DAT's flywheel stalls: Regulatory scrutiny intensifies, and the crypto treasury story is no longer working.

Nasdaq is intensifying scrutiny on listed companies that hold cryptocurrencies, particularly those raising funds to buy and hoard digital assets to inflate stock prices. This regulatory move is pressuring DAT (Digital Asset Treasury) companies, causing declines in both stock prices and market capitalization to net asset value (mNAV) premiums. Many DATs now trade at negative premiums, indicating weakened investor confidence.

Market Impact: US-listed DATs dominate the market, and Nasdaq’s potential requirements for greater transparency on crypto investments, strategies, and risks could lead to trading suspensions or delistings for non-compliance.
Performance Decline: Companies like MSTR, SBET, and BTCS have seen falling share prices and shrinking mNAVs, with only six DATs maintaining an mNAV above 1.
Increased Market Differentiation: Regulatory pressure may enhance transparency and reduce risks like market manipulation, but it also strengthens the dominance of leading companies (e.g., MicroStrategy and BitMine) and mainstream assets like Bitcoin and Ethereum, which comprise most of the $69.5 billion in held crypto assets.
Challenges for Marginal Players: Smaller DATs and those focused on less established cryptocurrencies face survival challenges due to higher operating costs, reduced arbitrage opportunities, and stricter financing and shareholder approval processes for transitions or share issuance.
Sustainability Debate: Supporters view DATs as bridges for on-chain/off-chain liquidity with advantages over ETFs, such as better liquidity and leverage options. Critics argue that DATs rely heavily on regulatory arbitrage, face dilution and systemic risks, and may not offer sustainable value compared to direct crypto or ETF investments.

The DAT model’s future depends on moving beyond regulatory arbitrage and leverage, maintaining market value above net assets, and establishing robust risk management to achieve long-term viability.

By Nancy, PANews

A regulatory announcement has suddenly cooled the recent surge in cryptocurrency stocks. Recently, Nasdaq announced it would strengthen its scrutiny of publicly listed companies holding cryptocurrencies. This has put downward pressure on the share prices of DATs (crypto treasury companies), with many premiums (mNAVs) plummeting amidst the reversal in sentiment. The once-rapid treasury flywheel may be slowing down.

Nasdaq is considering taking action, putting pressure on US DAT share prices and premium rates.

On September 4, The Information quoted people familiar with the matter as saying that Nasdaq is strengthening its scrutiny of listed companies, focusing on those companies that raise funds to purchase and hoard cryptocurrencies to push up their stock prices.

Nasdaq, the exchange where the majority of crypto-stocks are traded, believes such practices could mislead investors and has therefore decided to increase its regulatory oversight. While the specific measures have not yet been announced, they are expected to require companies to disclose their investment size, strategies, and potential risks, and to subject companies that frequently trade crypto assets to special scrutiny. Failure to comply could result in suspension of trading or delisting.

In fact, US-listed companies dominate the DAT market. According to data from consulting firm Architect Partners, at least 154 US-listed companies have purchased cryptocurrencies since January of this year. Meanwhile, according to Bitcointreasuries, which tracks publicly traded Bitcoin companies, there are 61 US-listed companies, while markets like Canada, the UK, and Japan have far fewer. If Nasdaq were to intervene, the overall DAT market would face a significant impact.

Market confidence is taking a hit following news of increased Nasdaq regulation. Shares of DAT companies in the US stock market are generally under pressure. For example, after opening today, MSTR fell 0.81%, SBET fell 8.26%, and BTCS fell 2.3%.

Meanwhile, mNAV (market capitalization to net asset value) has also generally declined. Blockworks data shows that as of September 4th, for example, MSTR's mNAV has fallen from a peak of 3.5x to 1.3x, SBET's mNAV has fallen from 3.72x to 0.82x, and BMNR's mNAV has plummeted from 9.45x to 0.88x. Notably, only six DATs have an mNAV above 1, while the rest continue to trade at a negative premium. This suggests that the reservoir effect previously associated with crypto asset appreciation is further weakening.

Tighter regulations may exacerbate market differentiation, and marginal currencies face survival pressure

With the impending regulatory pressure, the DAT market landscape may usher in new changes.

On the one hand, increased regulation is prompting DATs to be more transparent and cautious in their crypto asset investment strategies, helping to mitigate potential risks such as market manipulation and insider trading. According to Fortune, several publicly listed crypto asset management companies have experienced unusual stock price fluctuations. For example, SharpLink's stock price hovered below $3 in April and early May, but soared to nearly $36 after announcing plans to increase its Ethereum reserve holdings by $425 million on May 27. In the three trading days prior to the announcement, SharpLink's stock price doubled from $3 to $6, yet the company failed to file any relevant documents with the SEC or issue a press release. Similar situations have also occurred with companies such as Mill City Ventures, MEI Pharma, Kindly MD, Empery Digital, Fundamental Global, and 180 Life Sciences Corp.

On the other hand, the head-to-head effect in the DAT market will become even more pronounced. Despite the growing popularity of crypto treasury strategies, encompassing a variety of assets such as Bitcoin, Ethereum, Solana, Tron, BNB, Chainlink, SUI, and Ethena, Blockworks data shows that as of September 4th, the total value of cryptocurrencies held by DAT companies exceeded $69.5 billion, primarily concentrated in Bitcoin and Ethereum, totaling $68.1 billion. Among these asset classes, only Bitcoin's mNAV reached 1.17, while the remaining assets were all below 1, reflecting a lack of investor recognition of other crypto assets.

Furthermore, leading companies hold the vast majority of the market share. Blockworks data shows that as of September 4th, the total market capitalization of crypto treasury companies exceeded $108.48 billion, of which Strategy and BitMine, the leading Bitcoin and Ethereum reserve holders, accounted for over 91.4% of the market share. This suggests that in the future, the advantages of leading companies and mainstream assets are likely to further strengthen, while marginal assets will face survival pressure.

Furthermore, tightening regulations could also slow the expansion of the DAT market. If financing costs and difficulties for DAT listed companies increase, this will directly impact the pace of investment, specifically the scale and speed of coin hoarding. Furthermore, shrinking arbitrage margins and market opportunities will reduce the appeal of the DAT model, particularly for companies with limited financial resources or those focused on a single, smaller cryptocurrency.

"Unless DAT companies preparing to transition to a DAT microstrategy model have fully acquired their US shell companies (a 100% acquisition), they will need to hold a shareholder meeting for a vote before announcing their initial transition to a DAT microstrategy model. This effectively increases the operating costs and cycle time of the new DAT treasury company. Public companies that have already transitioned to a DAT treasury model must also hold a shareholder meeting for a vote before issuing additional shares. Issuing bonds or convertible bonds does not constitute issuing new shares and should not be covered by this regulation." Crypto KOL @qinbafrank analyzed that Nasdaq's official move is intended to cool down the DAT model, making it more difficult for shell companies to transition and increasing the process for issuing additional shares for already-transformed companies. This should have a chilling effect on the market in the short term, and many altcoin DAT treasury companies may face increasing challenges. Furthermore, those that have already transitioned to a DAT treasury model must no longer engage in capital manipulation tactics (such as directly exchanging tokens for shares or purchasing discounted tokens) in order to gain shareholder approval and secure a majority vote at the shareholder meeting.

Liquidity innovation or financial bubble? The sustainability of DAT is controversial.

The market has also shown a polarized reaction to the increasingly fierce development trend of DAT.

Supporters see DATs as the optimal bridge for on-chain and off-chain transfers of crypto assets, believing this new model could reshape the liquidity landscape of the crypto financial market. For example, Xiao Feng, Chairman and CEO of HashKey Group, believes DATs may be the best way to transfer crypto assets from on-chain to off-chain, and elaborates on their four core advantages over ETFs: Better liquidity. While ETF subscriptions and redemptions take time, DATs allow investors to transfer assets more conveniently and efficiently. They also offer greater price elasticity. DATs exhibit significant market volatility and offer risk isolation, providing institutions with more arbitrage tools. They also offer more rational leverage. DATs offer leveraged financing structures, potentially generating higher premiums for investors compared to the price growth of cryptocurrencies themselves. DATs also have built-in downside protection mechanisms. When the stock price falls by more than the company's net asset value, investors have the opportunity to buy Bitcoin or ETFs at a discount. Such price drops below net asset value are quickly offset by the market.

In addition, several crypto VCs have increased their investment in DAT. For example, Pantera Capital disclosed for the first time that it has invested more than US$300 million in DAT companies. Andrei Grachev, executive partner of DWF Labs, also recently stated that he is willing to provide 10% to 20% of the financing amount for projects that promote the establishment of token treasuries for US-listed companies.

However, many voices have questioned the sustainability of DATs. Ledn co-founder and CEO Adam Reeds believes that digital asset treasury companies, which are keen on hoarding cryptocurrency, are facing a turning point. Bitcoin treasury companies were once a revolutionary innovation in the industry, but these outsized returns are now difficult to replicate. What is truly fading is the ability to create a unique value proposition. Most DAT CEOs claim their sole goal is to increase per-share cryptocurrency holdings, but whether they possess unique management teams or exceptional capital management skills is unclear.

Similarly, James Check, chief analyst at Glassnode, believes that the Bitcoin treasury strategy's lifespan is much shorter than most expect, and may already be over for many new entrants. He argues that this isn't a "measuring game"; the key lies in the sustainability of a company's products and strategies in the long-term Bitcoin market. Newly established Bitcoin treasury companies face an uphill battle, as investors favor early adopters.

Further skepticism arises from the financial nature of DATs. Nate Geraci, president of The ETF Store, even wrote that if investors truly believe in Bitcoin and Ethereum, they can simply buy spot or ETFs directly, rather than relying on derivative instruments like DATs. He emphasized that the prosperity of these companies relies heavily on regulatory arbitrage, and as regulatory barriers are gradually broken down, market demand for them will naturally wane. Analysts at Franklin Templeton warn that if DATs' market capitalization falls below their net asset value, new share issuance will create a dilution effect and hinder capital formation. Combined with falling cryptocurrency prices, companies may be forced to sell assets to maintain stock prices, further depressing the market and confidence, creating a self-reinforcing downward spiral. Former Goldman Sachs analyst Josip Rupena compared DATs to CDOs (collateralized debt obligations) during the 2007-2008 financial crisis, pointing out that while crypto treasury companies ostensibly hold bearer assets without counterparty risk, they actually introduce multiple risks, including insufficient management, cybersecurity, and liquidity. These compounding effects could amplify systemic risks.

In general, the key to DAT's development prospects lies in whether it can break away from the logic of relying solely on regulatory arbitrage and leverage amplification, and achieve sustainable development by maintaining a market value higher than net assets for a long time, continuously creating value-added transactions, and establishing an effective risk management framework.