive late and do not have a clear plan.
DATs currently account for less than 1% of the entire cryptocurrency market. Galaxy’s message is unambiguous, though: the easy part of the cryptocurrency treasury trade is finished, and discipline—rather than hype—will be the focus of the next phase.
Frequently asked questions
Digital Asset Treasury Companies (DATs): What are they?
DATs are publicly traded companies that own cryptocurrencies like Ethereum or Bitcoin in order to increase their assets and generate profits through staking or trading.
Why are DATs currently under pressure?
DATs find it difficult to raise money or increase holdings when cryptocurrency prices decline and market-to-net asset valuations dip below 1.
Why is the DAT boom waning and how did it begin?
Rising cryptocurrency prices, simple financing, and optimistic emotion drove the boom, which is now waning as a result of strategy gaps and market falls.
In the current market, what dangers are associated with DATs for investors?
If a DAT’s cryptocurrency holdings drop or the business has trouble raising capital, investors can suffer losses. Reduced confidence and limited liquidity can result from a declining market-to-net asset value.
