Digital Asset Vault Company: A New Frontier in Public Market Crypto Assets Investment

A new investment model is emerging in the field of Crypto Assets investment - Digital Asset Treasury companies (DATs). These companies draw on the strategies of Strategy (formerly known as MicroStrategy) by providing digital asset investment opportunities through permanent capital instruments listed on public stock exchanges. After thorough research, this investment concept shows great potential and is worthy of close attention.

As investors, we always maintain an open attitude and continuously examine existing views. Considering the persistent premium of Strategy stocks and the buying behavior of some fundamentally-oriented funds, we are looking for asymmetric opportunities that leverage the DAT trend. Although the premium may fluctuate, there is ample reason to invest in digital asset treasury companies and explain why their trading prices are higher than their underlying net asset value (NAV).

The most fundamental bullish reason is that, through companies like Strategy, investors may hold more Bitcoin (BTC-per-share, "BPS") over time. For example:

If you purchase Strategy stock at twice the net asset value, you are actually buying 0.5 BTC instead of directly purchasing 1.0 BTC. However, if Strategy can successfully raise funds and BPS grows by 50% each year (it grew by 74% last year), then by the end of the second year, the actual BTC held by the investor will reach 1.1, exceeding the amount obtained from direct spot purchase.

To believe that Strategy can continuously improve BPS, one must believe in the following three points:

1. Stocks do not always trade at fair value; the market may exhibit irrational behavior, leading to valuations that are too high relative to the net asset value.

2. The high volatility of stocks creates favorable conditions for the company to issue convertible bonds or sell call options to obtain high premiums.

3. The management has sufficient financial wisdom to leverage these conditions.

One underestimated factor of DAT's success is its connection of traditional investor behavior with digital asset investment, essentially transforming Crypto Assets into stocks. The strong demand for Strategies, ETFs, and emerging DAT products indicates that a significant amount of capital had previously been deterred by the complexity of native Crypto Assets products. Encouragingly, more capital is now entering the space through "traditional" systems.

From a structural supply perspective, DAT presents an interesting contrast to ETFs: purchasing DAT can effectively lock in supply, as DAT is essentially a one-way closed-end fund with a lower likelihood of being sold. In contrast, the tokens held in ETFs may easily dissipate like accumulation. This phenomenon may have a more positive impact on the price of the underlying assets, as DAT can both purchase more tokens as reserves and not encourage sell-offs.

Currently, there are several DAT companies in the market focusing on different Crypto Assets:

BTC DAT Company: Twenty One Capital (NASDAQ: CEP) is a highly regarded company led by Bitcoin advocate Jack Mallers. The company is attempting to replicate Strategy's approach and has the backing of industry giants. Twenty One's moderate size allows it to flexibly utilize various capital market tools, with the potential for faster BPS growth and trading at a higher premium.

SOL DAT Company: DeFi Development Corp (NASDAQ: DFDV, formerly Janover) has sparked the DAT trend in the United States. Led by CEO Joseph Onorati and CIO Parker White, DFDV is applying Strategy's strategies to the Solana ecosystem. Solana has unique advantages as an alternative to BTC: greater potential upside, higher volatility, staking rewards can promote the growth of each SOL share, and currently fewer alternative investment tools.

ETH DAT Company: Sharplink Gaming (SBET) is the first Ethereum digital asset vault company in the United States. SBET is supported by the leading Ethereum software company Consensys, and its team has extensive experience in the industry.

The success of these DAT companies has opened up new avenues for Crypto Assets investment, attracting more investors' attention. With the development of the market, we can expect to see more innovative DAT projects emerge, providing investors with diversified digital asset investment options.