Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
In today’s “Crypto for Advisors” newsletter, Aaron Brogan by Brogan Law breaks down the history and business model of digital asset treasurers.
Then, in “Questions to an Expert”, DJ Windle from Windle Wealth answers the questions advisors need to know about crypto-treasury companies.
Digital Asset Treasurers: Separate the Hype from the Value for Advice
Digital asset treasury (DAT) companies offer public crypto exposure, but how much hype are you buying?
U treasure trove of digital assets (DAT) company is a new invention with a long history. They are public companies that pursue an explicit priority of acquiring digital assets. Back in 1989, Michael Saylor founded MicroStrategy (now Strategy) as a software business. It achieved some success and went public in 1998, only to implode spectacularly in 2000, losing over 99% of its market capitalization, and capturing a SEC Investigation.
Improbably, however, Strategy did not go bankrupt in 2000, and continues to offer obscure software and services today. The magic happened elsewhere, though. In 2020, the company began to buy bitcoin, and has not stopped.
At first, his approach seemed to be rabid evangelism. Saylor will buy bitcoin, go on TV and convince others to buy bitcoin, and this will increase the company’s investment. But over time, another phenomenon appeared. As Strategy bought more and more bitcoin, and the price of bitcoin climbed higher and higher, Strategy became more and more a box of bitcoins with a vestigial software company stapled on it. At this point, its share price and market capitalization should have converged to the price of bitcoin, but it has not. It is exchanged at a premium. When this happened, the promoters stirred from their hoards like Smaug, and the DAT was born.
This multiple of a DAT’s net asset value (NAV) and its market capitalization, known as its multiple of NAV (mNAV), creates a special type of power. If you can buy an asset for $1, and increase your market capitalization by $2, then you don’t have to do anything else. You can sell the equity, and really raise the debt, and put it to immediate direct productive use accreting shareholder value. While this relationship holds, it is, in essence, a money printer.
And as Strategy has developed this playbook over time, others have. They started to get the idea that maybe them could follow him and make his own DAT. Some used BTC, like Mara Holdings, Inc.but over time others have tried with other assets like Ether held by Bitmine Immersion Technologies, Inc.and Solana held by Forward Industries, Inc., as well.
Source: Galaxy Research
For the promoters of these projects, the value proposition is clear. The asymmetric increase in equity value, coupled with public trading, lead to rapid profits. BTC has always been very liquid, but for almost every other digital asset, creating a public sink to buy tokens presents the dazzling potential to increase asset values and provide exit liquidity in one fell swoop. This is a major reason why the meta has gained so much traction recently. It is good for bagholders.
But what about the buyers? Well, get access to a DAT backup at first its mNAV increase is good, as the company implements its strategy and, hopefully, gains value, equity holders can see gains. But for an ordinary buyer in the public markets, after a positive mNAV is established, the value proposition is speculative. You are buying a premium on the underlying asset, and that premium could easily disappear.
Historically, access to the Strategy was valuable for institutional advisors who were hesitant or legally unable to purchase bitcoin directly for their clients. They can keep the Strategy instead. But as old taboos fade, and regulatory disapproval with it, this proposal may lose its luster. At the same time, exchange-traded products (ETPs) that skip the step of packing a treasure in an operating company have been recently approvedmore diluting advantage of DAT.
There is also the regulatory question. Strategy is not a ’40 Act Fund because BTC is not a security, but it is not obvious that the same reasoning applies to DATs holding other assets. A future industry-friendly administration could try to exempt the operating company from which they rely. To the extent that DATs use leverage to acquire assets, future market volatility could lead to liquidations, increasing risk. Prizes, too, can be collapsing even now.
Chart: Strategy performance versus bitcoin (Source: strategtracker.com)
For advisors, understanding these different risk vectors is critical to advise clients on a DAT purchase strategy. The regulatory risk is unlikely to be significant in the current environment, but the collapse of the first could be, so understanding the mNAV of a DAT at the time of purchase is critical to assess its risk profile. Leverage, too, can increase the risk profile. Finally, DATs can change strategy more easily than a comparable ETP, and so monitoring the evolution in management is another important factor to consider.
– Aaron Brogan, founder and managing attorney, Brogan Law
Ask an expert
Q: What should advisors understand before clients start asking about digital asset treasury companies?
A: Advisors don’t need to master every nuance of on-chain finance, but they do need to understand what makes a digital asset treasury (DAT) company behave differently from a traditional stock. These companies hold large amounts of crypto on their balance sheets, and their stock prices often move with those assets rather than their business fundamentals.
When clients bring them, they really ask, “Is this a safe way to own crypto in my brokerage account?” The best preparation is to understand that DATs function as leveraged proxies for digital assets. They can trade well above (or below) the value of their holdings depending on market sentiment, leverage and liquidity. Being able to explain that dynamic clearly separates the education from the hype.
Q: How can advisors evaluate whether a DAT makes sense for a portfolio?
A: Start with what drives the stock. A DAT’s share price reflects not only the value of its cryptocurrency, but also investor sentiment, leverage and liquidity. Advisors should review three things:
- Treasury Mix: What assets are held and how transparent are they?
- Leverage: Did the company borrow to buy more crypto? If so, the volatility is magnified.
- Premium/Discount: Compare the company’s market capitalization with its current asset value. This gap is where most investors misjudge risk.
Advisors can then reframe the client’s enthusiasm around the fundamentals. Is the purpose of diversified exposure or speculation on a premium? This distinction determines whether a DAT belongs anywhere near the client’s portfolio.
Q: What should advisors be prepared to explain when clients compare DAT to spot ETFs?
A: This will be the most common question. The answer is that spot ETFs hold digital assets directly, trade close to net asset value, and operate under clear regulation. DATs, on the other hand, are companies that use corporate balance sheets to hold those same assets and sometimes use debt to do so.
This means that the potential may look exciting, but the risk profile is closer to a leveraged stock than an ETF. Advisors should prepare to discuss taxation, concentration risk, and how DATs might react differently from the underlying crypto. Helping clients see the difference turns a speculative stock into a teachable moment about structure, liquidity and risk tolerance.
– DJ Windle, founder and portfolio manager, Windle Wealth
Keep reading
- US federal bank SoFi turns on crypto trading for customers.
- Payment platform Square now allows its 4 million merchants to accept bitcoin payments.
- JPMorgan Chase launched JPM Coina digital deposit token for institutional clients.
