Why are most treasury DATs trading at a discount?

Written by: Matt Hougan, Chief Investment Officer of Bitwise

Compiled by: Peggy, BlockBeats

Editor’s note: The Digital Asset Trust Company (DAT) was once seen as a “moat” in the crypto market, but as Bitcoin fell back to the $80,000 range, the flywheel effect has stalled, and the market has entered a correction period.

Recently, there has been frequent debate in the market regarding the DAT model. Supporters believe that DAT is a bridge connecting crypto and TradFi, which can promote ecosystem development. Leading companies like MSTR still maintain a near 1.03 mNAV, proving that quality players possess resilience and are expected to achieve premiums through strategies such as debt, lending, and derivatives.

Opponents warn that DAT is essentially leveraged speculation, which can easily fall into a “death spiral” during bear markets. The VC model exacerbates selling pressure, and altcoins like DAT concentrate risks. Regulatory uncertainties (MSCI removal, Hong Kong Stock Exchange rejecting transformation plans) further amplify discounts, leading to increased market differentiation, with long-tail DATs averaging a drop of over 70%.

On November 21, crypto analyst Taiki had a direct confrontation with Kyle Samani, co-founder of Multicoin Capital, on the X platform regarding whether “DAT will sell spot assets to buy back shares.”

Taiki Maeda's highly interactive post points out: “DAT turns decentralized pure assets into a VC bundling scam, bringing sell-off pressure.” This viewpoint reinforces the narrative of “death spiral” and “centralization risk,” particularly impacting the altcoin DAT more severely.

Kyle emphasized that there is almost no evidence that DAT would sell spot assets to buy back stocks, believing that such behavior is not a systemic issue but rather isolated cases or misunderstandings, and hinted that DAT focuses more on long-term value growth. Taiki countered that when mNAV is below 1, DAT is very likely to be forced to sell assets to buy back stocks, forming a “death spiral,” and questioned Kyle using the example of $FWDI current mNAV<1, pointing out that there have been precedents (such as ETHZILLA and small DAT) that sold treasury assets to buy back during bear markets.

This confrontational debate, combined with the community's endorsement of DAT being “meaningless,” further amplified the market's concerns about the structural risks of DAT.

This article, based on the core valuation logic of DAT (mNAV, discount and premium factors), discusses the sustainability of the DAT model, regulatory challenges, and the trend of the 80/20 split in light of the latest debates, helping you to see clearly in the controversies which companies may be at a premium and which are destined to be at a discount.

The following is the original text:

I have seen a lot of poor analysis about DAT (Digital Asset Treasury Company). In particular, many people's views on whether they should trade above, below, or at the value of their held assets (the so-called “mNAV”) are very unreliable.

This is my idea.

When evaluating a DAT, the first question to ask yourself is: if this company had a fixed lifecycle, how much would it be worth?

If you consider a very short time frame, the value of this approach becomes apparent. For example: Suppose you have a Bitcoin DAT that announces it will close this afternoon and distribute Bitcoin to investors. Then its trading price will be exactly equal to the value of its Bitcoin (i.e., mNAV is 1.0).

Now extend the time period. What if it announces it will close a year later? At this point, you must consider all the reasons that would make the trading price of DAT higher or lower than its Bitcoin value. Let's review these factors.

Three reasons for discounted trading

The three main reasons for DAT trading at a discount are: insufficient liquidity, operating costs, and risks.

1. Lack of liquidity: You wouldn't want to pay full price today for Bitcoin that you won't receive until a year later. But you would be willing to pay a discounted price. Would you ask for a 5% discount? Or 10%? If it were me, I would definitely choose 10%. This would decrease the value of our DAT.

2. Operating expenses: Every dollar spent on operating expenses or executive compensation ultimately comes out of your pocket. Suppose our 12-month DAT holds a value of $100 in Bitcoin per share, but the annual compensation paid to executives is equivalent to $10 per share. Then you would definitely demand a 10% discount on the net asset value (NAV).

3. Risk: The company may always make mistakes in certain areas. You also need to factor this risk into the price.

Four Ways to Trade at a Premium

Now let's take a look at why DAT might trade at a premium. In the United States, there is only one reason: if it can increase the number of crypto assets per share.

I have seen four main ways DAT has tried to do this.

1. Issuing Debt: If you issue debt in USD and purchase crypto assets, and the crypto assets appreciate against the USD, you can repay the debt and increase the number of crypto assets per share. This is generally the strategy for increasing the per share BTC. (If the Bitcoin price drops, the situation is reversed.)

2. Lending Crypto Assets: If you lend out your crypto assets and receive interest payments, you can increase the number of crypto assets per share.

3. Using derivatives: If you hold crypto assets and perform actions similar to selling call options, you can gain profits and accumulate more assets in this way. Of course, this also means you may forfeit the upside potential.

4. Acquire crypto assets at a discounted price: DAT may acquire crypto assets at a discounted price through various means, such as:

Purchase locked assets from the foundation to sell specific assets without disturbing the market;

Acquisition of another DAT traded at a discount;

Repurchase its own shares if they are trading at a discount.

Acquire a business that can generate cash flow and use that cash flow to purchase crypto assets.

One challenge faced by a DAT is that the reasons leading to it trading at a discount are mostly certain, while the reasons leading to it trading at a premium are mostly uncertain.

For this reason, DAT faces a high threshold: most will trade at a discount, and only a few outstanding companies will trade at a premium.

Back to our example: If you have a Bitcoin DAT that will be liquidated in 12 months, you can do this:

(1) Calculate its operating expenses;

(2) Join the risk discount;

( Offset these discounts with your expectations of increased ability per Bitcoin.

This is its fair value!

You might be thinking: Well, Matt, but DATs don't have a fixed lifespan. They can continue indefinitely!

This indeed complicates the issue. But in reality, it means that everything will be magnified. Costs and risks will compound over time, so close monitoring is necessary. Similarly, the ability to continuously increase the DAT per share of crypto assets could be very valuable.

When I look back at the ways DAT improves the per-share value of crypto assets, I notice a significant characteristic: each method benefits from scale.

Larger DATs will find it easier to issue debt compared to smaller DATs; they have more crypto assets available for lending; they can access more liquid options markets; they will also have better opportunities in mergers and other discounted trades.

In the past six months, the price of DAT has fluctuated almost in sync. However, in the future, I believe there will be more differentiation. Some companies will perform well and trade at a premium, while more companies will underperform and trade at a discount. This model is a way to help you determine which type of company belongs to which category.