There is a very particular kind of financial engineering that only really makes sense once you accept two premises
One that Bitcoin is not just an asset but a sort of secular religion for capital and Two that yield is now a cosplay activity rather than a boring actuarial exercise
Once you accept those two points everything you describe becomes less insane and more inevitable
If you step back this whole DAT and Bitcoin treasury ecosystem has basically run through three phases
First phase You can issue equity at a premium to the value of your Bitcoin stash If the market is willing to pay 1.2 times or 1.3 times your Bitcoin per share value then your business model is as sophisticated as
Print stock Buy Bitcoin Call it accretive
In other words you are not a company you are a levered closed end fund with marketing
But as you note that arb closed Most of these now trade below one times their modified NAV Once you trade at a discount you no longer get paid to lever up you get punished for it
Second phase Fine If the equity game is over we go to preferreds and debt You sell 11.5 or 12 percent paper to buy more Bitcoin The story is simple
If Bitcoin goes up 50 percent per year then 12 percent is a rounding error If Bitcoin does not go up fast enough or actually goes down you have sold a very loud promise into a very quiet cash flow
This is where the problem gets physical You must generate hard dollars every quarter to pay that coupon Bitcoin does not know you exist and does not remit dividends when your interest charges are due So you are in a timing lottery every three months
Either you Sell some Bitcoin and slowly destroy the premise Or raise more capital and hope the music keeps playing Or invent fee income and ancillary business lines large enough to plug the coupon hole
Third phase Now we arrive at the reflexive yield loop you are pointing at
You have a DAT paying 12 percent on preferreds I have a DAT paying 12 percent on preferreds Neither of us has real operating income because our actual product is exposure to Bitcoin with a Greek chorus of buzzwords
So one of us says
What if my cash pile which is supposed to reassure preferred holders that coupons are safe Instead goes and buys your 11.5 percent preferred Then magically I have yield to point at
Look We have cash flow We hold this security that throws off a double digit coupon This supports our ability to pay our own preferred Please ignore that the source of that yield is another entity that is doing structurally the same thing as we are
It is not a cross ownership Ponzi in the formal legal sense But it rhymes very loudly with circularity
There is a very particular kind of financial engineering that only really makes sense once you accept two premises
One that Bitcoin is not just an asset but a sort of secular religion for capital and
Two that yield is now a cosplay activity rather than a boring actuarial exercise
Once you accept those two points everything you describe becomes less insane and more inevitable
If you step back this whole DAT and Bitcoin treasury ecosystem has basically run through three phases
First phase
You can issue equity at a premium to the value of your Bitcoin stash
If the market is willing to pay 1.2 times or 1.3 times your Bitcoin per share value then your business model is as sophisticated as
Print stock
Buy Bitcoin
Call it accretive
In other words you are not a company you are a levered closed end fund with marketing
But as you note that arb closed
Most of these now trade below one times their modified NAV
Once you trade at a discount you no longer get paid to lever up you get punished for it
Second phase
Fine
If the equity game is over we go to preferreds and debt
You sell 11.5 or 12 percent paper to buy more Bitcoin
The story is simple
If Bitcoin goes up 50 percent per year then 12 percent is a rounding error
If Bitcoin does not go up fast enough or actually goes down you have sold a very loud promise into a very quiet cash flow
This is where the problem gets physical
You must generate hard dollars every quarter to pay that coupon
Bitcoin does not know you exist and does not remit dividends when your interest charges are due
So you are in a timing lottery every three months
Either you
Sell some Bitcoin and slowly destroy the premise
Or raise more capital and hope the music keeps playing
Or invent fee income and ancillary business lines large enough to plug the coupon hole
Third phase
Now we arrive at the reflexive yield loop you are pointing at
You have a DAT paying 12 percent on preferreds
I have a DAT paying 12 percent on preferreds
Neither of us has real operating income because our actual product is exposure to Bitcoin with a Greek chorus of buzzwords
So one of us says
What if my cash pile which is supposed to reassure preferred holders that coupons are safe
Instead goes and buys your 11.5 percent preferred
Then magically I have yield to point at
Look
We have cash flow
We hold this security that throws off a double digit coupon
This supports our ability to pay our own preferred
Please ignore that the source of that yield is another entity that is doing structurally the same thing as we are
It is not a cross ownership Ponzi in the formal legal sense
But it rhymes very loudly with circularity