Another Sign of the Biggest Asset Bubble in History
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| By Nilus Mattive |
I first told you why I was negative on so-called DATCOs — digital asset treasury companies — exactly half a year ago.
Based on some recent developments, now is a good time to revisit that discussion.
Just as a refresher, DATCOs basically exist to take people’s money and invest it into cryptocurrencies like Bitcoin or Ethereum.
Yes, it’s a mostly illogical and unnecessary business model to start with. Especially now that we have simpler solutions like single-crypto ETFs.
But that’s hardly surprising in today’s supercharged risk-on, momentum-driven world.
Investors seem to love to pile into all types of irrational ideas with great stories these days.
Really, DATCOs are perfect in that regard.
They amount to actively managed crypto funds. Ones that imply better-than-baseline performance through special approaches and/or the guidance of a cultish personality figure … like this guy:
This is why my original piece mostly talked about the biggest and best known DATCOs — Michael Saylor’s Strategy (MSTR) and Tom Lee’s Bitmine Immersion Technologies (BMNR).
One of the important points I made was that Strategy had just pivoted from years of a “never sell” policy to suggesting it could sell some of its holdings.
I openly wondered whether these DATCOs were supporting the entire crypto market … and what would happen if they ever started actually selling.
We found that out on June 1, when Strategy said it had just sold 32 of its Bitcoin.
This token sale — its first since 2022 — netted the company some $2.5 million.
The money is set to fund preferred share dividends and to prepare investors for more possible sales in the future.
The sale price was about $77,135 a coin.
The news clearly shook investor confidence.
- Bitcoin dropped as much as 17% in a matter of days after the news hit.
- Strategy dropped about 14% over the same time frame.
Meanwhile, I also said the fact that Bitmine Immersion was trading at a 10% premium to the value of its holdings should serve as an additional warning to anyone considering it.
That premium has now evaporated, and the shares are down about 46% since my original article …
What’s especially interesting? Last week, Bitmine Immersion said it would take another page out of Strategy’s playbook.
Bitmine plans to sell $300 million in preferred shares to raise money to buy more Ethereum.
This Series A perpetual preferred stock will trade on the NYSE under the ticker BMNP and provide a 9.5% annual dividend, paid weekly in cash.
At this point, we should back up for a second …
Strategy has already sold several different rounds of preferred shares to investors, including:
- → Strike (STRK), which is a convertible perpetual preferred stock that pays a fixed annual yield of 8% on a quarterly basis. Each share is convertible into 0.1 shares of MSTR.
- → Strife (STRF), which is a long-duration senior credit preferred stock that yields 10% annually, also paid quarterly. It was designed to be the most senior of the preferred stock classes and has governance rights and dividend rate step-up penalties if the company ever misses a payment.
- → Stretch (STRC), a variable-rate perpetual preferred stock that is currently yielding about 11.5% annually. Strategy adjusts the dividend rate monthly to try and keep the shares trading near their $100 par value. A vote is also underway to switch the payment schedule from monthly to semi-monthly.
The basic idea is that Strategy is selling these investments — with very large dividend promises — and using the proceeds to buy more Bitcoin.
Yet, as we just established, it also just sold some Bitcoin to pay some of those dividends.
If you find this confusing, I don’t blame you.
To be fair, there are some reasons this could make sense …
Including the fact that Strategy can reap tax benefits by selling certain tranches of its Bitcoin at losses …
And then immediately buy back the same Bitcoin without losing the tax write-off.
This is because cryptos are considered property and thus are not currently subject to IRS Wash Sale rules.
Strategy also recently held an investor call where they said they had enough cash to cover STRC’s dividends for at least 18 months.
And in Strategy’s Q1 earnings call, Michael Saylor said they could buy 10 to 20 Bitcoin for every one it sells.
Still, even if we put aside the recent Bitcoin sale, the idea of borrowing money at double-digit interest rates to speculate on Bitcoin’s future price movements is a little unsettling to a conservative investor like me.
And we’re not talking about a little thing here …
On its call, Strategy also said it was the largest issuer of equity in 2025. It’s retaining that title so far this year, too.
Plus, it’s the largest holder of Bitcoin in the world … with about 4% of all the Bitcoin that will ever exist.
So if Strategy’s strategy comes undone any further, there’s no telling how bad things could get.
Or how quickly.
Or how much spillover damage we could see.
Not just in crypto but in the stock market, too.
Meanwhile, as we just established, Bitmine Immersion’s Tom Lee loves Strategy’s approach and is following suit with that new $300-million preferred offering.
Sure, he is currently sitting on a net paper loss of more than $9 billion on the Ethereum BMNR has already accumulated.
Yet Mr. Lee is completely undeterred. In fact, he recently told attendees of the Proof of Talk conference in Paris that Ethereum will hit $250,000.2
Ethereum was recently trading at just $1,770 so that’s a pretty outlandish forecast.
It would actually make the Ethereum network worth more than the entire U.S. Treasury market or all the gold that’s ever been mined!
Hey, anything is possible … especially in this current market environment.
Still, I recommend you stick with getting 4% or 5% from conservative dividend stocks or Treasurys rather than reaching for that 9.5% yield from Bitmine’s new preferred shares.
Moreover, I worry that all of this DATCO action is just another warning sign that we are nearing the top of the largest asset bubble in history.
Best wishes,
Nilus Mattive
P.S. I laid out more reasons why this could be the largest bubble in history here.
Better still, I provided solutions. I urge you to give it a watch BEFORE it pops.
