Bitwise Chief Investment Officer Matt Hougan stated that if digital asset treasuries (DATs) want to stand out, they must take the difficult path; otherwise, retail investors are better off investing in ETFs. Hougan believes that Strategy is “doing a hard thing,” holding 641,205 BTC worth over $66 billion, but continuing to expand through complex debt and equity structures.
What is DAT? Simply holding coins is no longer competitive
Digital Asset Treasury (DAT) refers to companies that include cryptocurrencies on their balance sheets as reserve assets. This year, the number of DATs has exploded. A October report from Bitwise tracked 48 companies adding Bitcoin to their balance sheets, bringing the total to 207, with over 1 million tokens held collectively, valued at more than $101 billion.
Hougan posted on X (formerly Twitter) on Wednesday, saying one of the best ways to judge whether a DAT is worth paying attention to is to ask yourself: “Are they doing something challenging?” This question hits at the core dilemma of the DAT industry. “Today, buying crypto assets and listing them on the balance sheet isn’t hard. It used to be difficult, but now it’s not. If a DAT’s only function is this, then you might as well just hold an ETF. Even if they stake the assets, the situation is similar, because ETFs now also have staking features,” he said.
Bitwise has launched a series of crypto-linked ETFs, including a Solana ETF that offers staking. Hougan’s argument is based on simple logic: if a DAT is just buying and holding cryptocurrencies, its value proposition is no different from an ETF — and might even be worse. ETFs offer higher liquidity, lower management fees, more transparency, and simpler tax treatment. Why should investors take on the additional company-level risk to indirectly hold crypto?
This critique is especially sharp given the wave of approvals for crypto ETFs. The launch of Bitcoin spot ETFs in 2024 has changed the game, allowing investors to gain direct Bitcoin exposure through traditional brokerage accounts without worrying about self-custody security risks or individual company operational risks. In this environment, DATs must prove they can deliver additional value that ETFs cannot.
Three major strategies for DATs to stand out
Hougan suggests DATs can differentiate themselves by engaging in activities like DeFi lending, liquidity mining, and decentralized lending protocols, as well as other revenue-generating strategies such as collateralized options trading on cryptocurrencies. “These ideas may not all be good or feasible for everyone. But they are not irrelevant — if done well, they can generate returns,” he said.
Three challenges in creating value with DATs
DeFi Ecosystem Participation: Generating income through smart loans, liquidity mining, and decentralized lending protocols, which requires deep technical expertise and risk management skills.
Derivatives Strategies: Using options trading on held cryptocurrencies to collect premiums during sideways or slow markets, increasing additional income.
Innovative Leverage Structures: Amplifying holdings via complex financial instruments like convertible bonds and preferred stock, allowing increased crypto exposure without diluting equity.
These strategies share common traits of complexity and risk. Participating in DeFi demands understanding smart contract risks, impermanent loss, and protocol governance. Options trading requires deep knowledge of options pricing, volatility, and market timing. Leveraged structures involve debt management, convertible terms, and capital market operations. These are “hard things” that not every company has the capacity or willingness to undertake.
“By contrast, those that take the lazy route—simply buying and holding crypto assets—will find their trading prices below the net asset value (NAV) of their holdings,” Hougan predicted. This forecast is being validated by the market. Many simple “hodl” DAT stocks trade at discounts to their crypto NAV, reflecting investor skepticism about their ability to generate additional value.
Case Study: Doing the hard thing — Strategy
(Source: StrategyTracker)
Hougan believes Michael Saylor’s Bitcoin accumulation company, Strategy, is “doing a hard thing.” Strategy is the flagship DAT and the largest Bitcoin holder to date, with 641,205 BTC worth over $66 billion.
“Strategy holds $64 billion worth of Bitcoin, with only $8 billion in debt, and it’s issuing bonds collateralized by these holdings. Holding $56 billion worth of Bitcoin equity is no easy feat. Imagine raising $56 billion in equity capital through the corporate structure to buy Bitcoin, without taking on any debt — that’s not easy,” he said.
Strategy’s “hard thing” lies in its complex capital structure. The company not only raises funds through equity to buy Bitcoin but also issues convertible bonds and preferred shares. Convertible bonds allow investors to convert debt into stock under certain conditions, meaning if Bitcoin prices surge, bondholders can share in the gains. Preferred shares offer fixed dividends but usually lack voting rights.
“If you hold $56 billion worth of Bitcoin equity, you can sell convertible bonds and preferred shares to buy more Bitcoin. In certain market conditions, this allows for premium transactions,” he explained. This leverage strategy is highly effective in a bull market. When Bitcoin prices rise, Strategy’s stock often outperforms due to amplified gains from leverage. This premium trading enables the company to issue new shares to buy more Bitcoin, with less dilution relative to the increase in Bitcoin holdings.
However, this approach carries significant risks. If Bitcoin prices fall sharply, leverage magnifies losses, potentially leading to default or forced asset sales. Strategy’s success depends on a sustained bull market and market recognition of its premium. If market sentiment shifts, this complex structure could quickly unravel.
The harsh reality of short-term stock surges in DATs
However, critics argue that companies turning to crypto might be just PR stunts to rescue fragile balance sheets and boost stock prices. CoinGecko’s report on Wednesday showed that DAT tokens often experience a surge in price within the first 10 days after listing.
But CoinGecko notes that this rise is usually short-lived, with most DAT stocks beginning to plummet within days of the initial hype. This reveals a harsh reality of the DAT industry: the market’s initial excitement is often driven by the allure of the “crypto narrative,” not by actual fundamental improvements in the company.
This pattern resembles “meme stocks.” When a company announces a Bitcoin strategy, crypto communities and speculators flood in, pushing the stock price higher. But once the hype subsides, investors reassess the company’s ability to create real value, often leading to declines below pre-announcement levels.
CoinGecko’s data shows that among tracked DAT companies, most initial gains of 10-50% after announcing crypto strategies fade within 30-60 days, with about 70% of stocks falling back to or below pre-announcement levels. Only a few companies executing complex strategies and consistently increasing holdings (like Strategy) can sustain premiums.
“Ultimately, DATs are just companies. Good companies are rewarded for doing the hard things well over the long term. Poorly managed companies or those trying to cut corners to get rich quick will be punished. The same applies in the DAT space,” Hougan concluded, emphasizing the core principle for investing in DATs: don’t be fooled by the crypto narrative; evaluate management’s execution, capital allocation, and strategies for creating real value.
For investors, Hougan’s advice is clear: if you just want crypto exposure, buying ETFs is simpler, more transparent, and cheaper. Only when DATs can prove they are “doing the hard things” and doing them well should investors consider taking on the additional company-level risks.
