Until recently, these companies had significant losses and floundering stock prices in common. Now they are joining a legion of publicly traded companies that are helping to drive one of the biggest trends in the markets and the crypto industry.
So far this year, billions of dollars have flowed into companies that have reinvented themselves by making buying and holding cryptocurrency their main focus. More than 200 publicly traded companies have announced plans to hold cryptocurrencies on their balance sheets as so-called “digital asset treasury companies,” or DATs.The rebranding into crypto companies came after years of losses in a variety of niche businesses, including making lavender-flavored vodka, manufacturing materials for indoor marijuana growers and selling ozone-infused water as part of a “nanobubble” cleaning technology.The trend has attracted a wide range of people, from obscure to more well-known investors.
“We’re going to change the financial industry forever, it’s that simple,” President Donald Trump’s son Eric Trump said in August at a Nasdaq opening ceremony for a new DAT focused on a cryptocurrency founded by the Trump family. “It is a great milestone for our country.” But how transformative the DAT craze will be remains to be seen, as questions arise about the sustainability of this trend. Many new DATs have seen long-term declines in share prices after an initial rise. “We’re probably past the peak of DAT, if we’re honest about it,” says Austin Campbell, the founder of Zero Knowledge Consulting and an adjunct professor at New York University’s Stern School of Business.
How DATs work
Publicly traded companies are turning themselves into DATs by raising money through the sale of shares and then using that money to buy types of crypto. The money is often raised from private investors, sometimes with ties to the type of cryptocurrency the new DAT will store.
In 2020, technology company MicroStrategy became the first DAT when it started collecting bitcoin, the world’s oldest and most popular cryptocurrency. Under the leadership of ultra-bitcoin evangelist Michael Saylor, the company’s share price was one of the best performers in the past five years.
The success of MicroStrategy, which has been renamed Strategy, has spawned dozens of imitators. The first wave of crypto treasury companies focused on bitcoin, while recently companies have started buying large stakes in more niche and unproven forms of cryptocurrency.
One of the reasons DATs are so popular is that buying and managing crypto assets – especially newer tokens – can be challenging for newcomers.
SY Lee, founder of the crypto project Story, said even sophisticated investors are hesitant to manage digital wallets. DATs make the process as simple as buying a stock.
“Here you just go into your trading account… you just buy the shares,” Lee said in an interview with CoinDesk.
His crypto company, which focuses on monetizing intellectual property, is backed by powerful venture capital fund a16z crypto. Story recently teamed up with Heritage Distilling, a Washington-based maker of chocolate-flavored whiskey and lavender vodka, to form a new DAT.
For struggling businesses, becoming a DAT is a way to reinvent their brand and capitalize on a growing cryptocurrency market while attracting new capital.
It could also mean big payouts for some business executives and other stakeholders. Mill City Ventures, a company that developed an online poker game and offered high-interest loans before becoming a DAT focused on the cryptocurrency Sui, has agreed to pay at least $1 million a year in fees to a company that manages its crypto.
Multiple pivot points
Justin Sun is one of the most visible figures in crypto. The founder of the Tron blockchain, Sun, is a billionaire who has been a major investor in Trump family crypto projects and was invited to dinner with the president earlier this year.
Sun has also been in legal battles with former employees who alleged abuse, media mogul David Geffen, who alleged Sun committed fraud related to the sale of an expensive sculpture, and the Securities and Exchange Commission, which accused him of market manipulation and improperly paying celebrities like Lindsay Lohan and Jake Paul to promote Sun’s crypto.
That case was put on hold shortly after Trump took office and Sun made a triumphant appearance on Wall Street in July when he wore a tuxedo to help ring Nasdaq’s opening bell for a new Tron-focused DAT.
The company that turned to Sun’s cryptocurrency for its treasury is SRM Entertainment, a company with a history of losses that sells theme park trinkets. Company CEO Richard Miller has had a winding path to becoming a top executive at a crypto-focused company. He cut his teeth as a broker at Stratton Oakmont, a notorious boiler room brokerage from “The Wolf of Wall Street,” where he once agreed to pay $125,000 to settle customer complaints of misconduct, according to regulatory filings.
Miller later entered the skin care industry. A company that had previously acquired SRM Entertainment and which he helped exploit sunscreens that claimed to also repel sharks and jellyfish.
In the days after the company announced it was switching to a Tron-focused DAT, Miller exercised stock options that allowed him to buy shares for 56 cents each and then sell them just as the shares peaked above $10. Miller’s total stock sales totaled more than $1 million. The share price has fallen significantly since then.
SRM Entertainment was previously spun off from a company that also recently became a DAT. Safety Shot, which markets a drink that claims to reduce blood alcohol levels by as much as 50% in 30 minutes, had a varied history before becoming a DAT that earlier this year targeted a dog-themed meme coin cryptocurrency called Bonk.
Safety Shot and its predecessors’ product history include health products intended to address herpes cold sores, hair loss and “women’s sexual well-being.” The company has been accused of taking unethical steps to boost falling stock prices.
Organizers of the Coachella Valley Music and Arts Festival sued the company last year after claiming it issued a “fake press release” showing it was a festival sponsor. A judge later issued an injunction against Safety Shot.
The DAT linked to the Trump family has had a turbulent history
Alt5 Sigma was a little-known fintech company before it pledged in August to buy $1.5 billion worth of World Liberty Financial tokens from the Trump family.
The company, which previously operated a recycling business for household appliances and developed painkillers, has had a troubled history. Its predecessor, JanOne, was indicted by the SEC in 2021 for allegedly conspiring to file false financial reports. JanOne settled without admitting wrongdoing. The SEC continues to prosecute a case against former CEO Jon Isaac, whose father is now president of Alt5.
Alt5’s Canadian subsidiary was recently convicted of money laundering in Rwanda, and the company has also been accused of conspiring with its former chief financial officer to hide shares from creditors, SEC filings show. Alt5 has denied any wrongdoing.
Eric Trump was initially set to join Alt5’s board of directors, but the company said he would instead be an “observer” to “comply with Nasdaq’s listing rules.”
History repeats itself?
The DAT craze is not the first time that listed companies have made a hard move into crypto. During a crypto boom in 2017 and 2018, several companies rebranded as companies focused on blockchains, the technology that makes crypto transactions possible.
Photo company Kodak launched a crypto token called KodakCoin, while a company called Long Island Iced Tea rebranded as Long Blockchain Corp. Several companies undergoing crypto rebrands at the time enjoyed brief increases in their stock prices but did not find lasting success.
For example, the Long Island tea company’s move into crypto led to its delisting from the Nasdaq and several people being accused of insider trading. For companies that have recently turned to crypto, the SEC’s plans to make it easier to launch exchange-traded funds that focus on niche forms of crypto could spell trouble.
But Jason Rozovsky, head of policy at crypto firm Axelar, said the SEC’s move is not “necessarily bad news.”
“Investor interest in bitcoin DATs has continued to grow even as ETFs and other compliant options have become available, suggesting that these structures can remain a sustainable part of the market.”
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