The Korean DAT Strategy: The Practical Limitations of Following Strategy

Reading The Bell’s article prompted me to reflect on the movement among Korean companies to adopt the Digital Asset Treasury (DAT) model, following the success story of Strategy (formerly MicroStrategy). Indeed, Strategy’s success is remarkable; its stock price soared from $15 in 2020 to a peak of $543 this year, marking an increase of over 36 times. Given such achievements, it’s understandable that domestic companies are taking an interest.

However, a closer look at the article suggests that the reality is not so straightforward. As of October, Strategy holds 640,250 Bitcoins, which translates to a staggering 96 trillion won. This amounts to over 3% of the total Bitcoin circulation. In contrast, Parataxis Korea, which claims to follow the DAT model, holds only 150 Bitcoins. The number disclosed to the Financial Supervisory Service is 14.7, highlighting the vast disparity.

The more crucial difference lies in the ability to raise funds. Strategy announced plans to raise an additional $42 billion (approximately 60.4 trillion won) this year to purchase Bitcoin, half through convertible bonds and half through equity offerings. They raised $1.3 billion just in mid-year. How many companies in Korea can mobilize such funds?

In the case of Parataxis Korea, they limited their efforts to a 20 billion won equity offering and a 5 billion won convertible bond issuance. Considering their acquisition of Bridge Biotherapeutics for 25 billion won, the funds available for Bitcoin purchases seem even more limited. This is a situation on a different scale compared to Strategy’s ability to mobilize tens of trillions of won.

The Market Environment: A Key Difference Between the U.S. and Korea

Personally, I believe the most significant difference is the market environment. Strategy’s success cannot be attributed solely to the rise in Bitcoin prices. It is the result of a confluence of factors: the vast U.S. capital market, a relatively positive perception of Bitcoin, and active participation by institutional investors. In fact, Strategy was recognized for its corporate value when it was included in the Nasdaq 100 index in December 2024.

What about the domestic situation? Although investments in virtual assets by listed companies and professional investment corporations have been allowed since the second half of this year, the available volume for procurement is reportedly still limited. More importantly, it’s about investor perception. In the U.S., companies holding Bitcoin as a strategic asset are deemed ‘innovative,’ but such a sentiment does not yet seem to be prevalent domestically.

The comment from an industry insider mentioned in the article was striking: “While companies overseas can buy back their shares in the market and smoothly raise funds externally, this is not possible domestically.” This highlights the differences in the flexibility and depth of capital markets, reflecting not just regulatory issues but also the disposition and scale of market participants.

Another point to consider is the stock price linkage effect. The core of the DAT model is the virtuous cycle of increasing Bitcoin holdings and rising stock prices, but whether this will work the same way domestically is uncertain. In Strategy’s case, the leverage effect of rising Bitcoin prices attracted investor attention, but it’s unclear if domestic investors will respond similarly.

Can Risk Management Be Achieved?

The biggest risk of the DAT model is exposure to volatility. Holding most assets in virtual currencies inevitably exposes one to price fluctuations. Recently, Strategy received a B- rating, equivalent to a junk bond, from credit rating agency S&P. Excessive Bitcoin holdings, business concentration, and low dollar liquidity were cited as risks.

Considering these risks, it seems challenging for domestic companies to employ the same strategy as Strategy. This is especially true when considering the scale of funds and risk tolerance of domestic companies. The article also notes that “companies should be able to purchase virtual assets like Bitcoin as part of their investment portfolio while continuing their main business,” which seems like a realistic approach.

In fact, Strategy was not at its current scale from the beginning. When it started its Bitcoin purchase strategy in 2020, its annual revenue was stagnant at around $500 million (approximately 720 billion won), and it was barely breaking even in terms of operating profit. However, as Bitcoin prices surged, the company’s value skyrocketed, enabling it to raise more funds.

Whether such a virtuous cycle will operate domestically is questionable. Firstly, the scale and liquidity of the domestic stock market differ from those in the U.S., and investor perceptions of virtual assets remain conservative. Moreover, there are many challenges to address concerning accounting standards and institutional environments.

Nevertheless, the emergence of companies attempting the DAT model domestically is significant. Besides Parataxis Korea, the movements of other companies like BitMax are also noteworthy. However, rather than simply replicating Strategy’s success story, it is crucial to develop a unique model that fits the domestic environment.

As an industry insider mentioned, “Building one’s financial soundness and adopting the DAT model as an additional growth driver seems rational.” This approach, which leverages virtual assets for portfolio diversification while ensuring the stability of the core business, seems practical. This way, volatility risks can be managed to some extent.

Ultimately, the success of the Korean DAT strategy will depend on creating a realistic and sustainable model. Instead of being dazzled by Strategy’s spectacular achievements, domestic companies should develop in a direction that leverages their strengths. As we are still in the early stages of adoption, it is important to observe future developments closely.

This article was written after reading a News article and adding personal opinions and analysis.

Disclaimer: This blog is not a news outlet, and the content reflects the author’s personal views. Responsibility for investment decisions lies with the investor, and the author assumes no responsibility for investment losses based on the content of this article.