DATs are companies whose business is hoarding cryptocurrencies
The more I delve into the intricacies of cryptocurrency, the more I am struck by its complexity. Like any other asset, there are all sorts of derivatives: funds of crypto, ETFs, futures contracts and on and on. As I pointed out last week, this complexity is far over the heads of ignorant, Dunning-Kruger congressmen, and Trump is hell-bent on removing any restrictions or regulations. The smart boys on Wall Street are licking their chops over ways to game the system.
I have already compared Stablecoin to the catastrophic Savings and Loan crisis. Today I want to look at DATs, or Digital Asset Treasury companies. The idea was made famous in 2020 by Michael Saylor with his company Strategy. His idea was to bundle together (called ‘hoarding’ in the media) several cryptocurrencies. The company’s share value is based on its holdings of crypto.
Some companies or countries are not allowed to trade in crypto, but they can buy shares in Strategy as an alternative to buying crypto directly. That is why Strategy (and its many look-alikes) are so appealing.
Strategy made billions on its model, so many other companies followed suit. They realized that simply by advertising that they are investing in crypto, their share value will increase. Once investors sink their capital into the company, the company can leverage even a small crypto holding into more investment capital. However, I flinch whenever I hear the word ‘leverage’. It is a dangerous word, because a small profit or loss in the underlying crypto can translate to a bigger profit or loss in the share value. As an article in MSN stated:
A flood of penny stocks and obscure microcap firms began using bitcoin as a headline tool, not an investment thesis. These companies had no real exposure to digital assets as a business — no mining rigs, no blockchain products. But they saw what happened to Strategy’s stock and tried to replicate it. The formula became familiar: issue a press release touting a pivot to crypto, announce a small Bitcoin or Solana purchase, and watch the stock briefly spike. In many cases, it worked — for a day or two.
Small companies have also started to dip into more thinly traded volatile tokens in a bid to boost their profits, creating more potential volatility risk for their share price
ALT5 Sigma, for example, is a company that started a DAT strategy hoarding the Trump family’s cryptocurrency venture, World Liberty Financial.
If the Stablecoin phenomenon reminded me of the Savings and Loan scam, the complexities of DATs remind me of the Subprime Loan scam, in which highly risky loans and mortgages were bundled into Collateralized Debt Obligations, and somehow given super-safe AAA ratings. Of course, when the underlying mortgages went bust, so did the CDOs.
Today, we have highly risky cryptocurrencies hoarded by DATs, who then sell their shares at a premium. If the underlying cryptocurrencies go south, the leveraged DATs can lose their shirts, that is, the investors in the shares of the DATs lose their shirts.
So now we have Stablecoin looking like the S&L disaster, and DATs looking like the subprime disaster. I have only scratched the surface of the arcane world of cryptocurrencies. Who knows what other schemes are being hatched to siphon off billions of dollars, while ignorant politicians and Trump’s deregulators sit back and let it all happen. In fact, they are probably complicit in the scams.