Bitwise CIO: Digital Asset Treasuries Need the 'Hard Path' to Stand Out

Digital Asset Treasuries: Are They Taking the Hard Path?

According to Bitwise chief investment officer Matt Hougan, digital asset treasuries (DATs) need to take a more challenging route if they truly want to distinguish themselves. Otherwise, investors are better off simply investing in crypto exchange-traded funds (ETFs).

Hougan argues in an X post that one of the best ways to discern whether a DAT is worth scrutinizing is to ask the question: "Are they doing something hard?"

"Buying a crypto asset and putting it on a balance sheet today isn’t hard. It was hard at one point, but it’s not hard now. If that’s all a DAT is doing, you are better off owning an ETF. This is true even if the DAT is staking, as ETFs now stake," he said.

Bitwise has launched a range of ETFs tied to crypto, including a Solana (SOL) ETF that offers staking.

Key Factors to Watch for in a DAT

Hougan said there are several ways for DATs to distinguish themselves, such as participating in the DeFi ecosystem through actions like smart loans and other income-generating strategies like writing covered calls against crypto.

"These aren’t all necessarily good ideas, and not everyone will do them well. But they are not trivial, and if done well, there is a chance they will be rewarded," he said. "By contrast, DATs that take the lazy approach of just buying a crypto asset and holding it will trade at a discount to the value of that asset."

MicroStrategy: A Crypto Treasury Worth Watching

Hougan argues that Michael Saylor's Bitcoin-hoarding company, MicroStrategy, is "doing something hard." MicroStrategy is a flagship DAT and by far the largest holder with 641,205 Bitcoin (BTC), worth over $66 billion.

"MicroStrategy already owns $64 billion of Bitcoin against $8 billion of debt, and it’s issuing debt against that position. It is hard to have $56 billion in Bitcoin equity. Go try to raise $56 billion in equity capital to buy Bitcoin in a corporate structure, debt-free. Not easy," he said.

"And if you have $56 billion in Bitcoin equity, you can do things like sell convertible debt and preferred shares that let you buy more Bitcoin. In some market conditions, this will allow you to trade at a premium."

DAT’s Stock Gains Are Often Short-Lived

The number of crypto treasuries has exploded this year, with an October report from Bitwise tracking 48 new instances of companies adding Bitcoin to their balance sheets, totaling 207 overall, and collectively holding over one million tokens, worth over $101 billion.

However, questions are being raised as to whether companies are pivoting to crypto as a PR stunt to save floundering balance sheets and boost stock prices. A Wednesday report from CoinGecko found that initially, DATs do enjoy a stock spike within the first 10 days.

The pumps are often short-lived, though, according to CoinGecko, because the majority of DAT stocks start "tanking in the days following their pivot."

"In the end, DATs are just companies. Good companies get rewarded for doing hard things well over time. Bad companies that execute poorly or try to take the easy route to riches get punished. This will be true in DAT-land too," Hougan concluded.