Good Morning and Happy Monday from Cumberland APAC! While crypto has not made any sort of convincing recovery from the 10/10 selloff (BTC trades closer to its post-10/10 low than to the pre-10/10 price), equities have been up two weeks in a row, and on Thursday the S&P printed a new all-time high before selling off to close the week. SPs are now more than 1% above the price on 10/10, while BTC is still down nearly 10%. Alts are worse, across the board; ETH is slightly below BTC, down by about 11% from 10/10, and most alt are down much more. L1s and L2s tend to be down between 20 and 30%. Memecoins are down between 30 and 40%. Alts lagging on the recovery was not altogether unexpected; the case for alts seems mostly dependent on a recovery in equities (check), followed by a recovery in BTC and ETH (still to be determined.)
As of the end of last week, the mNAVs across all BTC, ETH, and SOL DATs stood at 1.1, 1.00, and 1.08, respectively, the closest to parity we’ve seen so far. (All DAT holdings data courtesy of the Blockworks dashboard). This convergence is a natural result of a proliferation of DATs; in any state where DATs consistently trade at a premium, there will be a combination of further share issuance from existing DATs along with issuance of new treasury companies. Parity is the first natural outcome; the next outcome we’re looking for is a potential systematic discount. Of course, there are already numerous DATs which trade at an mNAV below 1; there are just enough that still trade at a premium to keep the overall averages close to 1. At the point where DATs trade at a discount, they might opt to sell digital asset inventory in order to buy back shares, an action which should serve to close the discount. It’s worth considering what impact that type of flow might have on the market. For example, in August ETH DATs doubled their collective inventories from 1.6m ETH to 3.3m, in September they rose to 4.3m ETH, and in October, their inventory only rose by 15%, to 5m units. The price action struggled as a result of the DAT buys slowing; any asset that switches from DAT inflow to DAT outflow might struggle from a price perspective.
The declining trend in DAT mNAV seems unlikely to signal the end of DATs as a category. It’s not just a question of market access: public companies receive more favorable leverage conditions than spot cryptocurrency, and even more favorable treatment than ETFs. For this reason alone, we expect to see an ongoing role from DATs, though there will likely be some consolidation; there isn’t necessarily a role for three or more DATs in the same cryptocurrency, and the push to increase tokens-per-share may lead better-capitalized DATs to acquire smaller ones trading at a discount.
Another DAT trend worth tracking is how these companies generate value on an ongoing basis to increase tokens per share. Staking seems like a fairly common approach, and liquid staking tokens might be the easiest approach. This coincides with the first Solana Staking ETF, from Bitwise, which launched on the NYSE last week and attracted over $200m of inflows. Liquid staking governance tokens, such as LIDO and JITO could benefit over the long-term from flows into their associated liquid staking tokens.
Happy Trading!