Key Takeaways
Why is Hong Kong hesitant about DATs?
The regulator warned that retail traders may not fully grasp the risks tied to DAT valuations.
What’s next for the DATs segment?
It remains to be seen if the space will navigate the current leverage risk as mNAVs trade at a discount.
Hong Kong’s securities regulator is closely monitoring the digital asset treasuries (DATs) developments after blocking five firms from pivoting to crypto.
According to a local media report, the watchdog was worried that some DATs have underlying risks that retailers may not be fully aware of.
The Hong Kong Securities and Futures Commission (SFC) Chairman, Kevin Wong Tin-yau, added,
“The SFC is concerned about whether DAT companies’ share prices are traded at a substantial premium above the cost of their DAT holdings.”
He cited U.S. cases where premiums grew too high and created valuation risks for investors. Wong said the SFC will step up education and awareness programs.
Divergent regulatory stance on DATs
DATs hold crypto assets like Bitcoin [BTC], Ethereum [ETH], Solana [SOL] and others as part of their corporate strategy.
Pioneered by Michael Saylor’s Strategy (formerly MicroStrategy), several firms have jumped on the DAT model to speculate on the crypto market.
Some crypto treasuries like Strategy now sit on billions of dollars in profit. But the share price of the DATs also inherits crypto volatility and other risks, according to regulators.
Last week, Bloomberg reported that the Hong Kong Exchange (HKEX) blocked five firms that sought to pivot to DATs.
A similar resistance has been reported in Australia. Firms have been barred from deploying more than half of their balance sheet into DATs, making the pivot essentially “impossible.”
But some regions, like the U.S. (Strategy) and Japan (Metaplanet), have some of the top players in the DAT space.
Even so, Nasdaq has become more strict with DAT listing, calling for more disclosure and involvement of shareholders to mitigate risks.
Falling mNAV ratios threaten DAT stability
In fact, most of the DAT’s mNAVs (market-to-net asset value), which track relative share value to crypto holdings, have collapsed into a discount.
Source: Blockworks
The trend could stall their crypto bids and force sell-offs of the underlying digital assets if the mNAV stays below 1 for too long. If this discount persists, companies may need to sell digital assets to reduce leverage.
Some players like Metaplanet and ETHZilla have begun boosting their mNAV via share buybacks funded by selling crypto holdings or using them as collateral for a credit facility.
