Cryptocurrency asset fund profits turn to zero! DAT profit and loss ratio compressed by 93%, fear of selling off Bitcoin

ARK Invest data shows that the profit-loss ratio of the Digital Asset Trust (DAT) has compressed by 93% over the past year, bringing it close to the break-even point. Bitcoin has fallen back to support levels based on ETF cost basis, but leveraged DATs may be forced to sell Bitcoin to buy back shares if their net asset value (NAV) drops below the market price. Meanwhile, 58% of Bitcoin futures long positions have been closed out, indicating an oversold condition compared to normal levels over the past three years.

DAT Profit-Loss Ratio Compresses 93%, Facing Survival Challenges

(Source: ARK Investment)

ARK Invest’s analysis indicates that the profitability of the Digital Asset Trust (DAT) has experienced a catastrophic contraction over the past year. These companies’ profit-loss ratios were healthy at the start of 2024 but have since been squeezed close to breakeven by increased Bitcoin volatility and rising operating costs, reaching near zero in 2025. The profit-loss ratio refers to the proportion between a company’s revenue and costs; when this ratio approaches 1, it means the company has little to no profit margin.

The business model of crypto asset funds mainly relies on asset appreciation driven by Bitcoin price increases and management fee income. When Bitcoin’s price dropped from a high of $126,080 in October 2024 to around $78,000 now, the Bitcoin holdings of DATs shrank significantly. At the same time, operating costs—including custody fees, compliance expenses, personnel costs, and debt interest—did not decrease proportionally, leading to a rapid compression of profit margins.

A 93% reduction in profitability is an astonishing figure. It implies that if a DAT earned $10 million quarterly in early 2024, at the same scale in 2025, profits might only be $700,000. This compression not only threatens the financial health of these companies but also directly impacts shareholder returns and market confidence. For leveraged DATs that buy Bitcoin with borrowed funds, the situation is even more severe, as debt interest is fixed and cannot decrease with revenue.

If the market correction persists, leveraged DATs may be forced to sell Bitcoin to buy back shares if their stock price falls below NAV, in order to protect shareholder equity. This mechanism stems from corporate governance logic: when the stock trades below NAV, it indicates the market values the company below its assets, motivating management to repurchase shares to narrow the discount. However, share buybacks require cash, which for leveraged DATs can only come from selling Bitcoin.

Three Pressures Facing DAT

Asset Side: Falling Bitcoin prices reduce holdings value, lowering NAV

Liability Side: Fixed debt interest expenses amplify losses through leverage

Market Price: Lack of market confidence causes discount trading, triggering buyback pressure

Once this selling pressure begins, it creates a negative feedback loop. DATs sell Bitcoin, pushing prices lower, which further worsens their financial situation and triggers more selling. This mechanism was observed during the 2022 bear market, when several leveraged Bitcoin companies were forced to liquidate assets, intensifying market panic. If Bitcoin prices remain depressed, this scenario could repeat.

Bitcoin Testing ETF Cost Basis as Technical Support

(Source: ARK Investment)

Another key observation from ARK Invest is that Bitcoin’s price has fallen back to the overall cost basis level of US spot ETFs. This means current prices are near the average purchase cost of all ETF investors, forming an important psychological and technical support level. When prices are near the cost basis, existing ETF holders are less likely to panic sell, as they have not suffered significant losses. Meanwhile, potential buyers see this as an “entry point at institutional price,” generating new demand.

As ETF investors return to breakeven, Bitcoin may attract new inflows. Historical data shows that when asset prices test the cost basis of large institutions, it often marks a stage bottom. This is because institutional investors tend to allocate based on in-depth research and long-term perspectives; their cost basis acts as a “value anchor.” When prices fall to this level, they are motivated to buy more to average down, rather than sell at a loss.

Since the launch of US spot Bitcoin ETFs in early 2024, hundreds of billions of dollars have flowed into these products. The average cost basis of these funds varies depending on entry points and holdings adjustments, but generally falls within the $75,000 to $85,000 range. With Bitcoin trading around $78,000 now, it is right in the middle of this zone, providing strong technical support.

From the perspective of crypto asset funds, ETF cost basis support is both an opportunity and a challenge. The opportunity is that if this support holds, Bitcoin prices could bottom out and rebound, increasing the value of holdings and easing profit pressures. The challenge is that if this support fails and Bitcoin drops below ETF cost basis, it could trigger institutional panic, leading to greater sell-offs and financial distress for DATs.

58% of Long Positions Closed, Indicating Oversold Conditions

(Source: ARK Investment)

ARK’s third observation focuses on the derivatives market. The proportion of Bitcoin futures long positions closed out in Q4 has risen to 58%, an extreme figure. Normally, the long-short ratio should be relatively balanced; when one side dominates, it often signals extreme market sentiment and a potential reversal.

A 58% long position closeout ratio means that during recent declines, the majority of forced liquidations were on long positions. This situation typically occurs when leveraged longs are overcrowded; as prices fall, cascading liquidations cause a snowballing crash. However, when long liquidations reach such an extreme, it also indicates that bearish pressure has been largely released, and remaining long positions are relatively healthy, while short positions may be overly crowded.

Compared to the normal levels over the past three years, current long positions are in an oversold state, near the upper limit of the 2023 range. This conclusion is based on historical data; ARK tracks the fluctuation of long-short ratios from 2023 to 2025 and finds that when long liquidations exceed 55%, it often signals the end of a downtrend. The current 58% reading suggests Bitcoin may be in a stage bottom zone.

This oversold condition is a double-edged sword for crypto asset funds. In the short term, it provides technical conditions for a price rebound; if a rebound occurs, the value of DAT holdings will improve, easing profit pressures. But before a rebound materializes, DATs must endure asset shrinkage and potential selling pressure. For highly leveraged DATs, this transitional period is the most dangerous; if they cannot withstand it, they may be forced to sell assets at the bottom, missing subsequent rebounds.

Industry Facing Structural Challenges

Bitcoin digital asset management companies, as a new business model, flourished during the 2020–2021 bull market. These firms raised funds through issuing stocks or bonds, purchasing Bitcoin as their main asset, and providing investors with indirect exposure to Bitcoin holdings. Compared to directly buying Bitcoin, investing in DAT stocks can be done through traditional brokerage accounts, avoiding the need to manage crypto wallets and private keys, making it more accessible to traditional investors.

However, the DAT model revealed fatal weaknesses during bear markets. First is the double discount problem: DAT stock prices often trade below their NAV, meaning investors pay less for the same Bitcoin. This discount narrows or turns into a premium during bull markets but widens in bear markets, creating a “shrinking asset + stock discount” double blow. Second is liquidity risk: many DATs issue bonds to finance their holdings, with fixed maturity dates and interest payments. When Bitcoin prices fall, DATs may be forced to sell assets to repay debt, even if management believes in long-term holding.

The introduction of spot ETFs poses a structural threat to the DAT model. Investors can now directly hold Bitcoin via products from BlackRock, Fidelity, and other large asset managers, which have lower fees, better liquidity, and no discount issues. This reduces the value proposition of DATs, prompting some investors to shift from DAT stocks to ETFs, further depressing DAT’s stock price and market position.

In the long run, the crypto asset fund industry may face segmentation. Well-capitalized, debt-free DATs can choose to hold assets long-term, waiting for market recovery or accumulating more at the bottom. Highly leveraged, capital-strapped DATs may be forced to exit or undergo debt restructuring. This process of natural selection, though brutal, will push the industry toward healthier and more sustainable business models.