Author: Thejaswini M A
Translation: Block unicorn
Preface
Reality has a peculiar way of manifesting itself at the most inopportune moments.
Consider the nature of belief. It is not religious faith or political conviction, but a stranger and more fundamental belief. It is the collective consensus that sustains civilization. Every morning, we wake up and pretend that colorful pieces of paper have value, that the invisible numbers in computer systems represent wealth, that companies are people, and people are consumers, and that consumers are rational actors making optimal choices.
These shared illusions are remarkably stable. They can persist for decades, even centuries, simply because we are willing to continue pretending. A dollar bill has value because we agree it has value. Stock prices reflect reality because we agree the market is rational. The system works precisely because everyone believes it works.
But belief itself is fragile. It requires constant maintenance, much like a garden or a marriage. If neglected too much, weeds will grow. If too many assumptions are questioned, the entire structure will begin to wobble. When enough people stop believing at the same time, reality will violently rebound like water flowing through a crack in a dam.
The most interesting moments in financial history are not the formation of new beliefs. The formation of new beliefs happens gradually, almost imperceptibly. The truly interesting moments are the demise of old beliefs.
When the collective hypnosis is broken, and everyone suddenly sees the emperor's nakedness at the same time.
These moments reveal the arbitrariness of value itself and the tenuous threads that connect our fictional currencies.
As the market dynamics that once favored DAT (Digital Asset Treasury) companies shift, DAT is undergoing a challenging transformation. These companies continue to operate, even though the conditions that initially drove their expansion have changed.
For some time, there has been an illusion in the market that as long as Bitcoin is held by a publicly listed company rather than a private wallet, it becomes more valuable. The continued existence of this premium is not based on any logical reason but rather because enough people believe it should exist.
What happens when shared financial dreams collide with stubborn arithmetic? The answer is being written in real-time in balance sheets and merger documents, boardrooms, and trading floors, as the entire industry struggles to reconcile the price the market is willing to pay with the actual value of the assets.
All this high-minded talk about belief and reality is just my way of avoiding an obvious question: why do syringe manufacturers and biotech companies ultimately turn to Bitcoin financial strategies?
Analysis of Financial Innovation
Digital Asset Treasury (DAT) companies represent a fundamental departure from traditional corporate structures. Unlike ordinary businesses that may hold some cryptocurrency as a side investment, the core business function of DAT companies is to accumulate and manage cryptocurrency.
The model operates through what industry insiders call a "premium flywheel." When the trading price of DAT stock exceeds its net asset value (NAV), the company can issue stock at a high price and use the proceeds to buy more cryptocurrency. Here’s how it works:
Suppose a DAT company holds $200 million worth of Bitcoin. If the stock market values the entire company at $350 million, this results in a 75% premium to net asset value. This premium becomes the engine for the company's exponential growth. The company can issue $50 million in new shares, diluting existing shareholders' ownership by about 14%. But here’s the miracle: that $50 million can buy another $50 million worth of Bitcoin, increasing the company's cryptocurrency holdings to $250 million.
For existing shareholders, this is a value-accretive dilution. Yes, their percentage of ownership in the company has decreased, but the company now holds more Bitcoin per share than before the issuance.
If you previously held 1% of a company that held $200 million worth of Bitcoin, your stake was backed by $2 million worth of Bitcoin (1% × $200 million = $2 million). After the dilutive stock issuance, you now hold 0.86% of a company that holds $250 million worth of Bitcoin, meaning your stake is now backed by $2.15 million worth of Bitcoin (0.86% × $250 million = $2.15 million).
As this process repeats, the flywheel accelerates. If the market maintains the premium, the company can continue to issue stock at prices above net asset value, buy more cryptocurrency, and increase each shareholder's underlying cryptocurrency exposure. Strategy perfected this method, increasing the number of Bitcoins held from about 38,000 in 2020 to over 639,000 by 2025.
The model assumes three key conditions: the premium persists, the market allows for frequent financing, and cryptocurrency prices are generally on the rise. If any of these conditions are broken, the flywheel can reverse, leading to a vicious cycle where the company struggles to raise funds and may even be forced to sell assets to meet obligations.
Strategy (formerly MicroStrategy) perfected this model, growing from 38,250 Bitcoins in August 2020 to 639,000 Bitcoins by September 2025, valued at $72 billion. The company currently controls about 3% of the total Bitcoin supply.
For investors, the appeal of DAT lies in its ability to gain regulated cryptocurrency exposure without worrying about wallets, exchanges, or custody issues. For institutions that are prohibited from directly holding cryptocurrency, DAT provides a compliant "backdoor" to enter the digital asset market through familiar stock markets.
Frenzy
2025 marks the DAT frenzy. Major companies raised over $20 billion in new capital, transforming various industries, including biotech firms and toy manufacturers, into cryptocurrency fund management tools. This market frenzy birthed some peculiar company combinations: a syringe manufacturer became a fund manager for Solana, a cleaning products company turned to holding Dogecoin, and a health company began hoarding BONK tokens.
Several publicly listed companies related to cryptocurrency have stock prices far exceeding their net asset values. MicroStrategy's stock price has a premium of about 75% over the net asset value of its Bitcoin.
The Japanese company Metaplanet, dubbed the "Japanese strategy," has a very high trading premium, reportedly exceeding its Bitcoin net asset value by about 384%, primarily because investors value its growth prospects and access to capital markets. Smaller companies like Blockchain Group also have trading premiums exceeding 200%, reflecting speculative demand.
Going public through a traditional IPO on a stock exchange takes over a year. SPAC transactions might compress this time to six months. But the premium window is closing rapidly, so companies are opting for the fastest route: reverse mergers with already listed companies.
Analyst Paul McCaffery explains, "If you haven't created an actual operating business beyond accumulating crypto assets, you will be excluded from the Russell Index." For companies relying on trading above net asset value, this index exclusion can be fatal, as institutional buying requirements force companies to purchase about 17% of their free float when joining major indices.
The result is a series of problematic business combinations. Take Sharps Technology, for example; despite having zero revenue and an operating loss of $2 million, it transformed into a DAT company for Solana, with its accounting firm resigning due to the company "not meeting internal risk tolerance metrics." However, this new entity focused on cryptocurrency promised to continue its syringe business, not for strategic reasons, but because maintaining some operational activity is necessary for compliance.
In September 2025, Strive acquired Semler Scientific for $1.34 billion, marking a watershed moment. This was a survival-driven consolidation.
Both companies' stock prices were close to or below their net asset values, making it impossible to raise further capital at attractive prices. By merging their Bitcoin holdings (5,886 BTC + 5,021 BTC), they hoped to create enough scale to reignite trading premiums. This merger was essentially two drowning companies tying themselves together in hopes of swimming to the surface again.
The transaction structure reveals a new reality: without massive premiums, synergies are minimized, focusing on scale rather than growth. Is this a template for the impending wave of DATCO consolidations? Let’s unpack this idea a bit.
When the Music Stops
The DATCO model contains several structural vulnerabilities that become catastrophic when the market turns unfavorable.
The Premium Erosion Problem
The entire DATCO edifice is built on maintaining a stock premium over net asset value (NAV). When these premiums disappear—as was the case for most small DATCOs in 2025—the flywheel reverses.
Companies trading at or below net asset value face a brutal choice: either issue dilutive shares, effectively lowering the price of Bitcoin per share, or completely stop growing. Many companies choose a third option: borrowing money to buy back their own stock, attempting to artificially maintain the premium.
Death Spiral Dynamics
When cryptocurrency prices fall and premiums simultaneously evaporate, DATCO enters what analysts call a "death spiral." The specific process is as follows:
Cryptocurrency pullback: Bitcoin/Ethereum prices drop by 30-50%.
Stock declines amplify: Due to leverage, DATCO stocks drop by 50-70%.
Premium collapse: Stock prices trade below the reduced net asset value.
Financing crisis: Unable to raise equity capital without significant dilution.
Debt pressure: Convertible bonds and credit lines come under stress.
Forced sell-off: Companies liquidate cryptocurrency to meet obligations.
Chain reaction: Forced sell-offs further depress cryptocurrency prices.
During the Bitcoin pullback in early 2025, several smaller DATCOs experienced similar situations, with stock prices dropping over 60% while Bitcoin fell by 40%. Metaplanet's stock price dropped more than 60%, far exceeding Bitcoin's decline of about 40%. Its stock price fell from around $457 in July 2025 to a low of $328.
Desperation of Stock Buybacks
Recent reports indicate that at least seven DATCO companies are borrowing funds for stock buybacks, suggesting that the model is collapsing. Consider what buybacks mean in this context. Companies are no longer issuing new shares at a premium to purchase more cryptocurrency (the original flywheel mechanism), but instead are borrowing against their held cryptocurrency to reduce the number of shares. After a 76% drop in stock price, ETHZilla borrowed $80 million against Ethereum to fund a $250 million buyback. Empery Digital financed $85 million for stock buybacks through debt. These are all defensive strategies.
The buyback strategy exposes three key issues. First, these companies can no longer enter the stock market on favorable terms. When your stock trades below net asset value, issuing new shares harms value rather than creating it. Second, the management teams are essentially betting that financial engineering can restore the premium eliminated by fundamental market forces. Third, borrowing against volatile crypto assets to fund buybacks introduces new risks. If cryptocurrency prices fall while debt remains unchanged, the company may face forced liquidation.
M&A "Musical Chairs" Game
The wave of consolidation indicates that the original DATCO theory is unsustainable. Mergers are not driven by compelling strategic synergies but rather by the need for scale to remain competitive in an oversaturated market.
If 200 companies all try to act as agents for Bitcoin, the scarcity premium that underpins the original model will disappear. Consolidation may help, but it also reveals that many DATCOs are built on fundamentally flawed assumptions about the sustainability of market premiums.
As regulatory scrutiny increases, the M&A process becomes more complex. The U.S. Securities and Exchange Commission (SEC) requires more detailed disclosures regarding cryptocurrency holdings, valuation methods, and risk factors. Investment banks must navigate the complexities of asset valuation, synergy assessments, the reasonableness of premiums within a net asset value (NAV) framework, and the impact of cryptocurrency volatility on transaction certainty when preparing fairness opinions.
This regulatory focus makes M&A execution more challenging but may also enhance credibility, reducing the excessive speculation seen in early DAT activities.
Divergence of Bitcoin and Ethereum
While Bitcoin DATs dominate the headlines, Ethereum's financial companies are also evolving, seeking a distinctly different strategy. Ethereum's proof-of-stake (PoS) consensus mechanism allows DATs to earn 3-5% annualized returns through staking, creating a revenue source that goes beyond simple asset appreciation.
BitMine Immersion Technologies exemplifies this strategy, holding over 2.4 million ETH, valued at approximately $9 billion, accounting for over 2% of Ethereum's total supply. The company actively stakes through institutional providers like Figment, achieving stable returns even when ETH prices remain flat.
SharpLink Gaming employs a similar strategy, holding 837,230 ETH valued at $3.7 billion, with nearly all holdings staked to maximize returns. This productive asset approach addresses a fundamental limitation of Bitcoin DATs: the inability to generate income from idle holdings without external borrowing or derivatives strategies.
Ethereum's fund management model also benefits from the expanding decentralized finance (DeFi) ecosystem on the blockchain. Companies can participate in lending protocols, provide liquidity to decentralized exchanges, or invest in tokenized real-world assets while still maintaining their core ETH reserve position.
However, Ethereum's strategy also carries additional risks.
Staking involves technical complexities and may face penalties. Participating in DeFi introduces smart contract risks and regulatory uncertainties. The trade-off between Bitcoin's simplicity and Ethereum's efficiency has given rise to different DAT models pursuing varying risk-return characteristics.
The Weight of Numbers
Ultimately, mathematics always prevails. This is not because numbers are more real than stories, but because when stories cease to make sense, numbers become harder to ignore.
The DAT phenomenon is poised to transcend the ancient dichotomy between narrative and arithmetic. It creates a world where belief can genuinely manifest value, and collective trust in corporate structures can double the value of the assets they contain. In brief, intoxicating moments, the market seems to discover a new financial alchemy, transforming belief into capital through pure collective imagination.
However, market forces will ultimately reassert themselves. No matter how we perceive ice, water will freeze at 0 degrees Celsius. Regardless of our acceptance of Newton's laws, gravity will pull objects toward the ground. In the end, a company's valuation will reflect its fundamentals, not the stories we concoct about its uniqueness.
Challenges arise when everyone harbors the same beautiful dream. The dream loses its distinguishing power. When fifty companies offer similar Bitcoin exposure, the collective fiction sustaining the premium disappears, not because it is false, but because it is no longer unique.
All financial innovations may mature in this way. They begin with poetry—elegant solutions to impossible problems, supported by the collective belief that "this time is different." They often end in prose—functional tools operating within the boundaries of economic reality, generating returns sufficient to justify their existence rather than transcending reality.
The next wave of builders may gain a clearer understanding of what the market will and will not accept. Their focus may shift toward less financial engineering and more practical engineering. Less emphasis on acquiring premiums and more on creating value. Less focus on the stories that justify price rationality and more on the fundamentals that support prices.
What happens next remains to be seen. Companies that can adapt may thrive in the new environment. But what does that adaptation look like?
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