Author: Cosmo Jiang, Partner at Pantera Capital
Compiled by: AIMan @ Golden Finance
A new frontier of public market cryptocurrency investment is emerging — Digital Asset Treasury companies (DATs). These companies emulate MSTR's strategy by offering digital asset investments through permanent capital instruments listed on public stock exchanges. After carefully studying the nuances of this strategy, we are convinced of this investment thesis and tend to concentrate our investments.
As investors, we strive to continually test our previous biases. Given the persistent premium of MSTR and the buying by fundamentally oriented funds including Capital Group and Norges, we seek asymmetric opportunities to capitalize on the DAT trend. While the premium may not last forever, there is a fundamental reason to invest in digital asset treasury companies and explain why their trading prices may exceed their underlying net asset value (NAV).
The most basic bullish argument is that through MSTR, over time, it is possible to hold more BTC-per-share (BPS) compared to directly buying BTC. Let's do a simple math calculation:
If you buy MSTR at twice the net asset value, you are purchasing 0.5 BTC, rather than buying 1.0 BTC through spot purchases. However, if MSTR can raise funds and BPS grows by 50% per year (it grew by 74% last year), by the end of the second year you will have 1.1 BTC — more than if you had purchased spot directly.
To believe that MSTR can sustain BPS growth, you must believe three things:
1. Stocks sometimes do not trade at fair value, and the market can become irrational, leading to valuations that are too high relative to net asset value. Any investor who has spent enough time in the market knows that it is not always rational.
2. The volatility of MSTR stock is high, which creates conditions for MSTR to sell convertible bonds or obtain volatility premiums by selling its own call options.
3. The management team has enough financial acumen to take advantage of these conditions.
Looking ahead, one undervalued factor driving the success of DAT is how they connect traditional investor behavior with digital asset investment — essentially by converting cryptocurrency into stocks. The strong demand for products like MSTR, ETFs, and the new wave of DAT indicates that significant capital has previously been marginalized due to the complexity of entering cryptocurrency-native products (like setting up wallets or cryptocurrency exchange accounts). Encouragingly, more capital is now entering this space, even through 'old' systems.
From a structural supply perspective, DAT presents an interesting contrast to ETFs: purchasing DAT effectively locks in supply, as DAT is essentially a one-way closed-end fund, making the likelihood of selling lower. In contrast, the tokens held by ETFs can dissipate as easily as they accumulate. This phenomenon could have a better impact on the price of the underlying asset because DAT can both purchase more tokens as its reserves and does not fuel sell-offs.
Pantera has invested in several DAT companies.
BTC DAT Company: The most notable is Twenty One Capital (NASDAQ: CEP), led by long-time Bitcoin evangelist Jack Mallers. The company is attempting to emulate MSTR's strategy and is supported by three major industry players: Tether, SoftBank, and Cantor Fitzgerald. Twenty One is just large enough to utilize all capital market tools while having a smaller market cap, allowing it to achieve BPS growth faster than MSTR and trade at a higher premium. As a company, Pantera is the largest investor in the PIPE (Private Investment in Public Equity) after Twenty One went public.
SOL DAT Company: Pantera led the investment in DeFi Development Corp (NASDAQ: DFDV, formerly Janover), which has sparked the DAT trend in the United States. DFDV is led by CEO Joseph Onorati and CIO Parker White, who are drawing inspiration from MSTR's strategy but applying it to Solana. Solana is an interesting alternative to BTC for the following reasons: (a) due to its shorter maturity period, its upside potential may be greater than BTC; (b) its volatility is higher than BTC, meaning this volatility can be leveraged for higher returns; (c) part of its staking yield can promote growth in each SOL share; (d) due to the current lack of available alternatives (e.g., no publicly traded miners and no spot ETFs), Solana has more untapped demand.
ETH DAT Company: Our latest investment in this field is Sharplink Gaming (SBET), the first Ethereum digital asset treasury company in the United States. SBET is backed by leading Ethereum software company Consensys, and Pantera has collaborated with its team for over a decade.
Pantera's support for companies like DFDV, CEP, SBET, and their successful market reactions have helped drive a subsequent series of projects, many of which we are still actively evaluating.
