Author: Clow
There is an old saying on Wall Street: Only when the tide goes out do you discover who has been swimming naked.
In November 2025, the tide receded faster than anyone could imagine.
The crypto market evaporated $1.4 trillion in just six weeks, with Bitcoin nearly breaking below $80,000 and Ethereum plummeting over 40%. But the ones truly drowning were not the retail investors, but those coin-hoarding public companies once hailed by Wall Street as the "institutional bull market pioneers."
MicroStrategy faced being kicked out of the MSCI index, with $11.6 billion in passive selling hanging over it like the sword of Damocles; Bitmine reported a paper loss of $3.6 billion, caught in a "toxic financing" death spiral, with management resorting to "buy one, get two free" to survive.
What was once "alchemy" has now turned into a "meat grinder."
When the "flywheel" stops turning, who will be the last survivor?
01 The Illusion Shatters
In the first half of 2025, the market was immersed in a beautiful illusion: the Federal Reserve was about to embark on an aggressive rate-cutting cycle, and cheap money was about to flood the market.
Institutional investors went on a leverage spree, betting on a liquidity feast. Bitcoin broke through $100,000, Ethereum surged towards $5,000, and the stock price of DAT (Digital Asset Treasury) soared—investors felt they were getting a bargain by buying shares that included $1 worth of Bitcoin for just $2.
However, reality was brutally harsh.
Inflation data proved stickier than expected, and the benefits of the "Trump trade" quickly faded. On October 10, Trump suddenly announced a 100% tariff on Chinese goods, becoming the last straw that broke the market's back.
In just a few hours, over $19 billion in leveraged positions were forcibly liquidated.
The crypto market experienced one of the largest liquidation days in history.
The sharp reversal in macro expectations directly led to a cliff-like drop in institutional liquidity. By early November, trading platforms witnessed over $3.6 billion in net outflows. Institutional investors shifted from "embracing risk" to "avoiding risk."
And DAT companies—those leveraged crypto exposures with operational costs—were the first to be sold off.
When the underlying assets dropped by 5%, DAT stocks often fell by 15%-20%.
This nonlinear decline triggered a negative feedback loop, causing the entire sector's valuation system to collapse in a short time.
Against the backdrop of geopolitical turmoil and increasing fiscal uncertainty, Bitcoin's "digital gold" narrative was partially preserved, while Ethereum was abandoned due to a lack of a clear story.
Those betting on "high beta Ethereum" strategies were facing catastrophe.
02 The Secret of the Flywheel
To understand why DAT companies are so fragile, one must first dismantle their profit logic—the reflexive flywheel.
This model, pioneered by MicroStrategy founder Michael Saylor, was perfect in a bull market:
Step 1: Company stock trades at a premium (buying shares that include $1 worth of Bitcoin for $2)
Step 2: Use the premium to issue new shares at a high price in the secondary market to raise funds
Step 3: Use the raised funds to buy more Bitcoin
Step 4: Since the stock is sold at a premium, each financing round increases the "per share Bitcoin amount" for existing shareholders
Step 5: The stock price rises further, maintaining the premium, and the cycle repeats
This is a money-printing machine.
As long as the coin price rises, the stock price rises even faster.
A report from Pantera Capital showed that during the "Summer of DAT" from 2024 to the first half of 2025, this model made countless followers rich. Bitmine's mNAV multiple (market cap relative to net assets) once reached as high as 5.6 times.
This means investors were willing to pay $5.6 for a $1 exposure to Ethereum.
Crazy? In a bull market, this is called "faith premium."
But the flywheel has a fatal flaw: it only works in a one-way market.
When the market turns, the premium disappears, mNAV falls below 1.0, and the entire logic reverses instantly.
At this point, issuing new shares is no longer "value-added," but "dilution"—each share sold dilutes the existing shareholders' equity. The company loses its ability to finance and becomes a "zombie DAT."
With management fees and operational risks, investors might as well buy ETFs directly.
Even more frightening is the reflexivity that bites back:
Stock price falls → Market questions solvency → Discount widens → Loss of financing ability → Liquidity dries up → Forced asset sales
In November 2025, this death spiral was playing out across the DAT sector.
The flywheel turned into a meat grinder.
03 The $11.6 Billion Sword of Damocles
Among all the risks, the most systematically destructive is: MicroStrategy may be removed from the MSCI index.
The global leading index provider MSCI has initiated consultations to consider removing companies with over 50% of their balance sheet in crypto assets from the index.
The reason is simple: these companies resemble investment funds rather than traditional operating enterprises, failing to meet the definition of a broad market equity benchmark.
The final decision will be announced on January 15, 2026.
But the market is already pricing in this tail risk.
The consequences will be catastrophic.
According to estimates from JPMorgan, if MSCI removes MicroStrategy, funds tracking that index will face about $2.8 billion in direct outflows. However, if other index providers like S&P and FTSE follow suit to maintain methodological consistency, the total forced selling could reach as high as $11.6 billion.
This is not a rational judgment from active investors, but a mechanical sell-off from passive funds.
They must sell, regardless of how low the price is.
In a market where liquidity has already dried up, the $11.6 billion selling pressure is enough to trigger a "Davis double kill":
Bitcoin price drop leads to NAV shrinkage
Index removal causes valuation multiples to plummet
If MSTR's stock price falls below $150 and loses its index premium, its flywheel will completely reverse—unable to finance to buy coins, the coin price may continue to drop, forming a perfect death spiral.
This would turn MicroStrategy from the "largest buyer" in the Bitcoin market into a powerless bystander, or even a potential seller in extreme cases.
The market finally realized that DAT companies are not "diamond hands" out of faith, but "forced hands" constrained by financial statements.
04 The Cost of Betting on Ethereum: $3.6 Billion Paper Loss
If MicroStrategy faces regulatory risks, Bitmine has effectively bet itself to death.
Bitmine's strategy is extremely aggressive: attempting to become the "Ethereum version of MicroStrategy."
Its investment logic is that Ethereum is more volatile than Bitcoin and can generate staking yields, thus should provide excess returns in a bull market.
Based on this logic, Bitmine borrowed heavily, accumulating over 3.6 million ETH.
But reality is brutally harsh.
Ethereum does not possess the "digital gold" consensus of Bitcoin, and during market downturns, high volatility becomes a double-edged sword.
Most of Bitmine's holdings were built at an average price of $4,000, while Ethereum struggles below $3,000.
The paper loss has exceeded $3.6 billion.
Even more fatal is that Bitmine has "put almost all cash in," leaving no remaining funds to buy at lower prices. It has become a giant long position trapped, praying for a market reversal.
Desperate evidence comes from its September 2025 financing. Bitmine sold 5.22 million shares at $70 each, while also offering two warrants for each share, with an exercise price of $87.50, totaling 10.4 million warrants.
This "buy one, get two free" structure is known in the financial world as "toxic financing."
It is a signal of the company's desperation.
Capping upside potential: 10.4 million warrants create a massive "selling pressure wall" at the $87.50 level, which will suppress any rebound to this point.
Destructive dilution: If all warrants are exercised, over 15 million new shares will be created, causing an immediate 7.26% dilution for existing shareholders.
Confidence collapse: The market interprets this as management sacrificing long-term value for survival.
After this transaction was announced, Bitmine's mNAV premium rate plummeted from 5.6 times to 1.2 times, hitting a low of 0.86.
The flywheel turned into a dilution machine.
05 Judgment Day: January 15, 2026
All investors' eyes are locked on one date: January 15, 2026.
MSCI will announce its final decision.
This is not just an index adjustment announcement, but the judgment day for the DAT sector.
- Pessimistic scenario
If MSCI decides to remove companies, a massive wave of passive fund selling will occur in February 2026.
Stocks like MicroStrategy could face a 30%-50% instant repricing, and the entire DAT sector will enter an ice age.
Even more frightening is the contagion effect.
Once MicroStrategy is removed, other index providers are likely to follow suit, triggering a domino effect. DAT companies that heavily rely on index funds will face the risk of liquidity drying up.
- Optimistic scenario
If MSCI retains these companies or only limits their weight, the market will welcome a massive "short squeeze."
Short positions established to hedge risks will have to be closed, potentially triggering a violent short-term rebound.
But even if they escape this calamity, the DAT sector will find it hard to return to its past glory.
The existence of spot ETFs has permanently compressed the valuation premium space for DAT.
- The Last Lifeline
The only variable comes from the policy level.
The U.S. Senate plans to mark up the "Crypto Market Structure Act" in December 2025 and aims to submit it for presidential signature in early 2026.
The core goal of this bill is to clarify the jurisdictional boundaries between the CFTC and SEC, defining which digital assets qualify as "digital commodities" through legislation.
If the bill passes, it will grant Bitcoin and Ethereum a clear legal status.
This will be the most powerful weapon for DAT companies to fight against the MSCI removal decision.
If the law recognizes these assets as legitimate corporate reserve assets, it will be difficult for index providers to remove them on the grounds of "unclear nature."
This is the only chance for a turnaround for the DAT sector.
But until the outcome is clear, everything remains uncertain.
The market is holding its breath, waiting for the outcome of this gamble, which will be revealed in two months.
06 Conclusion
The DAT model has not disappeared, but it is undergoing a dramatic evolution.
The "coin hoarders" of 2024 are being eliminated, replaced by "capital operators" in 2026 who understand capital allocation, risk management, and regulatory games.
The so-called "flywheel" was never a perpetual motion machine, but a sail opened in favorable winds.
If the sail is not promptly retracted in a storm, the entire ship may capsize.
The market has taught everyone a lesson at the cost of $1.4 trillion:
In the crypto world, survival is everything.
Only those players still standing amidst the ruins are qualified to welcome the next cycle.
Only investors who understand this shift will survive.
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