Digital Asset Vault Company: A New Realm of Crypto Assets Investment

The cryptocurrency investment market is welcoming an emerging field - Digital Asset Treasury companies (DATs). These companies adopt strategies similar to that of a well-known software company, providing digital asset investment opportunities through permanent capital instruments listed on public stock exchanges. After in-depth research, we are confident in this investment concept and tend to focus our investments.

As investors, we continually challenge our existing views. Given the persistent premium on the stock of a well-known software company and the buying behavior of several fundamentally-oriented funds, we are looking for asymmetric opportunities that leverage DAT trends. Although the premium may not last forever, there is ample reason to invest in digital asset treasury companies and explain why their trading prices are above the underlying net asset value (NAV).

The most fundamental bullish reason is that, through the stocks of a well-known software company, over time, one might hold more Bitcoin per share (BTC-per-share, "BPS") compared to directly purchasing Bitcoin. Let's do a simple calculation:

If you buy the company's stock at twice the net asset value, you are actually purchasing 0.5 bitcoin, rather than buying 1.0 bitcoin through spot purchases. However, if the company can raise funds and BPS grows by 50% each year (it grew by 74% last year), then by the end of the second year, you will have 1.1 bitcoin - which is more than purchasing spot directly.

To believe that the company can continue to develop BPS, you must believe in three points:

1. Stocks do not always trade at fair value; the market can become irrational, leading to valuations that are excessively high relative to net asset value.

2. The company's stock is highly volatile, which creates conditions for the company to generate volatility gains by selling convertible bonds or by selling its own call options.

3. The management has sufficient financial acumen to leverage these conditions.

One underrated factor driving the success of DAT is how they connect traditional investor behavior with digital asset investment—essentially by transforming Crypto Assets into stocks. The strong demand for certain well-known software companies, ETFs, and the new wave of DAT products indicates that a significant amount of capital was previously marginalized due to the entry complexity of native products of Crypto Assets. Encouragingly, more capital is now entering the field through the "old" systems.

From a structural supply perspective, DAT presents an interesting contrast to ETFs: purchasing DAT effectively locks in the supply, as DAT is essentially a one-way closed-end fund, thus reducing the likelihood of selling. In contrast, the tokens held by ETFs can dissipate as easily as accumulation. This phenomenon may have a more positive impact on the price of the underlying assets, as DAT can both purchase more tokens as its reserves and not fuel sell-offs.

We have invested in multiple DAT companies:

Bitcoin DAT Company: The most famous one is a company listed on Nasdaq, led by a long-time Bitcoin evangelist. This company attempts to emulate the strategy of a well-known software company and has the support of three industry giants. The company's size is just right to leverage all capital market tools while having a smaller market cap, allowing it to flexibly achieve BPS growth at a faster pace and trade at a higher premium.

Solana DAT Company: We led an investment in a company listed on NASDAQ that has sparked the DAT trend in the United States. This company is drawing from the strategies of a well-known software company, but applying them to Solana. Solana is an interesting alternative to Bitcoin for the following reasons: (a) a shorter maturation period, potentially larger room for growth; (b) higher volatility than Bitcoin, which means higher returns can be achieved; (c) staking rewards can promote the growth of each SOL share; (d) due to the current lack of alternatives, there is more untapped demand.

Ethereum DAT Company: Our latest investment in this field is the first Ethereum digital asset vault company in the United States. The company is supported by a leading Ethereum software company, and we have collaborated with its team for over ten years.

Our support for these companies and their successful responses in the market have led to a subsequent series of projects, many of which we are still actively evaluating.