Key Takeaways
Why is Hong Kong hesitant about DATs?
The regulator warned that retailers may not fully understand the risks associated with DAT valuations.
What’s next for the DAT segment?
It remains to be seen if the space will be able to handle the current leverage risk as mNAVs trade at a discount.
Hong Kong’s securities regulator is keeping a close eye on developments in digital asset treasuries (DATs) after stopping five companies from switching to crypto.
According to a local media reportthe watchdog was concerned that some DATs pose underlying risks that retailers may not be fully aware of.
Hong Kong Securities and Futures Commission (SFC) Chairman Kevin Wong Tin-yau added:
“The SFC is concerned about whether the share prices of DAT companies are trading at a substantial premium to the cost of their DAT holdings.”
He cited US cases where premiums became too high and created valuation risks for investors. Wong said the SFC will step up education and awareness programs.
Diverging regulatory views on DATs
DATs include crypto assets such as Bitcoin [BTC], Ethereum [ETH], Solana [SOL] and others as part of their business strategy.
Pioneered by Michael Saylor’s Strategy (formerly MicroStrategy), several companies have jumped on the DAT model to speculate in the crypto market.
Some crypto treasuries like Strategy are now sitting on billions of dollars in profits. But the DATs’ stock price also inherits crypto volatility and other risks, according to regulators.
Last week, Bloomberg reported that the Hong Kong Exchange (HKEX) blocked five companies that tried to switch to DATs.
Similar resistance has been reported in Australia. Companies are prohibited from investing more than half of their balance sheet in DATs, making the pivot essentially “impossible.”
But some regions, such as the US (Strategy) and Japan (Metaplanet), have some of the top players in DAT.
Yet Nasdaq has become stricter with the DAT listing. calling for greater disclosure and shareholder involvement to mitigate risks.
Declining mNAV ratios threaten DAT stability
In fact, most of the DAT’s mNAVs (market-to-net asset value), which track relative stock value to crypto holdings, have collapsed into a discount.
Source: Blokwerken
The trend could slow their crypto bids and force sell-offs in the underlying digital assets if mNAV stays below 1 for too long. If this discount continues, companies may have to sell digital assets to reduce debt burden.
Some players like it Metaplanet And ETHZilla have started increasing their mNAV through share buybacks, funded by selling crypto holdings or using them as collateral for a credit facility.