Digital Asset Treasury Companies Face Growing Risks
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Digital asset treasury companies (DATCOs) are on the rise, but their rapid expansion may be building systemic risk into the crypto ecosystem. A new report from Galaxy Digital, a leading crypto financial services firm, warns that these companies may be repeating dangerous patterns from history—patterns that could unravel the very market they’re helping to build.
DATCOs are public companies that use their equity capital to accumulate Bitcoin (BTC), Ethereum (ETH), and other digital assets. The model, made famous by MicroStrategy Inc. (NASDAQ:MSTR), is now being mimicked by a growing list of firms such as Metaplanet Inc. (TSE:3350) and SharpLink Gaming Ltd. (NASDAQ:SBET). Altogether, DATCOs now hold more than $100 billion in digital assets.
The Fragile Math Behind DATCOs
The financial structure of digital asset treasury companies relies on one crucial condition: that their stock price remains higher than the net asset value (NAV) of their holdings. As long as this equity premium exists, they can raise capital by issuing new shares, buy more crypto, and boost their NAV even further.
But if this premium evaporates—or worse, flips into a discount—the model breaks down. Galaxy compares this reflexive loop to the investment trust bubble of the 1920s, where speculative fever drove investors into highly leveraged entities like the Goldman Sachs Trading Corporation, which was essentially the MicroStrategy of its time. The bubble eventually burst with devastating consequences.
Galaxy warns that a similar speculative pathology could be at play today. “The playbook is clear, and capital is pouring in,” the report notes. “But this is part of the risk.”
A Crowded and Correlated Trade
If a handful of companies followed this strategy in isolation, the risks might be manageable. But Galaxy observes that “ten or so firms a week are now crowding into this trade.” These digital asset treasury companies are not only pursuing the same strategy—they’re highly correlated to one another and to the underlying crypto markets.
This creates a structurally fragile situation: if investor sentiment turns, crypto prices drop, or liquidity tightens, redemptions and stock buybacks could cascade across the sector. As companies begin selling off assets to support their stock prices or operations, it could create significant downward pressure on crypto prices, Galaxy said.
Even a halt in net accumulation could remove one of the strongest supports for Bitcoin this cycle—namely, the persistent buying from corporate treasuries.
Early Warning Signs and What Comes Next
The cracks are already showing. Some DATCOs are beginning to trade below their NAV, prompting stock buybacks to close the discount. One such example is Bitmine, which has secured board approval to repurchase up to $1 billion in shares.
Galaxy suggests this could lead to a new wave of consolidation in the sector. Premium-trading firms like MicroStrategy (NASDAQ:MSTR) may acquire smaller players trading at a discount, effectively buying Bitcoin at a reduced price using their own overvalued stock. But this only works as long as the acquiring firms themselves maintain that premium.
If sentiment shifts and premiums vanish, the DATCO model could collapse under its own weight.
Implications for the Broader Crypto Market
As digital asset treasury companies grow larger, their market impact intensifies. An unwind of this strategy could dampen institutional enthusiasm for crypto and slow inflows into crypto ETFs—a key channel for retail and professional investors alike.
Galaxy concludes that if this cycle ends in a mass unwind, it could “weaken the strongest tailwind crypto has had”: the normalization of digital assets on corporate balance sheets. Without that support, the crypto market may face a more volatile and uncertain future.
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