Bitcoin digital asset treasury (DAT) companies have been making headlines in recent weeks, and often for the wrong reasons.
A sharp decline in crypto markets and a more than 40% drop (as of November 27) in the stock price of the world’s largest Bitcoin holding company, Strategy (MSTR), this year has led some to question the sustainability of these companies.
The strategy’s sharp underperformance versus bitcoin (down about 2% this year) in recent months may be due to the looming risk of index inclusion rather than cryptocurrency market dynamics, according to Wall Street bank JPMorgan. However, the falling stock price of MSTR and other Bitcoin DATs still begs the question: is the Bitcoin digital asset cash flow model broken?
According to Elliot Chun, managing partner of investment bank Architect Partners, it’s quite the opposite.
“This is the most exciting time yet for BTC DATs because in real time we are seeing and seeing which DATs will be able to successfully maneuver and communicate through this first ‘macro’ price drop,” Chun said in an interview with CoinDesk.
“It’s still so early as an industry that we haven’t even properly categorized the DAT category yet, so it’s impossible to tell if the model is flawed,” he added.
More than 700% return
Chun divides the Bitcoin DAT landscape into four major groups that are now happening in real time.
“Pure play” DATs which direct almost all of the company’s resources towards maximizing a result denominated in Bitcoin, often in BTC per share. “Produce” DATs that actually generate bitcoins through operations such as mining. “Hybrid” DATs which treat crypto as a main pillar but still manage non-BTC initiatives, and “participating” DATs which simply hold the digital asset on their balance sheet and operate it as a financial markets tool.
As these categories experiment publicly, failures are inevitable, but according to Chun, this is the norm for any emerging business or capital market model.
What all Bitcoin DATs ultimately need to address, Chun notes, is revenue: how to generate yield or cash flow, whether denominated in BTC or otherwise. And not everyone will succeed.
He expects that within five years, half of today’s pure play, producer and hybrid DATs will disappear due to bankruptcies, delistings, mergers or acquisitions.
About 35% will survive without outperforming, 10% will beat major market indexes like the S&P 500, and the top 5% could challenge the decade of the Magnificent Seven, returning more than 700% between 2025 and 2034, Chun said.
Can these companies withstand a real downturn? It depends on how you define “severe”. If the recent pullback matters, Chun expects most DATs to be successful. The real test will be deeper macroeconomic stress, where operational clarity, cash flow discipline and a credible plan will separate the survivors from the targets.
1 million dollars worth of bitcoins
So, what’s next for this industry? Like any other industry that grows at breakneck speed during an upswing and begins to collapse during a downturn, this is consolidation.
Companies that combine TradFi discipline with native understanding of Bitcoin will craft messages that resonate with investors and position themselves to effectively raise and deploy capital. And those that can’t will be acquired, often by other DATs, Chun said.
Longer term, he expects top-performing companies to become acquisition targets for the world’s largest public companies, as the price of bitcoin approaches $1 million and corporate treasuries increasingly view BTC as a strategic rather than speculative asset.
Learn more: Bitcoin’s $1 Trillion Rout Reveals Fragile Market Structure, Deutsche Bank Says
