Most digital asset treasuries are bad ETFs

The cold reality is that many digital asset treasuries, or DATs, are bad exchange-traded funds. They are struggling companies trying to bump their share price and salvage their hemorrhaging balance sheets. 

This story isn’t new. In 2017, spiraling companies like the infamous “Long Island Ice Tea Company” rebranded to the “Long Island Blockchain Co” and saw their stock price rocket 300 percent. Their experiment, like the many copycats they spawned, ended in disaster. In the five years since Strategy hard-launched the digital asset treasury model with an initial purchase of 21,000 Bitcoin (BTC), some 200 other DATcos have followed suit. 

Many have enjoyed early share price gains, only to descend back to earth just days later. In the words of Bitwise’s Matt Hougan, “the best DATs are doing something hard.” Differentiating from ETFs with real, operational expertise to justify their equity premium over NAV. 

DATs vs ETFs

The U.S. has approved spot ETFs for BTC, Ethereum (ETH), and Solana (SOL). Some include staking returns for SOL and ETH, narrowing the competitive advantage of digital asset treasuries even further. To survive in the long term, digital asset treasuries must maintain a legitimate regularity and operational advantage. Becoming core contributors and expanding their investment scope outside of top cryptocurrencies. CoreDAO, Babylon, Stax, and Hemi are examples of BTC DeFi networks that generate real yield on Bitcoin holdings. Digital asset treasuries, given their scale, can and should become full validators and earn commission from delegates, supercharging returns for their shareholders. Managing validator nodes requires a modest level of technical expertise, but it must become standard operating procedure for any digital asset treasury worth its salt. 

FUD has plagued digital asset treasuries since their inception, with some calling it the next dot-com bubble. Much of the fear springs from the lack of diversification, with BTC accounting for around 90 percent of total digital asset treasury holdings. DATcos have to actively manage their portfolio, reducing risk-concentration on BTC while increasing stable yields independent of unreliable price growth. One strategy is borrowing USDC (USDC) against BTC collateral and lending it out at interest, which can generate yields as high as nine percent. Or, for the more risk-tolerant, spot BTC can be leveraged to buy more BTC. 

Digital asset treasuries can also deliver returns as qualified dividends, which are typically subject to lower tax rates than capital gains. But this isn’t enough. Digital asset treasuries must use their core BTC and ETH assets as collateral to provide liquidity in the aforementioned DeFi and RWA marketplaces. Aside from generating yield, these products represent alternative yield and risk curves, limiting market risk when BTC experiences a sharp contraction.

But what about Strategy?

What makes Strategy successful is its ability to leverage the equity-NAV premium to finance most of its BTC buys with equity. They have done so to the tune of $50 billion+ since their inception. In 2024, Strategy accounted for 16 percent of all equity financing that year, a staggering achievement. Their ability to consistently raise capital with equity financing is itself an incredible differentiator. MSTR has created a slew of financial products that are more or less BTC collateralized with corresponding differentials in dividend and yield to appeal to a wide range of risk appetites. 

Each digital asset treasury is different, and most don’t have the MSTR advantage, meaning they have to raise most of their cash with debt and convertible notes. This makes them more vulnerable to sharp drops in price and could kick off a bloodbath that would unwind the market. But even MSTR faces significant risk, given its singular bet on BTC. As the saying goes, only when the tide goes out do you discover who’s been swimming naked. 

To survive, digital asset treasuries will have to move beyond being passive holders of the top three cryptocurrencies and become actual participants in the networks whose tokens they hold. Becoming validators and investing in RWAs and other tokenized assets outside of blue-chip cryptos. Depending on the expertise of the team, digital asset treasuries can leverage their large holdings to become market makers and liquidity providers on DEXs and other nascent protocols while actively participating in governance and protocol development, generating stable returns to shareholders.

The companies that will survive aren’t those chasing quick share price bumps through headline-grabbing BTC purchases. They’re the ones building genuine operational capabilities and generating sustainable yield through active participation in the crypto trenches. As time passes, the distinction between qualified operators and opportunistic speculators will become increasingly stark and unforgiving.