DAT Company Loses $10 Billion in 3 Months, Begins to Return to Rationality

The stock prices of the "Hodlers" have started to rebound.

Written by: Eric, Foresight News

In the recently concluded earnings season, the cryptocurrency treasury company (DAT) presented a seemingly disastrous report. Strategy reported a net loss of $8.22 billion for the second quarter, with $8.32 billion attributed to the impairment of the fair value of Bitcoin holdings; Strive recorded a net loss of $258 million, with over 90% stemming from the depreciation of Bitcoin and its STRC preferred shares; Sharplink had a net loss of $394 million; Metaplanet reported a net loss of 182.8 billion yen (approximately $1.15 billion) for the first half of the year, with about $430 million in the second quarter alone; Bitmine, whose fiscal year ends in August, only lost $83.6 million in its March to May fiscal quarter, but its cumulative net loss over the past nine months has exceeded $9 billion. In total, the five companies reported a net loss of about $10 billion in the second quarter, with a cumulative loss of over $30 billion in the first half of the year.

A year ago, such reports would have triggered panic selling. However, what actually happened was quite different. On the day Strategy released its earnings report, its stock price rose by 4.73%, while the options market had priced in an 8% two-way volatility. From the low point at the end of June, Bitmine rebounded by about 36%, Sharplink by about 37%, Strategy and Strive both rose by over 10%, and Metaplanet also recovered about 15% from its low in late June.

The losses are real, but the market has already priced them in

Everyone knows that DAT Company's second-quarter earnings report would show significant losses; it was merely a question of whether it would be $10 billion or $9.9 billion.

Large DAT companies have their own dashboards, or at least someone is continuously tracking relevant data. Every financing round, every buy/sell of Bitcoin and Ethereum is scrutinized by the world under a magnifying glass. Therefore, how much was lost in the second quarter is visible to everyone in the market; the earnings report is just a confirmation of what has already happened.

What has led to the "bottoming out" and rebound of these DAT companies' stock prices is more about the market and the companies returning to rationality.

In the second quarter, Strategy raised $8.4 billion, surpassing any quarter last year; in May, it repurchased $1.5 billion of convertible bonds at a 92% discount, reducing the total amount of convertible bonds from $8.2 billion to $6.7 billion; its dollar reserves increased to $3.75 billion, enough to cover 2.1 years of preferred stock dividends and interest; Sharplink completed a $75 million targeted issuance in June at a price above its net asset value, while also repurchasing its own shares at an average price of $4.70.

During their earnings guidance and conference calls, most of these companies coincidentally pointed in the same direction: focusing on increasing the "content" of cryptocurrency per share.

Last year, DAT Company was telling a growth story, where the faster one bought coins, the more they would rise. This year, as the tide recedes, the surviving companies have changed their KPIs to the same metric: the amount of cryptocurrency corresponding to each share. Strategy's Bitcoin content per share increased by 5% quarter-on-quarter in the second quarter; Metaplanet's Bitcoin holdings per thousand shares fully diluted increased by 9.6% in the first half of the year; Sharplink repeatedly emphasized the increase in Ethereum content per share.

Accompanying this goal is discipline. Metaplanet has clearly implemented a capital allocation policy, issuing new shares to buy coins when its mNAV is above 1x, and stopping issuance when it is below 1x, instead using preferred stock and credit tools, or even repurchasing shares. In the second quarter, because its mNAV fell below 1x, the company voluntarily gave up third-party targeted issuance, preferring to slow down the growth of its holdings rather than dilute shareholders at a discount. Sharplink and Strategy have also initiated repurchases one after another. Treasury companies are no longer expanding blindly but are returning to a simple question: how to increase the amount of coins behind each share.

Strategy is even willing to sacrifice its promise of "never selling coins" for this goal, and its stock price has seen the lowest rebound among mainstream DAT companies. This is the necessary pain from "above" to rationality.

Apprentices of the STRC Model

The new tool to achieve this goal is STRC, invented by Strategy in July last year, a perpetual preferred stock anchored at a face value of $100, with monthly adjusted dividends. The logic is simple: attract fixed-income-seeking funds with an annualized dividend of around 12%, and then convert the money into Bitcoin. By the end of the second quarter this year, the nominal scale of STRC had expanded from $2.8 billion at the beginning of the year to $10.5 billion, with institutional funds holding it increasing from $1.1 billion to $3.1 billion, accounting for 29%.

Imitators are already lining up. Strive's SATA raised the dividend yield to 13% and became the first security in U.S. history to pay dividends every business day on June 16. By early August, it had paid dividends 44 times in a row, with the price consistently staying near the face value, and the company also took the opportunity to pay off all its debts. Bitmine issued a perpetual preferred stock BMNP with a 9.5% dividend in June, raising $274 million. Metaplanet's MERCURY preferred stock has issued 21.2 billion yen, and although new varieties like MARS have been delayed due to Japan's dividend habits, it launched a "BitBonds" corporate bond plan with an interest rate of over 4% in August, exploring a local version of digital credit.

The only one among the five that has not taken this path is Sharplink, which chose another route by staking nearly 890,000 Ethereum, using native yields and on-chain funds to grow its snowball, including partnerships with Galaxy and a commitment of $125 million to an on-chain yield fund. However, this essentially does not contradict the goal of increasing the amount of cryptocurrency held per share.

Premiums will disappear, but fundization will remain

Of course, the other side of the return to rationality is the decline of premiums. Strategy's enterprise value mNAV fell below 1x in June, Sharplink's market value is still below the value of its Ethereum holdings, and Metaplanet has been forced to shrink financing due to discounts. The downward shift of the premium center for DAT stocks relative to their held cryptocurrency assets is likely an irreversible trend.

Even if a bull market returns tomorrow, the market that has been hurt may not lose its rationality again.

But this does not mean the end of the model; rather, it is the manifestation of the model. Stripped of the narrative, DAT Company is essentially a type of actively managed thematic fund with financing tools, profiting from the long-term compound growth of the content per share. Such products have their buyers. 13F filings show that among the top 15 institutional shareholders of MSTR in the first quarter of this year, 13 increased their holdings during the decline, with a total increase of $4.6 billion, including Capital International adding $1.92 billion alone; Jane Street expanded its MSTR holdings by 473% in the fourth quarter of last year. Bitmine is backed by Founders Fund and ARK, and Sharplink's institutional ownership ratio has risen from 6% to 46% within a year.

A quarter of $10 billion in losses has not killed DAT; instead, it has brought it back from frenzy to business. When the price of coins no longer scares off shareholders, and companies begin to meticulously calculate every bit of coin behind each share, this industry can be considered truly mature.

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