Hong Kong SFC Sounds Alarm On Crypto Treasury Companies

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Hong Kong’s SFC has raised concerns about the rise of digital asset treasuries, companies that put crypto on their balance sheet.

Hong Kong SFC Is Closely Monitoring Crypto Treasury Developments

As reported by the South China Morning Post, Hong Kong’s Securities and Futures Commission (SFC) is keeping an eye on how firms are using crypto as part of their treasury management. The term Digital Asset Treasury (DAT) refers to a public company that acquires and holds Bitcoin or other cryptocurrencies to give stockholders exposure to price movements.

Often, the stock price of such firms trades at a premium compared to their treasury reserves, and this seems to be where the SFC’s concern lies. Kelvin Wong Tin-yau, the regulator’s chairman, noted, “The SFC is concerned about whether DAT companies’ share prices are traded at a substantial premium above the cost of their DAT holdings.”

Wong’s statement comes a week after Bloomberg reported that the Hong Kong Stock Exchange and Clearing (HKEX) blocked a DAT strategy pivot for at least five firms in recent months. HKEX operates the city’s main stock exchange, one of the largest markets in the world.

The bourse operator, which names the Hong Kong Government as its largest shareholder, challenged the plans of these companies, raising compliance issues with rules that prohibit large liquid holdings.

Wong revealed that the SFC is closely monitoring DATs and plans to strengthen public awareness about the associated risks. “We caution investors to fully understand the underlying risks of DAT,” said the SFC chairman.

The DAT strategy was popularized by Michael Saylor’s Strategy (formerly MicroStrategy), which adopted a Bitcoin treasury as its core business back in 2020. The company’s reserves have since grown to 640,808 BTC, worth a whopping $70.6 billion.

The firm paid about $47.4 billion in total to assemble its BTC treasury, so at the current price of the crypto, it’s sitting at a healthy profit of almost 49%. Strategy’s success has unleashed a DAT wave, as other companies rush to replicate the model.

Bitcoin isn’t the only asset that corporates are looking at today; there has also been a rise in DATs focused on Ethereum and Solana. Bitmine owns the largest ETH treasury in the world, containing about 3.34 million tokens, equivalent to $13 billion. While Forward Industries is the king of SOL DATs with 6,822 coins or $1.3 billion in assets.

DATs represent just one route that traders can take for gaining indirect exposure to digital assets. Another path is through the spot exchange-traded funds (ETFs), investment vehicles that trade on traditional exchanges and buy the underlying crypto on behalf of investors.

Demand for spot ETFs appears to be weak right now, however, as according to data from on-chain analytics firm CryptoQuant, the 7-day change in the netflow of the US Bitcoin funds has dropped to a negative value of 281 BTC, which is the lowest since April.

The trends in the spot ETF netflows for BTC and ETH | Source: CryptoQuant on X

Bitcoin Price

At the time of writing, Bitcoin is trading around $110,000, down around 2.7% over the last 24 hours.

The price of the coin seems to have gone down over the last couple of days | Source: BTCUSDT on TradingView

Featured image from Dall-E, CryptoQuant.com, chart from TradingView.com

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