The DAT Model Under Pressure
When bitcoin experiences a downturn, companies that have heavily invested in it often face significant challenges. The leading cryptocurrency has seen a substantial drop from its peak, revealing vulnerabilities in models reliant on market euphoria and debt. For some crypto-centric companies, this decline represents not just a slowdown but a critical reversal, leading to massive losses, unstable business models, and a struggle for survival. This analysis explores the causes and implications of this sharp and predictable turnaround.
In brief
- •The Digital Asset Treasury (DAT) model is facing collapse as the bitcoin price drop makes stock issuances unprofitable.
- •Metaplanet has reported unrealized losses amounting to 530 million dollars since October.
- •Nakamoto, once a high-performing stock, has experienced a dramatic 98% plunge in value over a few weeks.
- •Strategy raised 1.44 billion dollars to ensure dividend payments during the crypto market downturn.
BTC Down, Companies Under Pressure: The Great Reversal of the DAT Model
The Digital Asset Treasury (DAT) model was long considered a highly effective strategy for generating returns. The core principle involved companies issuing shares when their stock price exceeded the value of their bitcoin holdings, using the proceeds to purchase more bitcoin and further boost their market capitalization. However, with the recent decline in bitcoin's price, this previously beneficial cycle has inverted, becoming a significant liability.
Galaxy Research succinctly explains the situation:
The bitcoin treasury model is fundamentally a liquidity derivative. It works only when the equity trades at a premium to its BTC NAV. Once those premiums collapse, the entire flywheel reverses.
The sharp fall in bitcoin's price has directly caused this disruption. Companies such as Metaplanet and Nakamoto, which reported substantial unrealized gains in the previous autumn, are now facing considerable losses. By December, Metaplanet had documented approximately 530 million dollars in unrealized losses.
While the BTC price has only decreased by around 30%, the stock values of these companies have plummeted by as much as 98%. As noted by Galaxy, this price behavior is reminiscent of the dramatic crashes seen in memecoin markets.
From Glorified Leverage to Systemic Risk: The Amplified Crypto Effect
The cryptocurrency industry has a strong affinity for leverage. However, when market conditions shift, this leverage can quickly transform into a significant burden, particularly for companies that have made substantial bets on bitcoin. According to Galaxy, the same financial mechanisms that magnified gains during the upward trend have also amplified the severity of the downturn.
Some companies acquired bitcoin at prices exceeding 107,000 dollars per coin. Currently, these investments are operating at a loss. Nakamoto's stock has seen a decline of over 98%. This situation goes beyond a mere price correction; it represents a significant disintegration of value. Concurrently, the stock prices are trading at a discount, making profitable share issuance impossible.
Three potential scenarios could emerge from this challenging environment. The most probable outcome is a permanent compression of premiums, leading to DAT stocks becoming riskier than bitcoin itself. A second possibility involves consolidations or acquisitions, where financially stronger firms might absorb weakened companies. Finally, an optimistic scenario could see a resurgence in value if bitcoin reaches new all-time highs, though only those companies that have managed their finances prudently would be positioned to benefit.
Bitcoin Shakes Companies, but the Entire Crypto Industry Wobbles
The current financial strain is not confined to major bitcoin-holding companies. Other cryptocurrencies, such as Ethereum (ETH) and Solana (SOL), when held by companies, offer opportunities for staking and lending. However, these alternative revenue streams have not been sufficient to counteract the widespread decline in market confidence.
A reduction in liquidity, coupled with the shockwaves from October 10—which triggered a cascade of forced sales in futures markets—exacerbated the panic. Many investors are beginning to question the long-term viability of these highly exposed business models. This situation represents more than just a price issue; it is a large-scale stress test for the entire cryptocurrency sector.
The case of Strategy provides a telling example: the company successfully raised 1.44 billion dollars to secure 12 months of dividend payments. This move underscores a crucial shift: cash is once again paramount, even within the crypto space. Companies that failed to build adequate reserves or that overestimated their business models are now facing the consequences.
Key Figures Highlighting the Situation
- •92,119 dollars: The current price of bitcoin (BTC).
- •-98%: The percentage drop in Nakamoto's stock value from its peak.
- •530 million $: The amount of unrealized losses reported by Metaplanet in December.
- •107,000 $: The approximate average purchase price of bitcoin for Metaplanet and Nakamoto.
- •1.44 billion $: The cash reserve raised by Strategy to provide reassurance to the markets.
While crypto companies are experiencing significant difficulties, mining companies are also feeling the impact. Their stock values have been falling rapidly, with some experiencing declines of up to 50% in just a few weeks. Faced with escalating energy costs, a declining bitcoin price, and shrinking premiums, the profitability of bitcoin extraction has become a major concern. Consequently, the current market turmoil is affecting the crypto sector broadly.