In today’s “Crypto for Advisors” newsletter, Aaron Brogan of Brogan Law describes the history and business model of digital asset treasuries.
Next, in “Ask an Expert,” DJ Windle of Windle Wealth answers questions advisors need to know about crypto treasury companies.
–Sarah Morton
Digital Asset Treasuries: Separating Hype from Value for Advisors
Digital asset treasury (DAT) companies provide public exposure to crypto, but how much hype do you buy?
The digital asset treasury (DAT) company is a new invention with a long history. These are public companies pursuing an explicit priority of purchasing digital assets. In 1989, Michael Saylor founded MicroStrategy (now Strategy) as a software company. It enjoyed 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 continues to offer obscure software and services today. But the magic happened elsewhere. In 2020, the company started buying Bitcoin, and it hasn’t stopped.
At first, his approach seemed like rabid evangelism. Saylor would buy Bitcoin, go on TV, and convince others to buy Bitcoin, which would increase the company’s investment. But over time, another phenomenon emerged. As Strategy bought more and more bitcoins and the price of bitcoin climbed higher and higher, Strategy increasingly became a box of bitcoins with a vestigial software company stapled to it. At this point, its stock price and market capitalization should have converged towards the price of Bitcoin, but that is not the case. It was trading at a premium. When this happened, promoters emerged from their reservations, like Smaug, and DAT was born.
This multiple of a DAT’s net asset value (NAV) and its market capitalization, known as the NAV multiple (mNAV), creates a special kind of power. If you can buy an asset for $1 and increase your market cap by $2, you shouldn’t do anything else. You can sell stock, or even take on debt, and immediately and directly use it productively, thereby increasing shareholder value. As long as this relationship continues, it remains essentially a money printer.
And so, as Strategy executed this playbook over time, others took note. They started to get the idea that maybe they could follow it and create their own DAT. Some have used BTC, like Mara Holdings, Inc., but over time others have tried it with other assets like Ether. owned 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, associated with public trading, lead to rapid profits. BTC has always been highly liquid, but for virtually every other digital asset, creating a public well to purchase tokens presents the dazzling potential to increase asset value and provide exit liquidity in one fell swoop. This is one of the main reasons why the meta has gained so much popularity recently. It’s good for bag holders.
But what about buyers? Well, access a DAT stock Before its mNAV value increases, that’s good, as the company implements its strategy and hopefully gains value, shareholders can see gains. But for an ordinary buyer in the public markets, once a positive mNAV is established, the value proposition is speculative. You’re buying a premium on the underlying asset, and that premium could easily disappear.
Historically, access to Strategy was valuable to institutional advisors who were reluctant or legally unable to purchase bitcoin directly for their clients. They could instead own Strategy. But as old taboos fade, and with them regulatory disapproval, this proposal could lose its luster. At the same time, exchange-traded products (ETPs) that skip the step of pooling cash into an operating company have recently been approved, further diluting DAT’s advantage.
There is also the regulatory question. The strategy is not a ’40 Act fund because BTC is not a security, but it is not clear that the same reasoning would apply to DATs holding other assets. A future administration hostile to the industry could test the operating company exemption it relies on. To the extent that DATs use leverage to acquire assets, future market instability could lead to liquidations, thereby increasing risk. Premiums could also collapse at present.
Chart: performance of the strategy compared to bitcoin (Source: strategtracker.com)
For advisors, understanding these different risk vectors is essential to advising clients on a DAT purchasing strategy. Regulatory risk is unlikely to be significant in the current environment, but a collapse in premiums could be. It is therefore essential to understand the mNAV of a DAT at the time of purchase to assess its risk profile. Leverage can also increase the risk profile. Finally, DATs can change strategies 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 should advisors understand before clients start asking questions about digital asset treasury companies?
A: 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 crypto on their balance sheets, and their stock prices often move based on these assets rather than their business fundamentals.
When customers talk about it, they’re actually asking, “Is this a safe way to own cryptocurrencies in my brokerage account?” The best preparation is to understand that DATs function as leveraged proxies 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 this dynamic clearly separates education from hype.
Q: How can advisors evaluate whether a DAT makes sense for a portfolio?
A: Start with what’s driving the stock. A DAT’s stock price reflects not only the value of its crypto treasury, but also investor sentiment, leverage, and liquidity. Advisors should consider three things:
- Treasury Mix: What assets are held and how transparent are they?
- Leverage: Did the company borrow to buy more crypto? If this is the case, volatility is amplified.
- Premium/Discount: Compare the company’s market capitalization to the true value of its assets. This gap is where most investors misjudge risk.
Advisors can then reframe client enthusiasm around the fundamentals. Is the objective diversified exposure or speculation on a premium? This distinction determines whether a DAT belongs somewhere close to a client’s wallet.
Q: What should advisors be prepared to explain when clients compare DATs to cash ETFs?
A: This will be the most common question. The answer is that spot ETFs directly hold the digital asset, trade close to net asset value, and operate under clear regulations. DATs, on the other hand, are companies that use their balance sheets to hold these same assets and sometimes use debt to do so.
This means that the upside potential may seem exciting, but the risk profile is closer to a leveraged stock than an ETF. Advisors should prepare to discuss taxation, concentration risk, and how DATs might react differently than the underlying crypto. Helping clients see this difference turns a speculative security into a teaching moment about structure, liquidity and risk tolerance.
– DJ Windle, Founder and Portfolio Manager, Windle Wealth
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