Crypto winter could spur 'Darwinian phase' for digital asset treasury companies
"We look much more like a 'Mag 7' tech stock than a closed-ended fund or an ETF," Le added.
Strategy has made a similar argument to MSCI, challenging the index provider's upcoming January decision on whether to exclude firms whose digital asset holdings represent 50% or more of total assets from global indexes.
Bernstein analysts believe Strategy will make it through the crypto winter just fine.
But many of the firms that copied Strategy's playbook during the boom, buoyed by soaring token prices and crypto-friendly regulatory winds, may not.
"Market concerns on MSTR are overstated and there is no realistic scenario which threatens the longevity of MSTR," analyst Gautam Chhugani wrote in a note on Dec. 1. "However, several MSTR copy-cats may continue to trade at discount to their NAVs without a clear path to raise long term capital."
Out of the 100 bitcoin treasury companies with a measurable cost basis, 65 bought bitcoin above current market prices, according to a Thursday report from data aggregator Bitcoin Treasuries, leaving them with unrealized losses when the cryptocurrency plunged. Last month, while crypto's rout kicked into higher gear, five of those firms sold 1,883 bitcoins.
Read more: Can you buy crypto with a credit card? See the pros and cons.
"I think you'll see a lot of the DATs become irrelevant," Hivemind Capital founder Matt Zhang told Yahoo Finance. Zhang said his investment firm evaluated more than 100 DATs this year and invested in just over a dozen.
"Just like the 2000 internet bubble, where many people stuck the dot-com on their business cards and hoped they're going to make it, and they're not, because the fundamental business model was flawed," he added.
Zhang believes all S&P 500 (^GSPC) companies will eventually hold bitcoin and ether as a store of value and a treasury diversifier. But that alone won't be enough.
"The question is what are you going to do beyond just that?" he said. "Are you supposed to have an operating business, and an operating business driving the cash flow that's very much benefiting the cryptocurrency treasury you have?"
Zhang said he wouldn't be surprised if consolidation takes place, but added, "It depends. I don't think we should draw a conclusion against all of them."
Restructuring and stronger players acquiring weaker ones are possibilities, according to Will Owens, a research analyst for Galaxy Digital.
"In other words, treasury companies are about to enter a Darwinian phase," Owens wrote earlier this month.
The analyst said if and when bitcoin prints new all-time highs, it could be game on again for those who survive.
"In principal, the treasury company trade isn't dead," Owens wrote. "But the bar appears to be higher now."
One newcomer attempting to clear that higher bar is Twenty One Capital (XXI), backed by heavyweights Tether and SoftBank (9434.T). The company saw its stock drop 19% during its public debut on Dec. 9. Its CEO, bitcoin influencer Jack Mallers, pushed back against the perception of a passive holding company and comparisons to prominent crypto players.
"People want to size us up like Strategy — we’re not," he said. "We're going to build cash flows, businesses, products," Mallers told CNBC last week. "People size us up to a Coinbase. We're not. We already own far more bitcoin than they do."
"So the point is we’re different," Mallers added. "And the market's going to have to figure us out. And they can take as much time as they want."
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
David Hollerith covers the financial sector, ranging from the country's biggest banks to regional lenders, private equity firms, and the cryptocurrency space.
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