In a recent analysis, Galaxy Research has indicated that the landscape for cryptocurrency digital asset treasury (DAT) firms is shifting dramatically. The report highlights a concerning trend where collapsing premiums and strained liquidity conditions are ushering these companies into a “Darwinian phase.” This shift follows a steep decline in Bitcoin (BTC) prices, which fell from recent highs, prompting a reevaluation of business models reliant on premium-driven strategies.
The analysis reveals that treasury stocks experienced a more significant drop than BTC itself. High-beta structures, which are typically more volatile, have exacerbated the downturn during this phase of deleveraging. Firms like Metaplanet have reported severe fluctuations, transitioning from substantial unrealized gains to significant losses. The report underscores that the premium compression has effectively dismantled the issuance flywheel that previously supported aggressive BTC accumulation.
As per Galaxy”s findings, the dependency of DAT firms on having their stocks trade above their net asset value (NAV) has resulted in severe repercussions. Following an October high near $126,000, BTC”s value has plummeted to approximately $92,000, triggering a series of forced liquidations and draining the liquidity from the spot market. This has had a cascading effect on companies like Nakamoto, which suffered drastic valuations, with stocks plunging over 98%.
The situation has led to a notable increase in unrealized losses across the sector. For example, Metaplanet has seen its unrealized gains evaporate, shifting from over $600 million in profits to more than $530 million in losses. Galaxy emphasizes that firms with average BTC acquisition costs exceeding $107,000 are facing dire consequences as the leveraged equity structures amplify their downside risks.
Furthermore, the valuations of companies such as Strategy, Metaplanet, and Semler Scientific have compressed significantly, with many now trading at or below their BTC exposure. This new reality has stripped them of the issuance advantages that previously fueled their growth.
Galaxy asserts that the initial phase of the treasury trade has concluded. Companies trading below NAV are unable to issue new stock effectively, forcing a transition from expansion to defensive strategies. The report outlines three potential outcomes: prolonged discounts in stock prices, selective survival of the fittest, and potential recovery during the next BTC cycle, heavily influenced by the strength of their balance sheets.
As the sector undergoes this rigorous stress test, firms that amassed significant debt against their BTC holdings during market highs are now in a precarious position. Notably, Strategy has proactively built a cash reserve of $1.44 billion to meet obligations for at least a year, reflecting a shift towards liquidity management rather than aggressive accumulation.
While Galaxy suggests that treasury stocks could regain their premiums if BTC reaches new all-time highs, they caution that boards will be under scrutiny regarding their execution and decisions during this turbulent period. The analysis concludes that the future of BTC treasury stocks will be heavily influenced by timing and strategic choices made during this downturn.
