Even as more firms board the bitcoin treasury bandwagon, their collective appetite for scooping up BTC has weakened.
That decline is nothing short of drastic when you look at the numbers. The seven-day moving average of net daily inflows into bitcoin digital asset treasuries (DATs) recently dropped to 140 BTC, marking the lowest level since mid-June and a sharp decline from a July peak of 8,249 BTC, according to BitcoinTreasuries.net.
Things look even bleaker when you zoom in on daily activity this month: 12 out of 15 days saw under 500 BTC flowing in, including multiple days with no inflows whatsoever.
It tells us that institutional appetite for exposure to BTC via traditional market vehicles has weakened after a period of aggressive buying early this year that helped prop up BTC prices.
Interestingly, bitcoin’s price rally has cooled off sharply, dropping to nearly $110,000 after hitting a record high of over $126,000 on October 6. Zooming out, the market has been consolidating within a broad range above $110,000 since June, reflecting a tug-of-war between bullish optimism and profit-taking.
The DAT trend, pioneered by the likes of Strategy, follows a centuries-old playbook of borrowing fiat to acquire scarce, hard assets.
Bitcoin, with its fixed supply capped at 21 million coins and the best performance among major assets over the last decade, has drawn demand from a growing number of digital asset treasuries seeking to hedge inflation and diversify reserves. So far, the top 100 public DATs by market value have cumulative acquired over 1 million BTC.
Unsustainable trend?
However, like gold, BTC doesn’t offer an inherent yield, which means that coins acquired with borrowed money sit idle on the balance sheet without any offsetting cash flow. The DAT trend, therefore, is a bet that prices will continue to rise, generating capital gains. It’s similar to running a ompany focused on acquiring gold, which is also a zero-yielding asset.
The most popular strategy has been to issue stock at a premium to the net asset value (NAV), followed by issuing debt to finance purchases. The premium is the result of the narrative, “a memetic premium based on the figurehead at the company – you know them by name,” NYDIG said.
These firms, therefore, stand exposed to a situation where they either fail to generate sufficient memetic premium to increase their crypto per share or investors liquidate their share holdings, causing the premium to NAV to collapse.
That’s already happening. Approximately one in four publicly traded DATs now trade below their net asset value (NAV), meaning their market valuations are less than the value of the cryptocurrencies they hold on their balance sheets.
According to NYDIG, these premiums are positively correlated to prices, which means a downtrend in BTC’s price could see these premiums evaporate.