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Bitwise’s chief investment officer believes digital asset treasuries face a “huge challenge” and the reasons their stocks are overvalued are likely to disappear.

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Matt Hougan, chief investment officer at Bitwise, believes that stocks of treasuries and digital asset managers (DATs) are unlikely to maintain valuations above the value of the digital assets they hold, adding that the structural problems lie in the operating models of treasuries and digital asset managers (DATs), and that the reasons why their stocks are overvalued are the exception, not the rule.

Key points:

  • Matt Hougan, chief investment officer at Bitwise, believes that the majority of digital assets held by crypto treasury institutions will trade at lower price levels.
  • This structural pressure can only be offset by limited and uncertain strategies, such as issuing bonds, lending cryptocurrencies or using options markets.
  • Hogan warns that operational expenses and risks add up over time, making overvaluations an exception even for successful crypto treasures.

Hogan points out that the majority of crypto treasuries (DATs) inevitably face downward pressure due to lack of liquidity, increased operating expenses, and execution risks, adding that these factors consistently push the market capitalization of these companies below the value of the digital assets held, while there are only a small group of uncertain strategies that can increase the value of digital assets per share.

“The majority of companies are trading at a discount, and only a few are trading at a premium,” Hogan said, describing crypto treasury companies (DATs) as belonging to an industry with “significant hurdles.”

Lack of liquidity and increased expenses and risks lead to a decline in valuation

Hogan broke the structural discount into three pillars, starting with the lack of liquidity, which he described as a fundamental constraint that exists because investors in digital asset vaults (DATs) invest indirectly rather than owning the assets themselves.

Hogan asked: “Why would you pay today the full price of one Bitcoin (BTC) that you accumulated over an entire year? He stressed that any delay or disagreement would automatically result in a drop in the price. Hogan then discussed expenses, pointing out that operating costs and employee salaries erode the per-share value of cryptocurrencies over time.

Finally, Hogan emphasized risk prevention, as he believes investors should take into account the possibility that the Treasury institution will weaken “one way or another,” whether through poor management or execution, or unexpected losses.

Noting that these factors together constitute the primary adversity facing digital asset treasury (DAT) institutions, Hogan added that only a limited set of strategies can offset this structural slowdown, including issuing bonds, lending held digital currencies, engaging in options markets, or purchasing assets at a discount, all of which are strategies that only work in specific circumstances and often create new problems.

He added that “expenses and risks increase over time,” emphasizing that even well-managed digital asset vaults (DATs) will find it increasingly difficult to maintain good performance across phases of market cycles.

Exchange-traded funds (ETFs) currently offer the clearest avenues for investing in cryptocurrencies.

Hogan’s comments come as the public mood shifts toward investing using crypto ETFs, which many analysts say offer a clearer and simpler path to investing in digital currencies.

Nate Geraci, one of the founders of the ETF Institute, described ETF products as “the killer of crypto treasuries (DATs)” because they ended the era of DATs taking advantage of regulatory loopholes, according to him.

In response to Geraci, Eric Balchunas, an ETF analyst at Bloomberg, explained that these investment products achieve the same goals as digital asset vaults (DATs), but with “better tracking,” allowing them to more effectively reflect the performance of the underlying assets.

Anecdotally, the global cryptocurrency sector appears to be on the brink of potential trouble, with MSCI, a leading index provider, weighing whether to exclude digital asset-intensive companies from its main benchmarks, a move that analysts say could lead to billions of dollars in divestments early next year.

The debate, which began quietly in October, took on added significance after MSCI confirmed it was consulting the investment community on whether companies with more than 50% of their balance sheet assets in Bitcoin or other digital currencies would still be eligible to remain on the lists.

Bitwise’s chief investment officer believes digital asset treasury institutions face a “significant challenge” and the reasons why their stocks are overvalued are likely to disappear. It first appeared on Cryptonews Arabic.

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