Story
Strategy's Bitcoin Sales Highlight Pressure on Crypto-Hoarding Companies
Summary
A plan by corporate bitcoin holder Strategy to authorize up to $1.25 billion in further sales is intensifying scrutiny on the viability of publicly-listed companies that have built their business model on hoarding digital assets amid a market downturn.
A move by Michael Saylor’s company, Strategy, to authorize additional sales of its vast bitcoin holdings is shining a spotlight on the financial pressures facing a cohort of publicly traded crypto-hoarding firms. These companies, known as "digital asset treasuries" (DATs), have been battered by a significant decline in cryptocurrency prices this year, according to a Reuters report.
Strategy's Move
Strategy announced a plan late last month that includes a share repurchase program and authorizes the sale of up to $1.25 billion in bitcoin. The company has already sold approximately $218 million worth of the cryptocurrency this year to fund dividend payments and replenish its U.S. dollar reserves.
The business model for DATs, which gained popularity last year, is to offer investors exposure to cryptocurrencies through regulated public companies. However, the model is highly sensitive to price volatility, as falling token values can erode their treasury holdings and undermine their ability to raise new capital.
A Challenged Business Model
The downturn has exposed key vulnerabilities for these firms. As an asset class, bitcoin has fallen by as much as 33% this year amid geopolitical tensions, rising oil prices, and a hawkish pivot at the Federal Reserve, the report noted. This has had a direct impact on the valuation of DATs.
Ad- A critical metric, the market value relative to the net asset value of crypto holdings (mNAV), has fallen below 1 for many of these companies. This indicates they are trading at a discount to the value of the assets they hold, a major deterrent for new investors.
- Strategy is not alone in its sales. Nakamoto Inc., another firm in the space, reportedly sold 5% of its bitcoin in March and an additional 600 bitcoin in June.
Market Context
The struggles of DATs reflect a broader cooling in the digital asset market. The total market capitalization of the crypto sector peaked last July at $4 trillion but has since retreated significantly. A record $19 billion liquidation of crypto positions in November highlighted the market's volatility.
Aggregate weekly trading volume for DAT shares has also declined from its peak in August of last year, according to data cited from Artemis Terminal. The companies referenced in the report either declined to comment or did not respond to requests for comment.