Author: Clow

Produced by: Plain Language Blockchain

There's an old saying on Wall Street: You only discover who's been swimming naked when the tide goes out.

In November 2025, the tide receded faster than anyone could have imagined.

The crypto market lost $1.4 trillion in six weeks, with Bitcoin nearly falling below $80,000 and Ethereum plummeting by over 40%. But the ones truly drowning were not retail investors, but rather the publicly listed companies that had been hailed by Wall Street as "pioneers of the institutional bull market."

MicroStrategy faces being removed from the MSCI index, with a $11.6 billion passive sell-off hanging over its head; Bitmine has a paper loss of $3.6 billion, caught in a death spiral of "toxic financing," and its management is willing to "buy one get two free" to survive.

What was once "alchemy" has now become a "meat grinder".

When the "flywheel" stops spinning, who will be the last survivor?

01. The Disillusionment

In the first half of 2025, the market was immersed in a beautiful illusion: the Federal Reserve would begin an aggressive rate-cutting cycle, and cheap money would soon flood into the market.

Institutional investors are leveraging aggressively, betting on a liquidity feast. Bitcoin broke through $100,000, Ethereum surged toward $5,000, and the stock price of DAT (Digital Asset Treasury) skyrocketed—you could buy stock containing $1 of Bitcoin for $2 and still feel like you got a bargain.

However, reality is incredibly cruel.

Inflation data proved stickier than expected, and the benefits of the "Trump trade" quickly faded. On October 10, Trump suddenly announced a 100% tariff on Chinese goods, becoming the final straw that broke the camel's back.

Within just a few hours, more than $19 billion in leveraged positions were forcibly liquidated.

The crypto market experienced one of the largest liquidation days in history.

The sharp reversal in macroeconomic expectations directly led to a precipitous drop in institutional liquidity. In early November, trading platforms witnessed a net outflow of over $3.6 billion. Institutional investors shifted from "embracing risk" to "avoiding risk."

DAT companies—these leveraged crypto exposures with operating costs—were the first to be sold off.

When the underlying assets fall by 5%, DAT stocks tend to fall by 15%-20%.

This non-linear decline triggered a negative feedback loop, causing the valuation system of the entire sector to collapse in a short period of time.

Amid geopolitical turmoil and heightened fiscal uncertainty, Bitcoin's "digital gold" narrative has been partially preserved, while Ethereum has been abandoned due to a lack of a clear story.

Those DAT companies that bet on the "high beta of Ethereum" strategy are facing annihilation.

02. The Secret of the Flywheel

To understand why DAT companies are so vulnerable, we must first dissect their profit-making logic—the reflexive flywheel.

This model, pioneered by MicroStrategy founder Michael Saylor, is considered perfect during bull markets:

Step 1: The company's stock is traded at a premium (buying shares containing $1 of Bitcoin for $2).

Step 2: Use the premium to issue new shares at a high price in the secondary market to raise funds.

Step 3: Use the raised funds to buy more Bitcoin

Step 4: Because the stock is sold at a premium, each round of financing increases the "currency per share" for existing shareholders.

Step 5: The stock price rises further, maintaining the premium, and the cycle repeats.

This is a money printing machine.

As long as the price of the coin rises, the stock price rises even faster.

A report by Pantera Capital shows that during the "Summer of DAT" from 2024 to the first half of 2025, this model made countless followers a fortune. Bitmine's mNAV multiple (market capitalization relative to net assets) once reached as high as 5.6 times.

This means that investors are willing to spend $5.60 to buy a $1 worth of Ethereum exposure.

Is it crazy? In a bull market, this is called "faith premium".

However, the flywheel has a fatal flaw: it is only effective in one-way markets.

When the market reverses, the premium disappears, and mNAV falls below 1.0, the entire logic instantly reverses.

At this point, issuing new shares is no longer "value creation" but rather "dilution"—for every share sold, the equity of existing shareholders is diluted. The company loses its financing ability and becomes a "zombie company."

Since they charge management fees and face operational risks, investors might as well just buy ETFs directly.

Even more frightening is that reflexivity can backfire:

Stock price decline → Market doubts about solvency → Widening discount → Loss of financing ability → Liquidity depletion → Forced asset sale

In November 2025, this death spiral will be playing out in full force in the DAT sector.

The flywheel turned into a meat grinder.

03. The Sword of Damocles: $11.6 Billion

Of all the risks, the most systemically destructive is the possibility that MicroStrategy might be removed from the MSCI index.

MSCI, a leading global index provider, has initiated a consultation to consider removing companies with more than 50% of their balance sheets from its indices.

The reason is simple: these companies are more like investment funds than traditional operating companies, and therefore do not fit the definition of a broad market equity benchmark.

The final decision will be announced on January 15, 2026.

However, the market has already priced in this tail risk in advance.

The consequences will be disastrous.

According to JPMorgan Chase's calculations, if MSCI removes MicroStrategy, funds tracking that index alone will experience approximately $2.8 billion in direct outflows. However, if other index providers such as S&P and FTSE follow suit to maintain methodological consistency, the total forced sell-off could reach as high as $11.6 billion.

This is not a rational judgment by active investors, but rather a mechanical selling by passive funds.

They must be sold, no matter how low the price.

In a market where liquidity has dried up, $11.6 billion in selling pressure is enough to trigger a "double whammy" of selling pressure and selling pressure.

The drop in Bitcoin prices led to a decrease in NAV.
Index exclusion caused a sharp drop in valuation multiples.

If MSTR's stock price falls below $150 and loses its index premium, its flywheel will completely reverse—unable to finance purchases, the price may continue to fall, forming a perfect death spiral.

This would turn MicroStrategy from the "biggest buyer" in the Bitcoin market into a powerless bystander, or even, in extreme cases, a potential seller.

The market finally realized that DAT was not a "diamond hand" driven by faith, but rather a "forced hand" constrained by financial statements.

04. The cost of the Ethereum gamble: a paper loss of $3.6 billion.

If MicroStrategy faced regulatory risks, then Bitmine gambled its own life to death.

Bitmine's strategy is extremely aggressive: it is trying to become "the Ethereum version of MicroStrategy".

The investment logic is that Ethereum is more volatile than Bitcoin and can generate staking rewards, so it should provide excess returns in a bull market.

Based on this logic, Bitmine borrowed heavily, accumulating more than 3.6 million ETH.

But reality is incredibly cruel.

Ethereum does not have the same "digital gold" consensus as Bitcoin, and its high volatility becomes a double-edged sword during market downturns.

Bitmine's majority holdings were established at an average price of $4,000, while Ethereum struggled below $3,000.

The book loss has exceeded $3.6 billion.

Even more fatally, Bitmine had already "invested almost all of its cash" and had no remaining funds to buy more shares at lower prices.

It has become a huge bullish player who is trapped and can only pray for a market reversal.

Evidence of desperation comes from its September 2025 funding round. Bitmine sold 5.22 million shares at $70 each, along with two warrants for each share, with an exercise price of $87.50, for a total of 10.4 million warrants.

This "buy one get two free" structure is known in the financial world as "toxic financing."

It's a sign of despair for the company.

Limiting upside potential: 10.4 million warrants have created a huge "sell-off wall" at the $87.50 level, which will suppress any rebound once it reaches this level.
Devastating dilution: If all warrants are exercised, more than 15 million new shares will be issued, resulting in an immediate dilution of 7.26% for existing shareholders.
Collapse in confidence: The market interprets this as management sacrificing long-term value for survival.

Following the announcement of this transaction, Bitmine's mNAV premium rate plummeted from 5.6x to 1.2x, dropping as low as 0.86.

The flywheel became a dilution machine.

05. Trial Date: January 15, 2026

All investors' eyes are on one date: January 15, 2026.

MSCI will announce its final decision.

This is not just an index adjustment announcement, but also a judgment day for the DAT sector.

pessimistic scenario

If MSCI decides to remove it, a large-scale sell-off of passive funds will occur in February 2026.

Stocks like MicroStrategy may face a 30%-50% instantaneous repricing, and the entire DAT sector will enter a period of stagnation.

Even more frightening is the contagious effect.

If MicroStrategy is removed, other index providers are likely to follow suit, triggering a domino effect. DAT companies that heavily rely on index funding will face the risk of liquidity depletion.

Optimistic scenario

If MSCI retains these companies or only restricts their weighting, the market will see a huge "short squeeze".

Short positions previously established to hedge risks will have to be closed, potentially triggering a short-term violent rebound.

Even if it escapes this calamity, the DAT sector will find it difficult to return to its former glory.

The existence of spot ETFs has permanently compressed the valuation premium of DAT.

last straw

The only variable comes from the policy level.

The U.S. Senate plans to mark the Crypto Markets Structure Act in December 2025 and aim to submit it to the president for signature in early 2026.

The core objective of this bill is to clarify the jurisdictional boundaries between the CFTC and the SEC, and to define through legislation which digital assets fall under the category of "digital goods".

If the bill passes, it will grant Bitcoin and Ethereum a clear legal status.

This will be DAT's most powerful weapon in its fight against MSCI's decision to exclude it.

If the law recognizes these assets as legitimate corporate reserve assets, then index providers will find it difficult to remove them on the grounds of "unclear nature".

This is the only chance for the DAT sector to turn things around.

But until the outcome is clear, everything is uncertain.

The market is holding its breath, and the outcome of this high-stakes gamble will be revealed in two months.

06. Summary

The DAT pattern has not disappeared, but it is undergoing a dramatic evolutionary process.

The "crypto hoarders" of 2024 are being phased out, and will be replaced by "capital operators" in 2026 who understand capital allocation, risk management, and regulatory negotiation.

The so-called "flywheel" is never a perpetual motion machine, but rather a sail that unfurls when the wind is favorable.

If the sails are not furled in time during a storm, the entire ship may capsize.

The market has already taught everyone a lesson at the cost of $1.4 trillion:

In the crypto world, survival is everything.

Only those players who remain standing amidst the ruins are qualified to enter the next cycle.

Only investors who understand this shift will survive.

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