Crypto Treasuries Encounter Significant Challenges: Premiums May Not Persist, Says Bitwise CIO

Digital asset treasury firms are likely to struggle in maintaining valuations that exceed the actual worth of their held cryptocurrencies. This comes from insights shared by Matt Hougan, Chief Investment Officer of Bitwise, who noted on Sunday that inherent challenges within the digital asset treasury (DAT) model suggest that enduring premiums should be viewed as the exception rather than the norm.

Key Takeaways

Bitwise CIO Matt Hougan believes that most digital asset treasuries will be valued at a discount.
Only a limited number of uncertain strategies, such as issuing debt, lending tokens, or utilizing options, can mitigate this inherent pressure.
Hougan cautions that operational costs and associated risks accumulate over time, making it difficult for even well-managed DATs to maintain premiums.

Hougan explained that many digital asset treasuries face unavoidable downward forces stemming from issues like illiquidity, operational costs, and execution risks.

These factors consistently drive a treasury's market value below that of its underlying crypto assets. He pointed out that only a handful of uncertain strategies have the potential to elevate the asset values per share.

“Most will trade at a discount, and only a select few top-tier firms will trade at a premium,” Hougan noted, describing DATs as a category facing a “high hurdle.”

Crypto Treasuries Encounter Significant Challenges: Premiums May Not Persist, Says Bitwise CIO

Factors Contributing to the Baseline Discount in DATs

Illiquidity, Expenses, and Risk

Hougan identified three main components to explain the structural discounts: illiquidity, expenses, and risk.

Starting with illiquidity, he described it as a fundamental barrier because investors in DATs realize exposure indirectly instead of directly holding the assets.

“Why pay full price now for Bitcoin that you won’t receive for another year?” he questioned, noting that any delays or complications trigger an automatic valuation decrease.

He then highlighted expenses, explaining that costs associated with operation and compensation for executives dilute the value of crypto per share over time.

Lastly, Hougan underscored the importance of risk, stating that investors must account for potential errors in treasury management, which could stem from poor execution, mismanagement, or unexpected financial losses.

Together, these factors contribute to the baseline discount that DATs must work hard to surpass.

Hougan added that a limited range of strategies could counterbalance these structural dilemmas. These strategies include issuing debt, lending tokens, selling options, or acquiring assets at lower prices—each of which comes with specific conditions and could introduce new risks.

“Operational costs and risks multiply over time,” he noted, emphasizing that even well-managed DATs encounter increasing challenges in sustaining their performance.

ETFs Present a Stronger Route to Crypto Exposure

Hougan's observations occur amid a growing consumer preference for exchange-traded funds (ETFs), which analysts claim provide a neater and more straightforward way to gain crypto exposure.

Nate Geraci, co-founder of The ETF Institute, referred to spot ETFs as “DAT killers,” signaling the end of an era where treasury firms could exploit regulatory gaps for profit.

In response, Bloomberg ETF analyst Eric Balchunas remarked that ETFs serve the same objectives as DATs but do so “with proper tracking,” enabling them to reflect the performance of the underlying assets far more effectively.

As previously reported, the global crypto market is preparing for potential volatility as major index provider MSCI contemplates barring companies heavily invested in digital assets from its leading equity benchmarks. Analysts warn that this decision could trigger billions in passive fund outflows early next year.

The conversation around this topic began surreptitiously in October but has recently gained traction after MSCI confirmed it is seeking feedback from the investment community on the future eligibility of firms holding more than 50% of their balance in Bitcoin or other cryptocurrencies.