In today’s “Crypto for Advisors” newsletter, Aaron Brogan of Brogan Law discusses the history and business model of digital asset treasuries.
Then, in “Ask an Expert,” Windle Wealth’s DJ Windle answers the questions advisors should know about cryptocurrency treasury companies.
– Sara Morton
Digital Asset Treasurys: Separating Hype from Value for Advisors
Digital asset treasury (DAT) companies offer public exposure to cryptocurrencies, but how much hype are you buying?
The digital asset treasury (DAT) company is a new invention with a long history. They are public companies that pursue an explicit priority of purchasing digital assets. In 1989, Michael Saylor founded MicroStrategy (now Strategy) as a software company. It achieved some success and went public in 1998, only to implode spectacularly in 2000, losing more than 99% of its market capitalization and becoming the subject of an SEC investigation.
However, it is unlikely that Strategy did not go bankrupt in 2000 and is still offering obscure software and services today. However, the magic happened elsewhere. In 2020, the company started buying bitcoins and hasn’t stopped.
At first, his approach seemed to be rabid evangelism. Saylor would buy bitcoins, appear on television, and convince others to buy bitcoins, and that would increase the company’s investment. But over time another phenomenon appeared. As Strategy bought more and more bitcoins and the price of bitcoin rose higher and higher, Strategy became more and more like a box of bitcoins with a vestige of a software company stapled to it. At this point, its share price and market capitalization should have converged with the price of bitcoin, but it did not. It was negotiated with a premium. When this happened, promoters emerged from their treasures like Smaug, and the DAT was born.
This multiple of a DAT’s net asset value (NAV) and its market capitalization, known as a multiple of NAV (mNAV), creates a special type of power. If you can buy an asset for $1 and increase its market cap by $2, then you don’t need to do anything else. Shares can be sold and, in effect, generated debt and put to direct and immediate productive use, increasing shareholder value. As long as this relationship is maintained, it is, in essence, a money printer.
And so, as Strategy followed this playbook over time, others took notice. They started to get the idea that maybe they you could follow along and create your own DAT. Some used BTC, such as Mara Holdings, Inc., but over time others tried it with other assets such as Ether. held by Bitmine Immersion Technologies, Inc. and Solana also owned by Forward Industries, Inc.
Source: Galaxy Research
For the promoters of these projects, the value proposition is clear. Asymmetric increases in stock value, coupled with public trading, lead to quick profits. BTC has always been very liquid, but for virtually all other digital assets, creating a public sink to purchase tokens presents the dazzling potential of increasing asset value and providing outflow liquidity in one fell swoop. This is one of the main reasons why the meta has gained so much traction recently. It is good for bag carriers.
But what about the buyers? Well, get access to a DAT action. before its mNAV growing is good, as the company implements its strategy and hopefully gains value, shareholders can see profits. But for a typical buyer in the public markets, once a positive mNAV is established, the value proposition is speculative. You are buying a premium on the underlying asset and that premium could easily disappear.
Historically, access to the strategy was valuable to institutional advisors who were hesitant or legally unable to purchase bitcoin directly for their clients. Instead, they could keep Strategy. But as old taboos fade, and with them regulatory disapproval, this proposal may lose its luster. At the same time, exchange-traded products (ETPs) have recently been approved that skip the step of wrapping a treasury into an operating company, further diluting the advantage of DAT.
There is also the regulatory issue. The strategy is not a ’40 Act Fund because BTC is not a security, but it is not obvious that the same reasoning would apply to DATs holding other assets. A future administration hostile to the industry could test the operating companies’ exemption they rely on. To the extent DATs use leverage to acquire assets, future market instability could lead to liquidations, increasing risk. Premiums may also be collapsing even now.
Chart: Strategy performance against bitcoin (Source: strategtracker.com)
For advisors, understanding these different risk vectors is critical to advising clients on a DAT purchasing strategy. Regulatory risk is unlikely to be significant in the current environment, but collapsing premiums could be, so understanding a DAT’s mNAV at the time of purchase is critical to assessing its risk profile. Leverage can also increase the risk profile. Finally, DATs can change strategy more easily than a comparable ETP, so monitoring management developments is another important factor to consider.
– Aaron Brogan, Founder and Managing Attorney, Brogan Law
ask an expert
Q: What do advisors need to understand before clients start asking about digital asset treasury companies?
TO: Advisors don’t need to master all the nuances of on-chain finance, but they do need to understand what makes a digital asset treasury (DAT) company behave differently than a traditional stock. These companies hold large amounts of cryptocurrency on their balance sheets and their stock prices often move with those assets rather than business fundamentals.
When clients mention them, they are actually asking, “Is this a safe way to own cryptocurrency in my brokerage account?” The best preparation is to understand that DATs function as leveraged substitutes for digital assets. They can trade well above (or below) the value of their holdings depending on market sentiment, leverage and liquidity. Being able to explain that dynamic clearly separates education from hype.
Q: How can advisors evaluate whether a DAT makes sense for a portfolio?
TO: Start with what drives the stock. The share price of a DAT reflects not only the value of its crypto treasury but also investor sentiment, leverage, and liquidity. Advisors should check three things:
- Treasury Mix: What assets are held and how transparent are they?
- Leverage: Has the company borrowed to buy more cryptocurrencies? If so, the volatility is magnified.
- Premium/Discount: Compare the company’s market capitalization to the actual value of its assets. This gap is where most investors misjudge risk.
Advisors can then reframe clients’ enthusiasm around the fundamentals. Is the goal diversified exposure or speculation on a premium? That distinction determines whether a DAT belongs anywhere close to a client’s wallet.
Q: What should advisors be willing to explain when clients compare DAT to spot ETFs?
TO: This will be the most common question. The answer is that spot ETFs hold the digital asset directly, trade close to net asset value, and operate under clear regulation. DATs, on the other hand, are companies that use corporate balance sheets to hold those same assets and sometimes use debt to do so.
That means the upside potential may seem exciting, but the risk profile is closer to a leveraged stock than an ETF. Advisors should prepare to discuss taxes, concentration risk, and how DATs might react differently to the underlying cryptocurrency. Helping clients see that difference turns a speculative headline into a teachable moment about structure, liquidity and risk tolerance.
– DJ Windle, Founder and Portfolio Manager, Windle Wealth
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- JPMorgan Chase launched JPM Coin, a digital deposit token for institutional clients.
