Author: Cosmo Jiang, Partner at Pantera Capital; Translated by AIMan@Golden Finance

A new field of cryptocurrency investment in the public market is emerging – Digital Asset Treasury companies (DATs). These companies emulate the strategy of MSTR (formerly MicroStrategy) by providing digital asset investments through permanent capital instruments listed on public stock exchanges. After closely examining the nuances of this strategy, we are firm believers in this investment concept and tend to favor concentrated investments.

As investors, we strive to continuously test our previous biases. Given the persistent existence of the MSTR premium, along with the buying from fundamentally-oriented funds including Capital Group and Norges, we seek asymmetric opportunities to capitalize on the DAT trend. While the magnitude of the premium may not last forever, there is a fundamental reason to invest in digital asset treasury companies and explain why their trading prices may be higher than their underlying net asset value (NAV).

The most basic bullish argument is that through MSTR, over time, there is a possibility of holding more BTC-per-share ("BPS") compared to directly buying BTC. Let's do a simple mathematical calculation:

If you buy MSTR at twice the net asset value, you are purchasing 0.5 BTC, rather than buying 1.0 BTC through spot purchases. However, if MSTR can raise funds and BPS grows by 50% annually (it grew by 74% last year), then by the end of the second year, you will have 1.1 BTC—more than if you had directly purchased the spot.

To believe that MSTR can continue to develop BPS, you must believe in three things:

1. Stocks are sometimes not traded at fair value, and the market can become irrational, leading to valuations that are too high relative to net asset value. Any investor who has spent enough time in the market knows that the market is not always rational.

2. The volatility of MSTR stocks is very high, which creates conditions for MSTR to sell convertible bonds or to obtain volatility by selling its own call options, thereby achieving high premiums.

3. The management team has sufficient financial acumen to take advantage of these conditions.

Looking around, one underestimated factor driving the success of DAT is how they connect traditional investor behavior with digital asset investment — essentially by converting cryptocurrencies into stocks. The strong demand for products like MSTR, ETFs, and the new wave of DAT indicates that substantial capital had previously been marginalized due to the entry complexity of native cryptocurrency products (such as setting up wallets or cryptocurrency exchange accounts). Encouragingly, more capital is now entering the space, even through "old" systems.

From a structural supply perspective, DAT presents an interesting contrast with ETFs: purchasing DAT can effectively lock in supply, as DAT is essentially a one-way closed-end fund, making the possibility of selling lower. In contrast, the tokens held by ETFs can easily dissipate like accumulation. This phenomenon may have a better impact on the price of the underlying assets, as DAT can both purchase more tokens as its reserves and not exacerbate selling.

Pantera has invested in several DAT companies. The most notable among them is Twenty One Capital (NASDAQ: CEP), led by long-time Bitcoin evangelist Jack Mallers. The company is trying to emulate MSTR's strategy and has the backing of three industry giants: Tether, SoftBank, and Cantor Fitzgerald. Twenty One's scale is just right to leverage all capital market tools while also having a relatively small market capitalization, allowing it to achieve BPS growth at a faster pace than MSTR and trade at a higher premium. As a company, Pantera is the largest investor in Twenty One's post-IPO Private Investment in Public Equity (PIPE).

Pantera led the investment in DeFi Development Corp (NASDAQ:DFDV, formerly Janover), which took the DAT bandwagon in the United States. Led by CEO Joseph Onorati and CIO Parker White, DFDV is taking MSTR's strategy but applying it to Solana. Solana is an interesting alternative to BTC for the following reasons: (a) may have more upside than BTC due to its shorter maturity period; (b) volatility is higher than BTC, which means that higher yields can be achieved by exploiting this volatility; (c) its pledged earnings portion can contribute to the growth of SOL per share; (d) With fewer alternatives currently available (e.g., no publicly traded miners, and no spot ETFs), Solana has more untapped demand.

Our latest investment in this field is Sharplink Gaming, the first Ethereum digital asset finance company in the United States (SBET). SBET is supported by the leading Ethereum software company Consensys, and Pantera has collaborated with its team for over a decade.

Pantera's support for companies such as DFDV, CEP, SBET, and their success in the market has helped drive a subsequent series of projects, many of which we are still actively assessing.