Galaxy Report Warns of Risks from Digital Asset Treasury Companies
A report by Galaxy Digital highlights risks associated with the growth of Digital Asset Treasury Companies (DATCOs), which now hold over $100 billion in digital assets.
- The business model relies on a persistent equity premium linked to cryptocurrencies like Bitcoin and Ethereum.
- If this premium declines, the model may collapse.
- The influx of DATCOs resembles speculative investment trusts from the 1920s, risking correlated downturns.
- Widespread redemptions could trigger a significant unwinding of digital asset prices.
- Some companies are already trading at discounts to net asset value (NAV) and may begin stock buybacks using digital asset reserves.
- Potential sector consolidation could occur as larger firms acquire smaller DATCOs at NAV discounts.
- An unwind might dampen interest in digital assets among public equity markets and slow inflows into crypto ETFs.
This trend poses challenges for the normalization of digital assets on corporate balance sheets.