Digital Asset Treasury Strategy

This report focuses on the rise of altcoin treasury strategies. We examine the motivations behind these new allocations, and the potential opportunities and risks that differentiate altcoin strategies from their bitcoin counterparts.

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Executive Summary

• Recent institutional interest in digital assets has led to the emergence of Digital Asset Treasury (DAT) companies, which are publicly traded firms that intentionally accumulate and hold significant amounts of digital assets on its balance sheet as a core business strategy. This includes bitcoin treasuries pioneered by Strategy, and more recently, altcoin treasuries.
• Narratives of altcoin treasuries include: 
  • Yield-Bearing Assets: In contrast to BTC treasuries that rely on passive BTC appreciation, altcoin treasuries provide growth through staking, operating validator nodes, and DeFi strategies. These strategies allow for the increase in altcoin holdings even in the absence of capital raising to acquire new tokens, potentially providing a hedge during market volatility by offering a base return. 
  • Increase Token per Share: Public companies adopting altcoin treasuries often use advanced financial instruments, such as convertible debt, equity issuance, and private placements, to raise capital and systematically increase crypto holdings per share over time.
  • Alternative to Regulated Crypto Vehicles: There is an opportunity for altcoin treasury companies to act as a proxy for investors to gain regulated, indirect exposure to altcoins and show conviction to emerging narratives including AI and real-world assets outside of the major altcoins (eg. ETH and SOL).
• However, altcoins are inherently more volatile than BTC, leading to fluctuations in a company’s NAV. Bitcoin also has a larger market depth, which can allow for transactions without significant slippage. 
• DATs with lower balance sheet strength may face higher risk in debt default and greater vulnerability to token volatility compared to big DAT companies. Under bull market conditions, altcoins rallies can lead to a premium on NAV. Conversely, during market downturns, sharp drops in token prices or a broad compression in NAV premiums may lead to firms being forced to liquidate reserved tokens and recursively adding more declining pressure on the tokens.
• Altcoin treasuries need to differentiate from BTC treasuries by tapping into the functional and utility-focused nature of altcoins, to develop strategic value beyond the potential financial upside.

1. Introduction

There has been a recent evolution in institutional adoption of digital assets, giving rise to a new class of entities known as Digital Asset Treasury (DAT) companies. These companies allocate a portion of their treasury reserves to crypto assets to align with the crypto trend and attract new investor interest. This model marks a paradigm shift from traditional finance, where the practice was holding cash and cash-equivalents, government securities (e.g., US Treasury bills), and other high liquid assets, as treasuries. 

The trend began with allocations to BTC pioneered by firms including Strategy (formerly known as MicroStrategy) and Tesla. This quickly expanded to crypto companies like BTC miners, including Marathon Digital, CleanSpark, and Hut8, who began holding mined BTC on their balance sheets, as well as crypto exchanges and digital asset management firms. At the time of writing, 160 public companies are holding over 951,000 BTC in their reserves, accounting for 4.5% of the total BTC supply. 

Prior to acquiring crypto, some of these companies were facing stagnating growth or strategic irrelevance in their core business. For example, MicroStrategy was a legacy software company and Metaplanet was in the hospitality business. Strategy’s one-year share price performance prior to announcing its BTC treasury strategy in August 2020 was -12%, while share price increased 505% one year after the announcement.

Recently, the DAT thesis is evolving with participation from more and more companies, with increasing allocations to altcoins, including ether (ETH) and Solana (SOL), as well as ecosystem-specific tokens tied to trending narratives such as decentralised AI (e.g., TAO) and decentralised finance (e.g., HYPE). 

Generally, public companies collect crypto via debt and equity financing — some of which effectively turned their stock into a proxy for crypto exposure. As a result, a growing number of investors have come to view DATs as regulated vehicles for indirect exposure to the token’s upside.

In this report, we mainly explore the rise of altcoin treasury strategies. We examine the motivations behind these new allocations, and the potential opportunities and risks that differentiate altcoin strategies from their BTC counterparts.

2. Narratives and the Significance of Altcoin Treasuries 

The shift to altcoin treasuries reflect a more dynamic approach to capital deployment. While BTC is often viewed as a passive store of value, altcoin holdings can signal a company’s strategic alignment and participation in emerging narratives, including DeFi. Additionally, it can represent a way to manage capital growth through various DeFi strategies. 

2.1 Yield-Bearing Assets 

In contrast to BTC treasuries that rely on passive BTC appreciation, altcoin treasuries provide an additional way to grow through accumulating rewards from DeFi protocols. In particular, staking tokens for the Proof-of-Stake networks provide opportunities to compound growth automatically through earning staking rewards. This can potentially provide a hedge during market volatility by offering potential returns. Additionally, by participating in staking and DeFi, companies deepen long-term liquidity and confidence in the networks.

For example, GameSquare, an advertising agency, announced a partnership with Dialectic to launch an ETH-focused yield generation strategy using DeFi targeting 8 to 14% yields. Additionally, companies including Classover (provider of live online learning) partnered with Everstake Validation Services to launch a SOL validator node to earn validator rewards directly while contributing to network stability. 

2.2 Enhance Net Asset Value & Financial Position 

Another core narrative behind crypto treasuries is to boost a company’s net asset value (NAV), which represents its assets minus liabilities. These tokens are represented in total assets on the company’s balance sheet, and as these token values appreciate during market upcycles, the company’s NAV increases. This, in turn, provides support for a higher market capitalisation (or share price).

Since Strategy announced its BTC treasury strategy in August 2020, its share price has increased more than 3,000%. Altcoin treasury announcements also led to a spike in company share prices, ranging from 300 to 900% increases on the day of announcement based on Sharplink Gaming (SBET), BitMine Immersion Technologies (BMNR), DeFi Development Corp (DFDV) and Upexi (UPEXI). This share price trend also explains why more companies have jumped onto the hype of announcing crypto treasury strategies recently.

In terms of premium vs discount to NAV, Strategy traded between a 60% to 110% premium to NAV in the past three months, indicating that the market consistently values it above its BTC holdings. Altcoin treasuries generally trade higher, from 200% to above 2,000%, potentially highlighting speculative demand and perceived future upside in the holdings. This also came at a time when BTC and ETH prices showed an increasing momentum, rising 24% and 110%, respectively, in the past three months.

However, premiums to NAV can be highly volatile. In a market downturn, NAV premiums can quickly compress or become discounts. This puts pressure on the crypto treasury business model by reducing the firm’s ability to raise capital and limiting abilities to further expand token holdings. Use of leverage through debt financing can further exacerbate the risks. As stock prices decrease and the value of token holdings decline, this may trigger forced sales of their holdings to stabilise balance sheets. 

Furthermore, as more firms adopt this crypto treasury strategy, systemic risks can begin to emerge. Strategy adopts senior unsecured convertible debts as part of its capital raising strategy and these debts are also non-recourse debts, which means the debts were issued without collateral and lenders can’t pursue other assets of the borrowers. This makes the borrower’s stock quite risky as the borrower could issue more shares to pay the debts, which dilutes existing shareholders’ interests.

Senior unsecured debt contracts as non-recourse are rare. New DATs with lower balance sheet strength and shorter track record may face stricter debt covenants (for example, more collateral requirements). This may further reduce their abilities to weather crypto volatility compared with Strategy – a sharp drop in token prices or a broad compression in NAV premiums may lead to firms being forced to liquidate or stop token accumulation. This potentially amplifies selling pressure on crypto markets and potentially triggering cascading effects across both digital asset ecosystem and the DATs that accumulate the underlying digital asset. 

2.3 Thematic Sector Exposure and Alternative to Regulated Crypto Vehicles

At the time of writing, only a limited number of crypto spot ETFs are available to traders. This gap provides an opportunity for altcoin treasury companies to act as a proxy for investors to gain regulated, indirect exposure to these altcoins and show conviction to emerging narratives including DeFi, AI and real-world assets outside of the major altcoins (eg. ETH and SOL).

For example, Synaptogenix (a clinical-stage biopharmaceutical company) and Oblong (a software company that provides multi-stream collaboration products and network managed services for network solutions) chose to build their treasuries in Bittensor (TAO), demonstrating their beliefs that decentralised AI infrastructures are becoming more important. Hyperion DeFi chose to build a treasury on Hyperliquid to show their conviction in DeFi. 

Additionally, unlike the US spot ETH ETFs that are passive investments on ETH without offering staking yields, altcoin treasury companies may offer a more flexible way to generate yield. Additionally, treasury companies have the option to raise capital from public markets to further increase altcoin holdings, enabling them to grow NAV per share more dynamically than ETFs. 

3. Altcoin vs BTC Treasuries

Token Volatility and Shifting Narratives

BTC is the first cryptocurrency and one that has accumulated a solid track record across multiple market cycles. This gives investors confidence in its performance relative to altcoins.

On the other hand, altcoins can be more volatile to shifts in narratives and speculation. Altcoin treasuries, which often concentrate their holdings on tokens related to certain narratives, can see rapid growth when the narrative captures mindshare, but can also be prone to downturns when attention shifts. This can lead to the ‘death spiral’, where declining token prices erode NAV, reduce equity and debt funding, and even lead to forced sales in falling markets. While BTC treasuries may also face this risk, the higher volatility of altcoins compared to BTC amplifies this risk. 

Token Liquidity vs Treasury Size

BTC’s deep and liquid market often allows transactions without significant slippage, which supports the accumulation and sales by treasury companies, even during periods of high volatility. BTC has a 2% market depth (combined value of buy and sell orders within 2% of the market price) of $600 to 800 million in the past month, twice that of ETH’s. 

On the other hand, altcoin liquidities are more fragmented and thin. The relatively small market capitalisation of some altcoins may also make it easier for companies to accumulate concentrated positions. This can lead to risks, including slippage during liquidation and NAV volatility during price swings in illiquid markets. 

Regulatory Clarity on Staking and Asset Status

Compared to BTC, which is regarded as a commodity under US Commodity Futures Trading Commission (CFTC), regulatory status of altcoins and related staking activities can be less clear. 

While the US Securities and Exchange (SEC) published a statement in May clarifying that some forms of protocol staking may not constitute as securities transactions, more clarity is needed on other strategies, including restaking and liquid staking. However, the regulatory landscape is gradually becoming more clear as we see the approval of the REX-Osprey SOL + Staking ETF (SSK) and more submissions of ETF proposals with staking components. 

4. Conclusion

The new generation of altcoin treasuries is gradually changing the corporate treasury playbook from passive asset accumulation, in the case of BTC treasuries, to active Web3 participation. This includes staking and exploring DeFi yield strategies of the underlying altcoins. 

One of the key drivers behind these treasuries is to boost NAV, and in turn, attract investor attention and increase stock prices. Nonetheless, these altcoin DAT companies signal broader TradFi participation in Web3, as investors can gain indirect crypto exposure by buying publicly-traded equity of these companies.

However, the altcoin treasury thesis has risks. Altcoins are inherently more volatile than BTC, and may face more fragmented liquidity and regulatory uncertainty, leading to fluctuations in the DATs’ NAV. Additionally, the impacts of the DAT strategy adopted by the public companies still need to be tested in the long run. Under bull market conditions, altcoins rallies can lead to a premium on NAV. Conversely, during market downturns, large altcoin holdings could lead to a discount on NAV, further driving down stock prices. 

Moreover, the DAT strategy also involves and amplifies the systemic risk for the industry. As more companies incorporate crypto holdings into their treasuries, their exposure to systemic risks could shift from traditional stock market dynamics to those of the crypto market, potentially causing their performance to move in tandem with underlying altcoins.

Importantly, this wave of altcoin DATs is still early and precedes the broader approval of altcoin ETFs. If and when those ETFs launch, and as  more altcoin DATs emerge, attention and capital can become diluted. 

Altcoin treasuries need to differentiate from BTC treasuries by tapping into the functional and utility-focused nature of altcoins, to develop strategic value beyond the potential financial upside.

Read the full report: Digital Asset Treasury Strategy

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Authors

Crypto.com Research and Insights team

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