DAT and Bitcoin

Bitcoin has been the poster child of every risk on strategy. Over the last 15 years, it has been the most profitable asset by far, except in 2014, 2018 and 2022, when it’s been the worst. Although it doesn’t have a long history, it looks like it shows cycles of 4 years with big swings up and down. And perhaps investors have detected that seasonality and have decided to arbitrage that. Over the last month and a half, Bitcoin has fallen more than 30%, questioning once again its validity as money, since it doesn’t see to comply with the requirement of being a storehold of wealth. What has happened? As always, there may be more than one factor, but this movement may be related to DATs (Digital Assets Treasury) companies such as MSTR, among others. It has a legitimate business (software development in the case of MSTR) and a treasury strategy that basically invest all its money in Bitcoin. To the point where they issue common stock, and preferred shares to invest in Bitcoin. It has reached $50Bn in market cap and it’s included in the Nasdaq 100 and MSCI US and world indices. They comply with the requirements to be included in the S&P500, but the comittee that decides the inclusion has so far denied it, which has prompted MSCI to review its qualification on their indices. And here lies the issue. If they remain in those indices, passive funds will have to invest in them, and they will be able to issue more stock to invest in Bitcoin. But if they’re expelled, they will be forced to liquidate its treasury position in Bitcoin. There are 190+ DAT companies today, holding about 1 million Bitcoin, or almost 5% of potential supply (21 million). Forced liquidations affect the price of bitcoin and other speculative assets, and that may be the reason behind the 30% correction you can see in the chart below.

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