'Capitalism is awesome': More crypto DATs to come, but consolidation around the corner, says Blockchain.com CEO

Digital asset treasury bull Peter Smith, co-founder and CEO of Blockchain.com, sees the trend of publicly-listed companies adopting crypto treasury strategies continuing for some time, although he expects a wave of mergers and acquisitions.

"More and more are going to come, until we run out of management teams or shells. Capitalism is awesome like that," Smith told The Block. "At some point, though, we sort of run out of steam, and then it gets really interesting because then you’ll see a lot of consolidation ... the really good management teams and sponsors will consolidate a lot of the space at a preferential capital stack."

Earlier this week, Vivek Ramaswamy's Bitcoin DAT Strive reached an agreement to acquire Semler fellow Bitcoin treasury Semler Scientific, which will result in a new company that holds nearly 11,000 BTC ( over $1 billion). Benchmark analyst Mark Palmer said smaller firms with meaningful crypto reserves but lower valuations are natural candidates for stock-for-stock tie-ups.

Smith said Blockchain.com has been perhaps one of the busiest firms active in the DAT space. His company has invested over $200 million in about a dozen companies, including Bitcoin-based DAT ProCap Financial, Ethereum treasury BitMine Immersion, and Toncoin DAT Ton Strategy.

The long-time crypto executive said that while taking over small-cap shell companies and giving them a new purpose is nothing new —Smith said biotechs have been using shells and PIPEs (private investments in public equity) for years—  the move to use these tactics to accumulate a specific digital asset was inspired by Michael Saylor's Strategy.

Treasuries evolved beyond Bitcoin

Strategy, formerly MicroStrategy, demonstrated that accumulating crypto, specifically Bitcoin in its case, could translate into a major increase in shareholder value. Then, earlier this year, a host of smaller Nasdaq-listed companies decided to follow in Strategy's footsteps and began rebranding as DATs.

The first wave bought bitcoin and ethereum; the next broadened the model with altcoin-based treasury models. Now there are DATs dedicated to stockpiling XRP, Dogecoin, BNB, and others.

Currently, only those crypto treasuries holding either Bitcoin, Ethereum, or Solana, combined, possess over $120 billion in digital assets, according to The Block Data Dashboard. Fresh capital has fueled the growth, with DATs pulling in over $20 billion in VC funding so far this year.

Some have been critical of the DAT explosion. Last month, Komoto CTO Kadan Stadelmann called the trend "self-dealing, dressed up as capital deployment." This week, The Wall Street Journal reported U.S. regulators are investigating potentially suspicious stock trading patterns that occurred before publicly listed DATs announced plans to buy crypto. The inquiries are focused on unusual trading patterns, including abnormally high trading volumes and sharp stock price increases in the short periods preceding public announcements.

Two types of digital asset treasuries

Smith considers there to be two types of DATs.

"There are two reasons to have a DAT and they're distinct. One is a DAT as an investment vehicle and the other is as a replacement for foundations," he said.

In the case of an "investment DAT," Smith said investors buy shares in the hopes the management team behind the publicly-traded treasury will generate more value, thanks to their financing and ability to get tokens at a discount, than an investor could on their own by simply holding a cryptocurrency on spot.

Smith, however, believes "there's probably more risk" in buying shares in a DAT than in "holding spot."

In the case of an "ecosystem DAT," it's about "replacing these foundations with C-Corps that eventually go public," Smith said. "People forget all these Cayman or Swiss foundations that we have in crypto are a direct result of bad regulation."

Smith has been watching crypto evolve for a considerable amount of time, given that Blockchain.com was founded in 2011. The company was also an early success story, raising capital at a $14 billion valuation in 2022.

"We couldn't have a Delaware C-Corp ... that's where most tech startups are ... so the foundation, it was just a regulatory arbitrage," said Smith.

He's confident DATs are here to stay: "It's a sector and a vertical that's going to be here on a permanent basis."

Besides investing in DATs, Smith Blockchain.com is also extremely active in servicing digital asset treasuries by providing custody, trading, and staking services.