Opinion by: Mike Maloney, Chairman of 21 Vault, a company operating in digital asset infrastructure and treasury strategy
Digital asset treasuries (DATs) started back in 2020 with Strategy’s decision to buy and hold Bitcoin (BTC). That fateful decision has created a treasury with a market capitalization exceeding $80 billion.
A flurry of companies began to replicate this buy-and-hold approach. These new DATs raise huge amounts of capital to buy their chosen asset before merging with publicly traded companies, giving investors exposure to crypto via their stocks.
Summer turned to winter. In certain market conditions, a pure buy-and-hold approach can fall short of shareholder expectations; worse, these efforts miss a major opportunity for DATs to serve as the core source of patient capital that crypto desperately needs.
Doing nothing with crypto on the balance sheet is not a strategy
The success of Strategy’s Bitcoin accumulation model spurred the launch of a growing number of DATs, but they failed to adopt Saylor’s capital market strategy and simply held on to them. This is the wrong approach, placing the balance sheet at FX and management risks, rather than building a strategy to generate a return on investment (ROI) for shareholders.
DATs should not bet their futures on one assumption: that Bitcoin and other crypto prices will always go up. That’s not treasury management; that’s leveraged speculation. It leaves these companies vulnerable to both market drawdowns and regulatory classification as investment companies, potentially raising compliance and classification risks in some jurisdictions.
Meanwhile, their crypto holdings sit idle, doing nothing to enhance liquidity, stability or adoption in the broader ecosystem. None of these DATs are deploying capital back into the ecosystem or technologies that sustain their assets. They’re not supporting Bitcoin’s financial infrastructure, improving Lightning liquidity or funding development that strengthens the network.
There’s no value in corporate hodling for its own sake. Individuals can do that. A company must have a strategy, and that strategy should serve both its investors and the community it depends on.
The DAT 2.0 approach leverages crypto to support the ecosystem
We can’t bet on crypto prices increasing, but we can bet on crypto being adopted in new and emerging economies. An effective DAT strategy involves leveraging crypto into strategies and companies that enhance and safeguard the ecosystem. For Bitcoin, this would involve investing in mining, custody, payments, lending and liquidity infrastructure that supports the Bitcoin ecosystem.
Rather than relying on an ever-increasing rise in Bitcoin’s price, DATs 2.0 will diversify their investments across projects that ultimately contribute to the ongoing growth and longevity of the Bitcoin network, which in turn makes it more likely that the price will indeed increase. Remember, at its core, Bitcoin is a proof-of-work system.
This puts DATs 2.0 in position to serve a role that banks have served in TradFi for 140 years: as a foundational source of “slow capital.”
DATs can become the source of slow capital
TradFi can rely on trillions of dollars of patient, permanent capital that backs up Chase, JPMorgan, Goldman Sachs and other pillars of the economy. If crypto is to move beyond an alternative asset class, it also needs patient, slow capital at its core that supports the entire ecosystem. DATs are that opportunity — not venture capital or hedge funds.
Related: Crypto treasury buying outpaces Bitcoin supply at 3-to-1
The reason venture capitalists and hedge funds are ill-suited for this important role is multifold. A hedge fund must retain a 10-15% ROI; otherwise, its investors will pull out. Venture capital, even those with the longest view, typically requires a five-year public equity event where they remove capital. Retail investors are not going to be motivated by low-risk, low-yield opportunities. It’s just not in their wheelhouse. This is the fourth type of capital that has never been seen in the cryptocurrency space.
DATs 2.0 could function more like long-term ecosystem financiers, deploying investment capital to support the broader ecosystems of cryptocurrencies that DATs 1.0 previously only bought and held.
This represents one potential long-term strategy for DATs and the broader crypto ecosystem.
Opinion by: Mike Maloney, Chairman of 21 Vault.
This opinion article presents the contributor’s expert view and it may not reflect the views of Cointelegraph.com. This content has undergone editorial review to ensure clarity and relevance, Cointelegraph remains committed to transparent reporting and upholding the highest standards of journalism. Readers are encouraged to conduct their own research before taking any actions related to the company.
This opinion article presents the contributor’s expert view and it may not reflect the views of Cointelegraph.com. This content has undergone editorial review to ensure clarity and relevance, Cointelegraph remains committed to transparent reporting and upholding the highest standards of journalism. Readers are encouraged to conduct their own research before taking any actions related to the company.
