According to an analysis by law firm DLA Piper, there were at least 200 digital asset treasury or DAT companies – mainly focused on bitcoin – with a combined capitalization of about $150 billion in September, more than three times as many as a year earlier.More companies are emerging every day, including many penny stocks looking for ways to increase profits. But as Bitcoin falls, they’re turning to esoteric, more volatile tokens in an effort to boost returns, according to a Reuters analysis of more than three dozen company announcements.
RISKS FOR INVESTORS?
For example, in recent weeks, Greenlane, OceanPal, and Tharimmune have announced plans to stock BERA, NEAR, and Canton Coin, respectively.
The trend illustrates how the often volatile and speculative world of cryptocurrencies is becoming increasingly intertwined with traditional markets, posing potential dangers for investors.
“DATs are expanding into more exotic and less liquid cryptocurrencies, and that’s exactly where the risk could be much greater,” said Cristiano Ventricelli, vice president and senior analyst of digital assets at Moody’s Ratings.
“When markets fall, there is more pressure on the equity of these companies,” Ventricelli added.
A VOLATILITY PINELINE
Since April, many DATs have funded token purchases through private placements or PIPEs – where shares are sold directly to private investors – usually at a discount.At least 40 DATs collectively raised more than $15 billion through PIPEs between April and November, with only five focused on Bitcoin, the Reuters analysis showed. Bitcoin posted a monthly loss in October for the first time since 2018.
Heavy crypto investors in these deals include Winklevoss Capital, Galaxy Digital, Jump Crypto, Pantera Capital, Kraken and DWF Labs, public records show.
While some institutional investors may purchase tokens directly, DATs offer the opportunity to leverage returns and allow more cautious investors to gain exposure to cryptocurrencies through regulated public companies.
PIPEs allow companies to quickly access cash, but shareholder dilution and the potential resale of shares when lock-up periods end often cause share price volatility. And because many DAT companies are so dependent on PIPEs, they are particularly vulnerable when markets fall, analysts say.
That became clear on October 10, when markets collapsed due to renewed tariff tension between the US and China. BitMine, which stores ether, fell more than 11% and Forward Industries, which invests in Solana, fell more than 15%. The strategy, which has financed purchases through other means, fell almost 5%.
“The hype has waned since DATs first hit the market. But I think it could come back,” said Peter Chung, head of research at crypto-focused Presto Research.
An OceanPal spokesperson said the NEAR purchases provided shareholders with a way to benefit from the token’s integrated AI capabilities. Greenlane declined to comment.
Strategy, BitMine, Tharimmune, Winklevoss Capital, Galaxy Digital, Jump Crypto, Pantera Capital, Kraken and DWF Labs did not immediately respond to requests for comment.
TRADE BELOW NET VALUE
Many DAT companies traded at a premium to their crypto holdings earlier this year as investors believed they could use their access to credit to buy more tokens.
But as Bitcoin has fallen in value and Strategy copycats have flooded the market, some are faltering. At least 15 bitcoin treasury companies were trading below the intrinsic value of their tokens as of Friday, according to data from crypto publication The Block.
Retail investors, who are big buyers of Strategy and other high-profile bitcoin DATs, lost about $17 billion on these trades, Singaporean firm 10x Research estimated last month, Bloomberg reported.
Some DATs targeting other major coins are also under pressure. ETHZilla and Forward Industries recently approved share buybacks, a move typically aimed at boosting share prices.
“I think most of these digital asset treasuries will end up trading at a discount to the digital asset,” said Michael O’Rourke, chief market strategist at JonesTrading.
‘ABSOLUTELY DECIMATED’
DAT companies own 4% of all bitcoin, 3.1% of all ether and 0.8% of all solana, meaning their fortunes could have a major impact on coin prices, Standard Chartered analysts wrote in a September note, adding that they expected consolidation in the space.
Kyle Samani, chairman of Forward Industries, said in a statement that the company’s buyback “provides flexibility to return capital to shareholders when we believe our shares are trading below intrinsic value.”
He and other DAT executives say their success will be rooted in their ability to make smart investment decisions.
“You’re betting that the management team is going to do interesting things, and that’s what we’re trying to do,” Samani, who is also co-founder of Multicoin Capital, which invested in Forward Industries’ September PIPE, said in an interview.
A spokesperson for ETHZilla said the company is opportunistically buying back shares while the stock is trading below net asset value, and that while it holds a lot of ether, it is primarily focused on putting traditional assets on the blockchain.
Similarly, other DAT companies are looking for new ways to increase shareholder value. SUI Group, which stores Sui, recently launched its own stablecoins, chairman Marius Barnett said.
If a DAT just sits back and only buys tokens, “you will be absolutely decimated in the long run,” he added.
#Crypto #treasury #firms #targeting #marginal #tokens #fueling #fears #volatility