Ethereum Treasury Company's $3.7 Billion Loss and Questions about DAT Models

Source: BTCHaber Original Title: Ether hedge fund Bitmine suffers heavy losses Original Link:

Digital Asset Hedge Fund Crisis

Digital asset hedge funds (DAT) have become a topic of renewed discussion as the crypto market has experienced significant bleeding over the past month and a half. According to analyses, MicroStrategy investors have had to absorb approximately $20 billion in net asset value (NAV) shrinkage since the company began accumulating Bitcoin. A substantial portion of these losses arose from purchasing BTC at high prices during the period from November to December 2024.

$3.7 Billion Loss from Bitmine

A similar pressure is seen in Ethereum-focused DAT structures. According to 10xResearch, Bitmine has incurred losses of over $1,000 per ETH as ETH prices decline. This decline has resulted in an unrealized loss of approximately $3.7 billion on the company’s balance sheet. The analysis describes this situation as one where the premium (NAV) price difference rapidly approaches zero, leaving investors unable to exit without losses.

Bitmine’s ETH Asset Value Exceeds $10 Billion

Publicly available data shows that Ethereum hedge fund company Bitmine holds 3.56 million Ether (ETH). Considering that ETH was trading at around $3,015 at the time of writing, the company’s current portfolio value is approximately $10.74 billion. The sharp decline in prices explains the billions of dollars in unrealized losses in this massive asset position, as detailed in the report.

More Costly Than ETFs

One of the main criticisms of DAT structures is the fee mechanism. The 10xResearch report states that, unlike ETFs which are transparent, low-cost, and traded close to NAV, digital asset hedge funds are burdened with extra costs due to complex and hedge fund-like fee structures. The report notes that many investors often do not notice these embedded costs, especially when compared to Bitcoin and Ethereum ETFs managed by a single asset management firm charging only a 0.25% management fee.

If Ethereum Staking Gets Approved

According to the analysis, a major asset management firm’s application for staking in an Ethereum ETF would increase pressure on DAT models. This move, aimed at offering a low-cost yield source, is expected to further question the sustainability of DAT economies.

Bitmine’s boss Tom Lee has previously said that the recent weakness in the crypto market could stem from a shortfall in one or more market makers’ balance sheets. Lee argued that these “sharks” are attempting to push prices down by triggering liquidations. However, he emphasized that this is only a short-term pain and that Wall Street’s vision built around Ethereum remains unchanged.