Are DATs Just Funds? Why Strategy’s Index Risk Could Reshape the Entire Crypto Market

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 I strongly recommend reading this article all the way to the end; your money is precious, and knowledge is what protects it.

The market has started to ask an uncomfortable question:

“Are Strategy and other DATs just disguised funds, and should they be kicked out of major equity indexes?”

For Bitcoin and altcoin DATs, this is not a cosmetic debate. If index providers decide to treat DATs as funds and exclude them from core benchmarks, the impact could be structural and long-lasting.

Personally, I think the case for outright exclusion is weak. DATs do more than simply buy an asset and sit on it: they stake, they build, they develop ecosystems around their core holdings. Reducing them to “just funds” ignores how crypto-native their business models already are.

Still, we have to be honest: if the worst-case scenario plays out, it will hurt not only DATs but also the broader crypto market. Let’s walk through why.

1. What is actually at stake for Strategy and other DATs?

When index providers review a company like Strategy, they are essentially asking three questions:

  1. Where does most of the balance sheet risk come from?
    If more than half of the assets are Bitcoin (or any digital asset), then economically the company behaves very similarly to a fund or an ETF.

  2. What explains most of the price movement?
    If the stock trades as a high-beta proxy for BTC, index providers naturally wonder whether it is really an “operating company” or just a leveraged wrapper around a single asset.

  3. Is this appropriate for broad equity benchmarks?
    Major indexes are supposed to represent diversified exposure to listed companies, not leveraged structures tightly tied to a single volatile asset class.

This is why some providers are considering rules like:

  • “If digital assets exceed X% of total assets, classification changes,” or

  • “Digital-asset treasury companies are ineligible for inclusion in certain broad benchmarks.”

If such rules are formally adopted and applied, Strategy and many other DATs could be reclassified and pushed out of key indices. That would mechanically force passive funds to sell, regardless of their view on Bitcoin or crypto.

2. Why DATs are more than just crypto funds

Your view is the one I share: most DATs are not simple, passive funds. They are hybrid crypto companies.

Typical DAT behavior includes:

  • Treasury accumulation:
    Raising capital and using a large portion of it to accumulate BTC, ETH, or specific altcoins.

  • Staking and yield strategies:
    For proof-of-stake assets, DATs often run validators, delegate stake, or engage in other yield-generating strategies that require technical and operational capabilities.

  • Ecosystem building:
    Funding developers, bootstrapping liquidity, marketing, partnerships, and infra that directly support their underlying network (L1/L2, game, DeFi protocol, etc.).

  • Product and service revenue:
    Some DATs operate exchanges, custody businesses, infrastructure providers, games, or software platforms that generate cash flow beyond simple price appreciation of their treasury.

If you look only at the balance sheet, a DAT can look like a fund.
If you look at how it behaves, it often looks more like a crypto conglomerate:

  • Part treasury,

  • Part infrastructure provider,

  • Part ecosystem growth engine.

That’s why I also think the probability of all major index providers permanently treating every DAT as a pure fund is relatively low. There is too much nuance in the business models, and the crypto economy is too big to be reduced to a single “you’re a fund or you’re not” rule forever.

3. If DATs are actually expelled: how the damage unfolds

Still, we need to think clearly about the tail risk. Let’s assume a harsh scenario where major index providers decide:

“If digital assets exceed roughly half of total assets, you are effectively a digital-asset fund and not eligible for our core equity indices.”

What happens then?

(1) Forced passive selling and valuation shock

  • Index and ETF providers that track those benchmarks are obligated to sell the affected DATs.

  • These are not discretionary trades; they are mechanical flows that happen within a rebalancing window.

  • For large DATs, that can translate into multi-billion-dollar sell pressure concentrated in days or weeks.

Price typically overshoots under such flows:

  • Liquidity thins,

  • Risk desks widen spreads,

  • Short sellers often press the move because they know passive sellers still have inventory to clear.

Result: the DAT’s share price can drop far more than what Bitcoin or the underlying crypto market is doing.

(2) A new equilibrium: DATs trade like “orphaned” structures

Once the dust settles, the long-term investor base changes:

  • Index funds, closet indexers, and conservative mutual funds disappear.

  • Remaining holders are mostly:

    • Hedge funds,

    • Crypto-savvy family offices,

    • High-conviction individuals who actively want a leveraged bet on BTC or a specific ecosystem.

At that point, DATs start to trade more like permanent niche vehicles:

  • Higher volatility,

  • More pronounced premium/discount behavior relative to their crypto holdings,

  • Less access to cheap equity capital, because their investor base is narrower and demands a higher risk premium.

For altcoin DATs, this is even more acute: their treasuries are in less liquid, more volatile underlying assets, which amplifies the discount/premium swings.

(3) Strategic responses from DAT management

Management teams are not going to just sit and accept a lower multiple forever. If index exile becomes reality, expect some combination of:

  1. Balance sheet engineering

    • Acquiring other businesses or real assets so that digital assets fall below the index threshold.

    • Selling part of the treasury to rebalance the asset mix.

    • Using derivative overlays (e.g., collars, futures) to reduce pure price exposure.

  2. Corporate restructuring

    • Spinning off the treasury into a separate vehicle.

    • Merging with traditional businesses to diversify income and asset base.

    • Relisting on markets that are more comfortable with hybrid treasury models.

  3. Leaning fully into the “crypto holding company” identity

    • Explicitly marketing themselves as publicly traded, high-beta plays on crypto.

    • Offering clearer policies on buybacks, treasury expansion, or distribution of staking yields to shareholders.

Some of these responses could restore partial index eligibility. Others would accept the “orphan” status and try to extract a higher multiple from a smaller but more aligned investor base.

4. What happens to DATs if they’re treated like funds long term?

If index rules and regulators converge on “DATs = funds,” the implications go further than flows. They alter the business model.

  1. Cost of capital rises

    • Without index demand, DATs must appeal to a narrower set of investors who will demand higher expected returns for the same risk.

    • That makes it more expensive to raise equity to buy additional crypto, which directly weakens the DAT’s role as a structural buyer.

  2. Discount to underlying assets becomes persistent

    • Pure funds/closed-end structures often trade at a discount or premium to NAV depending on sentiment and liquidity.

    • DATs could drift into a regime where they almost always trade at a discount to the value of their crypto treasury, especially in bear markets.

  3. Regulation and disclosure tighten

    • If they’re seen as fund-like, supervisors may require stricter disclosure standards on holdings, leverage, conflicts of interest, and treasury management.

    • That adds friction and reduces flexibility, which is exactly what made the DAT format attractive in the first place.

Over time, some DATs will adapt and survive. Others will simply fade out or be liquidated, especially in smaller ecosystems where the crypto treasury is the only real asset of interest.

5. Why this is bad news for the entire crypto market, not just DATs

You also made an important point:

“If DATs are excluded, it will hurt DATs and the broader crypto market.”

I agree, and here’s why.

(1) DATs are structural demand engines

DATs act as conversion machines:

  • They convert equity capital into crypto holdings.

  • Every capital raise, every ATM program, every equity placement can end up as new net demand for BTC, ETH, or a specific altcoin.

If index exclusion makes DAT equity less attractive and more expensive:

  • Fewer new DATs will launch.

  • Existing DATs will raise less capital.

  • Some will even sell crypto to rebalance their asset mix and satisfy classification rules.

That weakens one of the important structural demand channels for digital assets.

(2) Signal to TradFi: “The DAT model is not welcome”

Index decisions are more than technicalities; they are signals.

If large index providers and regulators converge on a negative stance, the message to traditional investors is:

  • “Crypto exposure via hybrid corporate vehicles is less acceptable and more fragile than we thought.”

  • “Stick to regulated spot ETFs, futures, or plain on-exchange trading if you want exposure.”

That narrows the spectrum of “respectable” ways for institutions to touch crypto. The result is:

  • Less experimentation in corporate treasury strategies,

  • Less willingness to back new DATs around emerging L1s/L2s,

  • A migration of capital into the safest, most boring instruments, leaving altcoins and DATs starved of long-term patience money.

(3) Altcoin DATs are the softest target

Bitcoin can absorb almost any regulatory or index shock because its brand and liquidity are global and deep.

Altcoin DATs, on the other hand, are much more fragile:

  • Their treasuries are concentrated in assets with thinner order books.

  • Their narratives rely heavily on being “the bridge” between TradFi and a specific ecosystem.

  • If that bridge is questioned or cut off, these DATs can spiral into:

    • chronic discounts to underlying token value,

    • shrinking treasuries,

    • and finally, loss of relevance within their own ecosystem.

This is where a DAT-wide de-rating would feed back directly into the health of altcoin ecosystems: fewer grants, fewer liquidity programs, fewer ecosystem investments.

6. A realistic framework: low probability, high impact tail risk

Putting everything together:

  • I agree with your core claim: DATs are not simply funds. Many of them are active players in staking, ecosystem building, and crypto infra. Calling them “just funds” ignores the reality of what they do.

  • I also agree that full, permanent expulsion from major indices would be a serious blow not only to individual DATs, but to the broader crypto market, especially altcoin ecosystems.

My personal scenario breakdown would look something like this:

  1. Base case (most likely)

    • Index providers implement more nuanced rules and disclosures, perhaps capping digital assets as a share of total assets or creating special sub-categories for DAT-type companies.

    • Some DATs adjust their balance sheets and stay inside major benchmarks; others fall out but continue to trade as niche vehicles.

  2. Bear case (tail risk)

    • A broad tightening of rules classifies most DATs as fund-like and excludes them from core equity indices.

    • Forced selling, valuation collapse for weaker DATs, persistent discounts to underlying assets, and a visible decline in the structural bid for crypto—particularly for altcoins.

  3. Bull case

    • The market eventually recognizes DATs as a distinct asset class.

    • Dedicated “DAT indices” or baskets emerge, and investors treat them as a separate segment, similar to how they treat REITs or BDCs today.

    • DATs continue raising capital and channeling it into crypto, preserving their role as important structural buyers.

As investors, we can’t control which scenario plays out, but we can ask sharper questions:

  • Is this DAT actually building something, or is it just a levered treasury?

  • If index access disappears tomorrow, does its business model still make sense?

  • How does its valuation compare to the value of its treasury and its operating cash flows?

  • And most importantly, how much of your portfolio are you willing to expose to a structure whose classification can change overnight by committee decision?

Those questions matter more than any single headline about one company or one index provider.

This article is for informational and educational purposes only and does not constitute financial or investment advice; any decisions you make with your money are entirely your own responsibility.

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