The Limitations of Passive Crypto Hoarding for Digital Asset Treasuries
Digital asset treasuries that merely hold cryptocurrencies may face compliance risks and miss investment opportunities.
The Limitations of Passive Crypto Hoarding for Digital Asset Treasuries
Digital asset treasuries (DATs) emerged in 2020 when a strategy was implemented to buy and hold Bitcoin. This strategy resulted in a treasury valued at over $80 billion.
Many companies started to imitate this buy-and-hold strategy, raising substantial capital to acquire their desired assets before merging with publicly traded companies, thus allowing investors to get crypto exposure through stock ownership.
As summer transitioned into winter, it became evident that a pure buy-and-hold strategy may not meet shareholder expectations in volatile markets. Worse still, it prevented DATs from being a crucial source of patient capital that the crypto industry necessitates.
The Missing Strategy in Crypto Holdings
While the initial success of the Bitcoin accumulation model inspired more DATs, they largely failed to adopt a robust capital market strategy. Instead, they opted to simply retain their holdings, which poses risks related to foreign exchange and management without producing returns for shareholders.
Organizations should not depend on the assumption that the price of Bitcoin or other cryptocurrencies will perpetually rise. This approach is more akin to risky speculation rather than sound treasury management, which exposes them to market downturns and regulatory scrutiny, potentially leading to compliance challenges in various locations.
Currently, their crypto assets lie inactive, failing to contribute to liquidity, stability, or broader adoption within the ecosystem. None of these DATs have reinvested their capital into the technologies that sustain their assets or strengthened the infrastructure supporting Bitcoin.
The DAT 2.0 Vision
Prospective DATs should align their strategies with the ongoing adoption of cryptocurrencies in developing economies. An effective DAT strategy would involve investing in mining, custody, payments, lending, and liquidity infrastructures that bolster the Bitcoin ecosystem.
Instead of waiting for Bitcoin’s price to ascend, DATs 2.0 can diversify investments across projects that are likely to contribute to Bitcoin’s growth, enhancing long-term price potential.
Towards a Future of ‘Slow Capital’
Traditional finance relies on patient capital, backing major banks and economic pillars. In the cryptocurrency sphere, DATs present an opportunity to provide this slow capital, supporting the entire ecosystem rather than functioning merely as investment entities.
The ill-suited nature of venture capital and hedge funds for this role rests on their need for continuous high returns, while DATs can pursue prolonged, lower-risk strategies to foster ecosystem growth.
Overall, DATs 2.0 hold promise as long-term finance sources for cryptocurrency ecosystems, transitioning from mere asset holders to active market participants that can support and nurture the development of broader networks.
