A recent report discussed how Digital Asset Treasury (DAT) companies like BitMine and Strategy are sitting on billions of dollars in unrealized gains as Ethereum (ETH) and Bitcoin (BTC) lose crucial support levels.
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DATs face ‘increasing scrutiny’
On Thursday, crypto insights firm 10x Research said reported that the largest Ethereum Treasury company, BitMine Immersion Technologies, has a multi-billion dollar paper loss following the ongoing market correction, which has sent ETH to multi-month lows.
“Bitmine is now down over $1,000 per ETH, implying approximately $3.7 billion in unrealized losses before even taking into account the hefty NAV [net asset value] premium investors in the public market paid on top of that,” the report points out.
10x Research believes that treasury companies will struggle to attract new private investors in the current market environment, where existing shareholders are suffering billions of dollars in losses.
If the NAV rises, the ‘old’ shareholders benefit; if it falls, the damage increases, which dynamic DAT investors often underestimate. When the premium inevitably falls to zero, as is now the case, investors become trapped in the structure and cannot get out without significant damage, a veritable Hotel California scenario.
Unlike Exchange-Traded Funds (ETFs), Digital Asset Treasuries “layer on complex, opaque and often hedge fund-like fee structures that can quietly erode returns,” the report added, noting that many investors are unaware that the fees embedded in DATs “far exceed” the management fee that asset managers like BlackRock charge for their Bitcoin (BTC) and ETH ETFs.
Furthermore, 10x Research argued that with BlackRock’s possible introduction of an Ethereum ETF, “the economics of DATs are likely to come under increasing scrutiny” as retail investors turn to a cheap source of returns.
BitMine continues to rely on Ethereum
Despite DAT challenges and ETH’s price action, BitMine has continued to bet on the King of Altcoins. According to Lookonchain factsbought a new wallet believed to be linked to the Ethereum-focused treasury Tuesday evening for 21,054 ETH, worth about $66.57 million at the time.
In his November chairman’s message, Thomas ‘Tom’ Lee noted that crypto market prices have not yet recovered from the October 10 liquidation, and that “the continued weakness has the hallmarks of a market maker (or two) suffering from a crippled balance sheet.”
BitMine does not believe that crypto prices have peaked for this cycle, he added, suggesting that “a top of the crypto cycle is likely to occur in 12 to 36 months.” On the contrary, Lee told CNBC News on Monday that the market is “pretty close” to bottoming this week.
Crypto suffered from the liquidation event on October 10, but since the fundamental story is intact and crypto discounts the future, it is therefore volatile, but it still looks quite attractive here.
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Notably, ETH has lost the $3,000 support for the first time since July, and the $2,800 area was retested on Thursday morning. However, Lee has confirmed that “Ethereum is undervalued because, first, the story is gaining against Bitcoin this year. But second, we get this kind of intrinsic bottom because of the value the assets have locked up on the Ethereum blockchain.”
At the time of writing, Ethereum is trading at $2,840, down 29% in the monthly time frame.
Featured image from Unsplash.com, chart from TradingView.com
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