A Follow-Up on DATs
Last week, we wrote about how Digital Asset Treasury companies (DATs) need to evolve and restructure in order to survive. In short, the days of clean shells with crypto balance sheets and no business model are over, and the next leg of DAT growth will have to come from using a heavy cash-flow generative company to purchase crypto assets. However, I forgot to mention what happens after a DAT acquires a ton of crypto—they use that crypto on their balance sheets to acquire cash-flow producing companies. I’ve actually been suggesting this path for years. Here’s an excerpt from our May 2025 "That's our Two Satoshis":
Well, Strategy (MSTR) hasn’t done this yet with their Bitcoin, but Bitmine (BMNR) got us one step closer to my theory last week by acquiring a $200 million stake in MrBeast’s media empire (Beast Industries). While the $200 million is a relatively small amount for BMNR (a $14 billion ETH-Treasury company), it’s an interesting move and a departure from anything else we’ve seen to date from DATs. We don’t know whether this purchase will be made in cash or ETH, but my guess is that they are using cash. So while it’s close to my original thesis, it’s not exactly the same.
Bitmine is the largest corporate investor in the company now. Roughly one-seventh of the entire globe follows MrBeast. While he likely won’t immediately start shilling ETH to his audience, this acquisition seems like a longer-term bet on the creator economy and the economic alignment between Ethereum and content creation. Many other blockchains have tried to become the “creator chain”, with little success to date, so loosely partnering with MrBeast can immediately make Ethereum the front-runner.
The “Berkshire Hathaway of crypto” approach is valid, however. If you acquire as much BTC or ETH as MSTR and BMNR have, it would be extremely difficult to sell it in any meaningful size without materially impacting the market. Even selling a tiny bit could crash the asset due to signaling effects, and could crash the stocks, too. But if their thesis is correct and BTC and ETH truly become valuable, scarce assets, then they can use this “hard currency” to make acquisitions. No one is going to be able to easily acquire $1 billion worth of BTC or ETH if they are valuable and in demand, so a company may be willing to sell for a lower price to get paid in this valuable asset. For this reason, I think it would be smart for Bitmine to actually pay for this investment with ETH itself. That would demonstrate that they own a truly valuable asset. And if MrBeast were to commit to holding that ETH (at least for some period of time), and the market believes it was a good investment with a potentially higher ROI, then the BMNR stock could go up, which would allow BMNR to continue to sell more stock above NAV, and buy more ETH.
This appears to be the most viable path for monetizing the crypto on a DAT’s balance sheet.
Index Construction is Really Setting This Industry Back
In mature asset classes, funds often benchmark their performance to an index that can also be easily bought or sold via ETFs. For example, the S&P 500 is often used as a performance benchmark, but you can also easily purchase or short shares of SPY (an S&P 500 ETF). Fixed-income indexes are now largely tradable as well, thanks to ETFs and CDS. As a result, passive investors will often just buy the index for broad diversification, while actively managed funds will often hedge out market risk by shorting these indexes against their long positions.
In crypto, however, indexes are still relatively new and relatively untradable. When Arca launched its first private fund in 2018, we chose the Bloomberg Galaxy Crypto Index (BGCI) as our fund benchmark. We didn’t really choose this because it was the best representation of our fund strategy, but rather because there weren’t a lot of choices at the time, and since it had “Bloomberg” and “Galaxy” in the name, we thought it had a chance to still exist in 10 years (a wise choice, as many other indexes from 2018 have already disappeared).
But there are some problems with the BGCI index. For starters, 95% of the index is made up of 4 coins (BTC, ETH, XRP, and SOL), which is not really a diversified representation of the growth of crypto and blockchain. Further, while you can subscribe to this fund as an Accredited Investor or a Qualified Purchaser, it doesn’t trade on any exchanges, so using it for hedging purposes is impossible.
Now, there are other indexes that are more representative of the digital asset class. S&P offers a series of crypto indexes, ranging from market-weighted indexes (like the BGCI above) to combined crypto stock and token indexes, and small-cap indexes that exclude BTC and ETH. These make for better, more tailored fund benchmarks, but they, too, are not tradable in any way.
In terms of tradable indexes, there are a few. Bitwise is the leader, with its BITW ETF reaching $1 billion in assets. But once again, 98% of this index is made up of 4 coins. Other similar tradable multi-crypto index products include:
Bitwise, as the leader in the space, has been heavily marketing its BITW index. The pitch is simple—why try to pick winners when you can just invest in the entire space? That’s simple, and compelling.
The problem, of course, is that an index that is 98% composed of 4 assets (and 90% composed of 2 assets) is not at all a diversified investment meant to represent the growth of blockchain.
As we’ve discussed previously, almost all of the growth of blockchain is now being driven by 3 distinct areas:
Almost none of these sectors are represented by the 4 assets in the BITW index:
Further, there are other areas of crypto and blockchain growth that are completely ignored by these indexes, which offer no exposure to sectors like AI/crypto agents, gaming, ICO launchpads, DePIN, internet capital markets, or privacy coins.
So wouldn't an equally weighted index make more sense, or perhaps a custom index that takes the top 2-3 tokens from each sector/category?
I just find it hard to believe that 4 large-cap assets are the "safe and diversified way" to bet on a new industry.
The Existential Crisis of Crypto
For many years, I’ve discussed the “Crypto Investing Paradox”. In short, crypto protocols work great, but the assets available to move and trade on blockchain rails are mostly garbage assets. For blockchain to really take off, we need to bring real assets on chain ($600 trillion worth of stocks, bonds, and real estate).
For many years, this seemed very far away—until recently. There has been more progress in tokenization in the past 5 months than in the previous 5 years. A few weeks ago, it was DTCC announcing its tokenization plans, before that was BlackRock and JPMorgan, and most recently, we got the NYSE:
"NYSE’s new digital platform... will power a new NYSE venue that supports trading of tokenized shares fungible with traditionally issued securities as well as tokens natively issued as digital securities... The launch of the NYSE’s tokenized securities platform is one component of ICE’s broader digital strategy, which includes preparing its clearing infrastructure to support 24/7 trading and the potential integration of tokenized collateral."
This is amazing. Everything we have always dreamed about is now happening. But once again, a paradox. Even though everything we thought would happen on blockchain is now happening, little, if any, of this value is accruing to any of the stocks or tokens in the crypto ecosystem. The Fat Protocol thesis has long been debunked (apps now make up over ⅔ of the revenue on chain, and Layer-1s only make 12%, even though protocols still represent 90% of the market cap of tokens). Bitcoin has nothing to do with any of the actual blockchain growth engines (no exposure to growth of stablecoins, DeFi, or RWA tokenization). And most of these tokenization growth initiatives from Wall Street are happening on new, private blockchains.
That’s why Layer-1 tokens keep going down, and so do the stocks of Coinbase (COIN) and other token exchange operators. The growth of blockchain seems to be accruing solely to stablecoin issuers (i.e., Tether) and service providers (i.e., BlackRock, Securitize).
Many crypto enthusiasts once thought incumbent banks and brokerages would be rendered obsolete once blockchain took over, reducing redundancies and the need for middlemen. I’ve always argued that blockchain is an evolutionary technology, not a revolutionary technology, and therefore, big companies would evolve too. Blockchain always reminded me of robo-advisors. Betterment and Wealthfront didn’t make financial advisory obsolete. FAs just adapted and began offering similar services. We’re seeing the same thing now, with banks and brokerages offering their own crypto products rather than using what already exists. I found this article on “incumbents at the gate” enlightening.
So the question remains. How do you invest in the growth of blockchain and crypto? We continue to think the tokens of a handful of DeFi protocols, token launchpad companies, and GLXY stock may be the only clear winners from this trend. When all assets are on chain, DeFi goes from a niche experiment to becoming the full financial plumbing engine where you can easily navigate asset movement, loans, and trading of all assets in one place.
But while we wait to be proven right or wrong, we have to keep watching the growth of this industry through headlines rather than token prices.
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