The Collision of Illusions of Faith and Reality: The Rise and Fall of the DATCO Model

Introduction

Reality always has a peculiarity that surfaces at the most inopportune moments.

Consider the essence of belief. It is not religious faith or political conviction, but a stranger and more fundamental belief. It is the collective consensus that sustains civilization. Every morning we wake up, pretending that colorful pieces of paper have value, pretending that invisible numbers in computer systems represent wealth, pretending that companies are people, and people are consumers, pretending that consumers are rational actors making optimal choices.

These shared illusions are remarkably stable. They can last for decades, even centuries, simply because we are willing to continue pretending to each other. A dollar bill is valuable because we agree that it has value. Stock prices reflect reality because we agree that the market is rational. This system works precisely because everyone believes it works.

But faith itself is fragile. It requires ongoing maintenance, just like a garden or a marriage. If too much care is neglected, weeds will grow. If too many assumptions are questioned, the entire structure will begin to wobble. When enough people stop believing at the same time, reality will violently retaliate like water flowing through the cracks of a dam.

The most interesting moments in the history of finance are not the formation of new beliefs. The formation of new beliefs occurs gradually, almost imperceptibly. The truly interesting moments are the demise of old beliefs.

When the collective hypnosis is broken, everyone suddenly sees the emperor's nakedness at the same time.

These moments reveal the arbitrariness of value itself, as well as the hints that connect our fictional currencies together.

As the market dynamics that once favored DAT (Digital Asset Treasury) have shifted, DAT is undergoing a challenging transformation. These companies continue to operate, despite the fact that the development environment has changed from the conditions that initially drove their expansion.

For some time now, there has been an illusion in the market: as long as Bitcoin is stored in a publicly listed company rather than a private wallet, it becomes more valuable. The continued existence of this premium is not based on any logical reason, but rather because enough people believe it should exist.

What happens when shared financial dreams collide with stubborn arithmetic? The answer is being written in real time in balance sheets and merger documents, in boardrooms and trading halls, as the entire industry struggles to cope with the disparity between what the market is willing to pay and the actual value of assets.

All this high-flown talk about belief and reality is just my way of avoiding an obvious question: Why would syringe manufacturers and biotech companies ultimately turn to Bitcoin financial strategies?

Analysis of Financial Innovation

Digital Asset Reserve (DAT) companies represent a fundamental departure from traditional corporate structures. Unlike ordinary businesses that may hold some cryptocurrency as a side investment, the core business function of DAT companies is to accumulate and manage cryptocurrencies.

The model operates through what industry insiders refer to as a "premium flywheel." When the trading price of DAT stock is higher than its net asset value (NAV), the company can issue stocks at a high price and use the proceeds to purchase more cryptocurrencies. Here is how it works:

Assuming a DAT company holds Bitcoin worth $200 million. If the stock market values the entire company at $350 million, this would result in a 75% premium on net asset value. This premium will become the engine for the company's exponential growth. The company can issue $50 million in new shares, which means the ownership stake of existing shareholders will be diluted by about 14%. But here’s the miracle: this $50 million can be used to buy another $50 million in Bitcoin, increasing the company's cryptocurrency holdings to $250 million.

For existing shareholders, this is a value dilution. Indeed, the proportion of shares they hold in the company has decreased, but the company now holds more Bitcoin per share than before the issuance.

If you previously held 1% of a company’s shares and that company held Bitcoin worth $200 million, then your shares would be backed by Bitcoin worth $2 million (1% × $200 million = $2 million). After a dilutive stock issuance, you now hold 0.86% of the company’s shares, and that company holds Bitcoin worth $250 million, which means your shares will be backed by Bitcoin worth $2.15 million (0.86% × $250 million = $2.15 million).

As this process repeats, the flywheel accelerates. If the market maintains a premium, the company can continue to issue shares at a price above net asset value, purchase more cryptocurrencies, and increase each shareholder's underlying cryptocurrency exposure. Strategy has refined this approach by relentlessly executing this flywheel mechanism, increasing the amount of Bitcoin held from approximately 38,000 in 2020 to over 639,000 by 2025.

The model assumes three key conditions: the premium persists, the market allows for frequent financing, and cryptocurrency prices generally show an upward trend. If any one of these conditions is broken, the flywheel may reverse, falling into a vicious cycle where the company struggles to raise funds and may even be forced to sell assets to meet obligations.

Strategy (formerly known as MicroStrategy) has refined this model, growing from 38,250 bitcoins in August 2020 to 639,000 bitcoins by September 2025, valued at $72 billion. The company currently controls about 3% of the total bitcoin supply.

For investors, the appeal of DAT lies in its ability to provide regulated cryptocurrency investments without the concerns of wallets, exchanges, or custody issues. For those institutions that are prohibited from directly holding cryptocurrencies, DAT offers a compliant "backdoor" to enter the digital asset market through familiar stock markets.

Trend

2025 marks the DAT boom. Major companies have collectively raised over $20 billion in new capital, transforming various industries such as biotechnology and toy manufacturing into cryptocurrency funding management tools. This market frenzy has given rise to some peculiar company combinations: a syringe manufacturer became a funding management firm for Solana, a cleaning products company shifted to holding Dogecoin, and a health company began hoarding BONK tokens.

The stock prices of several publicly traded cryptocurrency-related companies are significantly higher than their net asset values. MicroStrategy's stock price is about 75% higher than the net asset value of Bitcoin.

The trading premium of the Japanese company Metaplanet, known as the "Japanese strategy," is very high, reportedly exceeding its Bitcoin asset net value by about 384%. This is mainly because investors value its growth prospects and access to capital markets. The trading premium of the smaller company Blockchain Group also exceeds 200%, reflecting speculative demand.

Going public through a traditional IPO on a stock exchange takes more than a year. SPAC transactions may compress this time to six months. However, the premium window is rapidly closing, so companies are opting for the fastest route: reverse mergers with already listed companies.

Analyst Paul McCaffery explained: "If you have not created an actual operating business besides accumulating crypto assets, you will be excluded from the Russell indices." This exclusion from the indices can be fatal for companies that rely on trading above net asset value, as institutional buying requirements force companies to purchase about 17% of their freely traded shares when joining major indices.

The result is a series of problematic business mergers. Take Sharps Technology as an example; despite having zero revenue and an operating loss of $2 million, it transformed into a DAT company for Solana, and its accounting firm resigned due to the company "not meeting internal risk tolerance indicators." However, this new entity focused on cryptocurrency pledged to continue its syringe business, not for strategic significance, but because maintaining a certain level of operational activity is necessary for compliance.

In September 2025, Strive acquired Semler Scientific for $1.34 billion, marking a watershed moment. This was driven by survival-oriented consolidation.

The stock prices of both companies are close to or below their net asset values, making it impossible to raise further funds at attractive prices. By merging their holdings of Bitcoin (5,886 BTC + 5,021 BTC), they hope to create enough scale to reignite trading premiums. This merger is essentially two drowning companies tying themselves together in the hope of swimming to shore again.

The trading structure reveals a new reality: no massive premiums, minimal synergies, and a focus on scale rather than growth. Is this a template for the upcoming wave of DATCO consolidation? Let's unpack this idea a bit.

When the music stops

The DATCO model contains several structural vulnerabilities that can become catastrophic when the market turns unfavorable.

premium evaporation issue

The entire DATCO building is established on the stock premium that maintains the net asset value (NAV). When these premiums disappear—just like the case with most small DATCOs in 2025—the flywheel will reverse.

Companies trading at or below their net asset value face a brutal choice: either issue dilutive shares, effectively lowering the price per Bitcoin, or completely stop growing. Many companies choose a third option: borrowing money to buy back their own shares, attempting to artificially maintain a premium.

Death Spiral Dynamics

When cryptocurrency prices drop and premiums evaporate at the same time, DATCO enters what analysts refer to as the "death spiral." The specific process is as follows:

1. Cryptocurrency pullback: Bitcoin/Ethereum prices drop by 30-50%.
2. Stock declines widen: Due to the leverage effect, DATCO stock fell by 50-70%.
3. Premium Collapse: Stock prices trade below the reduced net asset value.
4. Financing Crisis: Unable to raise equity capital without significant dilution.
5. Debt Pressure: Convertible bonds and credit lines are under pressure.
6. Forced Sale: The company liquidates cryptocurrency to fulfill obligations.
7. Chain effect: Forced sales further depress cryptocurrency prices.

During the Bitcoin pullback in early 2025, several smaller DATCO experienced similar situations, with stock prices dropping over 60%, while Bitcoin also fell by 40%. Metaplanet's stock price dropped over 60%, far exceeding Bitcoin's decline of about 40%. Its stock price fell from approximately $457 in July 2025 to a low of $328.

The Despair of Stock Buybacks

Recent reports indicate that at least seven DATCO companies are borrowing to fund stock buybacks, suggesting that this model is collapsing. Think about what a buyback means in this context. Companies are no longer issuing new shares at a premium to purchase more cryptocurrency (the original flywheel mechanism), but are instead borrowing against the cryptocurrency they hold to reduce the number of shares. ETHZilla borrowed $80 million using Ethereum as collateral for a $250 million buyback after its stock price plummeted by 76%. Empery Digital financed $85 million through debt for stock buybacks. These are all defensive strategies.

The repurchase strategy exposes three key issues. First, these companies can no longer enter the stock market on favorable terms. When your stock trading price is below net asset value, issuing new shares damages value rather than creates value. Second, the management team is essentially betting that financial engineering can restore the premium that has been eliminated by fundamental market forces. Third, using highly volatile crypto assets as collateral to finance the repurchase introduces new risks. If cryptocurrency prices fall while debt remains unchanged, the company may face a forced liquidation situation.

Mergers and Acquisitions "Musical Chairs" Game

The integration wave indicates that the initial DATCO theory is no longer sustainable. Corporate mergers are not driven by eye-catching strategic synergies, but by the need for scale to remain competitive in an oversaturated market.

If 200 companies try to become agents of Bitcoin, the scarcity premium that supports the original model will disappear. Integration may help, but it also reveals that many DATCO are based on fundamentally flawed assumptions about the existence of a persistent market premium.

With the strengthening of regulatory scrutiny, the merger and acquisition process has become more complex. The U.S. Securities and Exchange Commission (SEC) requires more detailed disclosures regarding cryptocurrency holdings, valuation methods, and risk factors. Investment banks must address the complexities of asset valuation, synergy assessments, the reasonableness of premiums within a framework based on net asset value (NAV), and the impact of cryptocurrency volatility on transaction certainty while preparing fairness opinions.

This regulatory attention makes mergers and acquisitions execution more challenging, but it may also make it more credible, thereby reducing excessive speculation in early DAT activities.

The Divergence Between Bitcoin and Ethereum

As Bitcoin DAT makes headlines, Ethereum's financial companies are also developing in tandem, seeking a distinctly different strategy. Ethereum's Proof of Stake (PoS) consensus mechanism allows DAT to earn an annual yield of 3-5% through staking, creating a source of income that goes beyond simple asset appreciation.

BitMine Immersion Technologies is a prime example of this strategy, holding over 2.4 million ETH, worth approximately $9 billion, accounting for more than 2% of the total supply of Ethereum. The company actively engages in staking through institutional providers such as Figment, achieving stable returns even when ETH prices remain flat.

SharpLink Gaming has adopted a similar strategy, holding 837,230 ETH worth $3.7 billion, with nearly all holdings used for staking to maximize returns. This productive asset approach addresses a fundamental limitation of Bitcoin DAT: the inability to generate income from idle holdings through external lending or derivatives strategies.

SharpLink Gaming has adopted a similar strategy, holding $3.7 billion worth of 837,230 ETH, almost all of which is staked to maximize returns. This productive asset strategy addresses a fundamental limitation of Bitcoin DAT: the inability to generate returns from idle assets without external lending or derivative strategies.

The funding management model of Ethereum also benefits from the ever-expanding decentralized finance (DeFi) ecosystem of blockchain. Enterprises can participate in lending protocols, provide liquidity for decentralized exchanges, or invest in tokenized real-world assets. At the same time, enterprises can still maintain their core ETH reserve status.

However, the Ethereum strategy also carries additional risks.

Staking involves technical complexity and may face the risk of confiscation. Participating in DeFi brings smart contract risks and regulatory uncertainty. The trade-off between the simplicity of Bitcoin and the efficiency of Ethereum has led to the emergence of different DAT models that pursue varying risk-return characteristics.

The Weight of Numbers

In the end, mathematics always prevails. This is not because numbers are more real than stories, but because when stories cease to make sense, numbers are harder to ignore.

The DAT phenomenon is expected to surpass the ancient opposition between narrative and arithmetic. It creates a world where belief can truly embody value, and collective trust in corporate structures can double the value of the assets they contain. In brief and intoxicating moments, the market seems to have discovered a new financial alchemy that transforms belief into capital through pure collective imagination.

However, market forces will ultimately come into play again. No matter how we view ice, water will freeze at 0 degrees Celsius. Regardless of whether we accept Newton's laws, gravity will pull objects toward the ground. In the end, a company's valuation will reflect its fundamentals, rather than the stories we concoct about its uniqueness.

When everyone harbors the same beautiful dream, challenges arise. The dream loses its distinguishing power. When fifty companies offer similar Bitcoin exposure, the collective fiction of maintaining a premium disappears, not because it is false, but because it is no longer unique.

All financial innovations may mature in this way. They begin with poetry—providing elegant solutions to impossible problems, supported by the collective belief that "this time it’s different." They often end in prose—functional tools operating within the boundaries of economic reality, with returns generated that are sufficient to justify their existence rather than transcending reality.

The next wave of builders may have a clearer understanding of what the market can and cannot accept. Their focus may shift to less financial engineering and more actual engineering. Less emphasis on premium acquisition and more on value creation. Less emphasis on stories that justify price rationality, and more on the fundamentals that support the price.

What will happen next remains to be seen. Companies that can adapt may thrive in the new environment. But what does this adaptation actually look like?