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Crypto's Future: Why Challenges Fuel Unstoppable Growth (Thoughts?)

Financial Comprehensive

Crypto's Future: Why Challenges Fuel Unstoppable Growth (Thoughts?)

Avaxsignals Avaxsignals Published on2025-12-07 Views5 Comments0

The DAT Era: Evolution or Extinction?

The Rise of Bitcoin Treasury Companies (DATs)

Okay, everyone, buckle up. We need to talk about Bitcoin treasury companies, or "DATs" as they're becoming known. Remember last summer? It felt like every other company was jumping on the bandwagon, piling into BTC, and watching their stock prices explode. It was a wild ride, fueled by what Galaxy Research called a "liquidity derivative"—basically, the idea that these companies' stocks were valuable because they held Bitcoin, and the more Bitcoin they bought, the more valuable they became.

The Fall From Grace: DATs Under Pressure

But, as we all know, what goes up must come down. And lately, oh boy, have these DATs been coming down. Bitcoin's tumble from its October highs around $126k to the recent lows around $80k (before rebounding to the $90k range) has really taken the wind out of their sails. Equity valuations that were once trading at premiums to their underlying Bitcoin holdings are now often trading at discounts. The high-beta treasury trade, as they say, isn't looking so hot anymore. It’s like the financial engineering that boosted them on the way up is now amplifying the downside. Remember that triple leverage? Operational, financial, and issuance leverage? It's a beast!

Real-World Examples: Metaplanet and Nakamoto

I’ve been watching this unfold with a mix of fascination and, frankly, a little bit of concern. As Galaxy Research pointed out, the core warning from their July report has come true: the reflexive cycle stalled once premiums tightened and equity issuance became dilutive, not accretive. It's not just a theoretical problem, either. Take Metaplanet, for instance. They were boasting over $600 million in unrealized profits in early October. Now? They're showing over $530 million in unrealized losses as of December 1st. That’s a swing of over a billion dollars in just a few weeks! And companies like Nakamoto, which jumped into the Bitcoin treasury game later in the cycle, have seen their stock prices absolutely decimated—down over 98% from their highs! It's memecoin-level volatility, and it's a stark reminder of the risks involved.

Three Potential Scenarios for DATs

The big question now is: what happens next? Galaxy Research lays out three plausible scenarios, and I think they're spot-on. First, the base case: premiums stay compressed. As long as the crypto market remains soft, most DATs will likely trade at flat or negative premiums to their net asset value. This means their ability to issue shares and buy more Bitcoin is severely limited and those once-beloved DAT equities will offer a levered downside, not upside, versus spot BTC. You shouldn’t expect that early 2025 "equity beta > BTC beta" regime to reappear without a full reset in risk appetite and Bitcoin making new highs.

Selective Survival and Consolidation

Secondly, selective survival and consolidation. This is where things get really interesting. This drawdown is a balance-sheet stress test, and the firms that issued the most stock at the highest premium, bought the most Bitcoin at cycle-top prices, and layered on debt against those holdings are going to be in a world of hurt. Prolonged discounts plus large unrealized losses are likely to create real solvency and governance pressure. Expect potential restructurings, stronger players (including Strategy) to be well-positioned to acquire weaker ones at a discount, or simply outlast them. It's a Darwinian phase, as Galaxy Research puts it, and only the fittest will survive. We can see this already with Strategy’s recent announcement of a $1.44 billion cash reserve. For years, Strategy has relied almost entirely on its BTC reserve and access to capital markets to manage liquidity. But with issuance conditions changing, the firm has now established a sizable dollar reserve (funded via at-the-market, or ATM, equity sales) to cover at least 12 months of dividend and interest commitments.

Optionality on the Next Cycle

And finally, there's the optionality on the next cycle. In principle, the treasury company trade isn't dead. If and when Bitcoin eventually prints new all-time highs, some subset of these companies will likely regain modest equity premiums and reopen the issuance flywheel. But the bar appears to be higher now. Boards and management teams are going to be judged on how they handled this first real stress test. Did they over-issue into the top? Did they preserve optionality? How did they handle the downturn? Are their shareholders willing to get back on for another ride? The key shift is that these companies now look less like simply "leveraged upside on BTC" plays and more like path-dependent instruments whose payoffs depend heavily on issuance strategy and entry timing.

Market Sentiment and the Santa Rally

The market has begun to shift from a risk-off environment toward a risk-on sentiment, partly due to the well-known Santa Rally, a phenomenon often observed in the crypto market as positions build ahead of the new year. Seasonal institutional rebalancing also frees up liquidity, encouraging increased exposure to higher-risk assets such as Bitcoin.

A New Dawn for Bitcoin?

But wait, it’s not all doom and gloom! News just broke that Bitcoin has consolidated one of its strongest sessions in months, registering a gain of more than 6% today alone, allowing it to reclaim levels above 90,000 dollars per BTC! This bullish bias has strengthened on the back of a renewed appetite for Bitcoin following the prolonged decline of recent weeks, along with growing appetite for risk assets, supported by expectations of a more relaxed tone from the U.S. central bank and the typical year-end optimism. If this increased appetite for risk continues to build, buying pressure on BTC could remain relevant over the next several sessions.

The Federal Reserve's Decision

Next week will bring the Federal Reserve’s final decision of the year, and expectations continue to favor a 0.25% rate cut, which would bring the benchmark rate down to 3.75%. This scenario has led to weaker demand for traditional safe-haven assets such as the U.S. dollar, opening the door for renewed interest

Premature Conclusion: Tariffs Now Hit Global Economy (- #TrumpTariffTrouble)

Financial Comprehensive

Premature Conclusion: Tariffs Now Hit Global Economy (- #TrumpTariffTrouble)

Avaxsignals Avaxsignals Published on2025-12-07 Views8 Comments0

The Tariff Time Bomb: A Slow-Acting Poison

President Trump's tariffs, once touted as a magic bullet for American manufacturing, are starting to look more like a slow-acting poison, and the delayed effects are creating a toxic environment for businesses. The initial promise was reshoring jobs, but the reality, as always, is more complicated. We're now seeing the first clear signs that these policies are pushing companies to reduce staff, shift production offshore, and generally batten down the hatches for a prolonged period of economic uncertainty.

Economic Indicators: A Bleak Outlook for 2026

The Institute for Supply Management (ISM) surveys, while anonymous, offer a chilling glimpse into the boardrooms of American companies. One transportation equipment executive stated they are "starting to institute more permanent changes due to the tariff environment," including staff reductions and offshore manufacturing. This isn't just a knee-jerk reaction; it's a strategic shift, a long-term bet against the American worker. The ISM manufacturing index itself, at 48.2%, signals contraction, and the employment gauge has plummeted to 44%, the lowest since August. That’s not a blip; that’s a trend.

And it's not just one sector feeling the pinch. The petroleum and coal industry, despite Trump's push for fossil fuels, anticipates "big changes with cash flow and employee head count" in 2026. They've already sold off a significant portion of their business and are offering voluntary severance packages. The electrical equipment sector is even more blunt, stating that tariffs are creating a tougher business climate than the COVID crisis. Conditions are more trying than during the coronavirus pandemic in terms of supply chain uncertainty. Think about that for a second.

The IMF, in its October report, slightly upgraded its global growth expectations, but it also warned that it would be “premature and incorrect” to conclude that higher US tariffs have had no effect on economic growth. IMF: ‘Premature’ to conclude that Trump’s tariffs haven’t hit the global economy The IMF expects the world economy to grow 3.2% in 2025, up from its July forecast of 3% but “decisively below the pre-pandemic average of 3.7%.” The US economy, meanwhile, is seen growing 2% this year and 2.1% in 2026, marginally up from what the fund predicted in July. These are hardly numbers to inspire confidence. While they acknowledged that businesses adapted to the tariffs by front-loading imports and rerouting supply chains, they also cautioned that the full impact is still to come. It's like a slow burn, not a sudden explosion.

Conflicting Data: The Illusion of Stability

Of course, there are conflicting signals. Third-quarter GDP growth is tracking at a healthy 3.9%, according to the Atlanta Federal Reserve. Hiring in September was surprisingly strong, with nonfarm payrolls up by 119,000. But these numbers mask the underlying rot. Amazon, for instance, announced massive job cuts (up to 30,000) around the same time. The broader economic picture might seem stable on the surface, but beneath it, companies are quietly shedding jobs and preparing for a harsher future.

The OECD report echoes this sentiment, warning that the full impact of tariffs is yet to be felt. They noted a "sharp decrease in the value of U.S. imported goods subject to tariffs," suggesting that tariffs are affecting demand and will continue to weigh on trade volumes. Trump Tariffs Will Hit Global Economy, OECD Warns The Cleveland Fed's commentary highlights the mixed experiences of retailers, with one facing a 20% cost increase due to tariffs while another claims to have stabilized. This discrepancy underscores the uneven impact of the tariffs, with some businesses bearing the brunt while others manage to adapt.

I've looked at hundreds of these economic reports, and this particular situation feels different. The level of anxiety expressed by businesses is palpable, and the concrete actions they're taking—staff reductions, offshore manufacturing—suggest a deep-seated lack of confidence in the long-term viability of American manufacturing under the current trade regime. The Fed's report last week noted that employment "declined slightly" over the past seven weeks, and manufacturers cited "tariffs and tariff uncertainty" as a headwind.

The Trump administration's strategy was predicated on the idea that tariffs would force companies to bring jobs back to the US. But what if the opposite is happening? What if these tariffs are accelerating the decline of American manufacturing by making it more expensive and less competitive? What happens when those "voluntary" severance packages become mandatory?

The Tariff Trap: A Pyrrhic Victory?

The data paints a clear picture: Trump's tariffs are a double-edged sword, and the blade is starting to cut deep. The initial promise of reshoring jobs has given way to the grim reality of layoffs and offshoring. The long-term consequences of this policy shift are still unfolding, but the early signs are not encouraging. We're potentially sacrificing American jobs on the altar of protectionism. The question now is, can we reverse course before it's too late? Or are we destined to learn a painful lesson about the unintended consequences of trade wars?