Understanding the Discount in Crypto Treasury Firms: Insights from Bitwise

Bitwise Chief Investment Officer Matt Hougan emphasizes the issue of mispricing in Digital Asset Treasury Companies (DATs). He advises investors to look beyond simple assets to better understand the financial complexities these firms face.

Key Takeaways

DATs manage over $130 billion in digital assets.
Many DATs are trading at a discount relative to their net asset value (mNAV).
Three main reasons contribute to the observed underperformance of DATs.
Larger DATs possess structural advantages in accessing debt and strategic opportunities.
Increased market differentiation is expected, and understanding Hougan’s evaluation framework will be beneficial for investors.

With these insights, investors can make more informed decisions as they navigate the complexities of investing in digital asset treasury companies.

DATs currently oversee over $130 billion in digital assets, acting as a crucial link between traditional capital markets and direct cryptocurrency investments. Their distinct role presents unique valuation challenges that differentiate them from other investment options.

Bitwise Unveils Three Approaches to Evaluate DATs

Bitwise CIO Matt Hougan alerts investors that many DATs are undervalued. While some may trade at a discount to their underlying assets, a select few can achieve a premium by enhancing their crypto-per-share value.

Hougan’s strategy provides investors with a straightforward method to identify which firms are likely to succeed versus those that may struggle.

“I see a lot of flawed analysis regarding DATs, or digital asset treasury companies. Specifically, there are many misconceptions about whether they should trade at, above, or below the value of the assets they hold—what we refer to as their ‘mNAV.’”

– Matt Hougan (@Matt_Hougan)

Hougan points out three primary reasons why DATs frequently fall short of performance expectations: For instance, if a DAT holds $100 in Bitcoin but incurs $10 in expenses per share, it results in a 10% discount. He adds, “Most reasons for them trading at a discount are clear, while the reasons for trading at a premium tend to be uncertain.” This suggests that most DATs will likely underperform based on their net asset value (mNAV).

Conversely, some DATs do manage to outshine their peers by increasing their crypto-per-share value, employing four key strategies identified by Hougan: The Bitwise executive emphasizes that scale is crucial, as larger DATs have better access to debt financing, the ability to lend more cryptocurrency, and the opportunity to pursue mergers and acquisitions. Size provides a structural advantage.

The Future of Market Differentiation

Historically, DATs have tended to move in unison; however, Hougan anticipates increased divergence in their performance moving forward.

Investors can utilize Hougan’s methodology, factoring in expenses, risk, and growth potential, to assess fair value. Key considerations include: As the market prepares for greater differentiation, mastering Hougan’s framework will enable investors to identify successful firms amidst the expanding digital asset treasury landscape.