Digital Asset Treasury Companies: Structure and Regulation
Digital Asset Treasury Companies (“DATCOs”) are a new class of public companies whose treasuries hold significant amounts of digital assets on their balance sheets. As distinguished from a public company that uses digital assets only incidentally, or not at all, a DATCO’s business plan is to acquire and manage digital assets (like BTC or ETH) as “permanent capital.”
This model gained prominence after MicroStrategy’s 2020 pivot, when it converted $250 million of corporate cash into Bitcoin, dramatically boosting its stock price and inspiring others. By September 2025, public DATCOs collectively held over $100 billion in digital assets, and more than 200 U.S. companies had announced “digital asset treasury” strategies, seeking to raise an estimated $102 billion to buy crypto for their balance sheets.
This report covers two key aspects of the U.S. legal landscape for DATCOs:
- Formation Structures: How DATCOs are formed or taken public – including traditional IPOs, SPAC mergers, reverse mergers, PIPE financing, and emerging techniques like “phased” acquisitions.
- Securities Law Issues: Core U.S. legal considerations in forming a DATCO, covering Securities Act of 1933 (“Securities Act”) registration requirements, exemptive relief and lawful avoidance of classification as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”).
We will focus exclusively on U.S. federal securities law and regulatory developments and will not cover state law or non-U.S. legal regimes in this report. We also will ignore issues arising under the Commodity Exchange Act of 1936 after noting in passing that a properly structured DATCO can lawfully avoid regulation as a “commodity pool,” a “commodity pool operator” or a “commodity trading advisor” under that Act.
I. Formation Structures for DATCOs: IPOs, ETPs, SPACs, PIPEs, Reverse Mergers, and Phased Acquisitions
DATCOs are emerging through various transaction structures that bring a crypto-focused company into the public markets or repurpose an existing public company into a crypto asset vehicle. Each path has distinctive legal implications. Here is an overview of common formation structures for DATCOs, with recent examples of each:
Formation Structure | Description & Recent Example | Legal Considerations for DATCO |
|---|---|---|
| Traditional IPO (ETP) | DATCO (or its parent) conducts a registered initial public offering of stock (or direct listing) to become publicly traded on a registered exchange. Examples: Multiple crypto-asset-backed exchange- traded products (“ETPs”) have been authorized by the SEC and listed on SEC-registered exchanges since the logjam broke for Bitcoin ETPs in 2024. The most famous of these ETPs is probably Blackrock’s iShares Bitcoin Trust (ticker symbol IBIT), which currently has about $90 billion in assets under management and is arguably the most successful ETP of all time. Cathie Wood’s ARK Invest also launched a Bitcoin ETP, the ARK 21Shares Bitcoin ETF (ticker symbol ARKB), whose structure was cited favorably by the SEC in approving the first suite of Bitcoin ETPs. Much to her credit, Cathie Wood has bet on crypto industry development from the industry’s early days onward. | Full SEC registration (Form S-1) with rigorous disclosure and audited financials. High upfront cost and liability, but offers significant credibility. Post-IPO, subject to ongoing reporting requirements. Must avoid being deemed an investment company (unless also registered under the Investment Company Act) if proceeds are used to buy crypto. (See Section II of this note). |
| SPAC Merger (De-SPAC) | A Special Purpose Acquisition Company (blank-check IPO shell) combines with a private crypto company, taking it public without a conventional IPO. Often accompanied by a PIPE financing (described below).
Example: Twenty One Capital, Inc. (“Twenty One”) has entered into a definitive agreement for a business combination with Cantor Equity Partners, Inc. (“CEP”), a SPAC. At the closing of the business combination, Twenty One will be majority-owned by Tether, co-founder of Twenty One and the world’s largest stablecoin issuer, and Bitfinex, with significant minority ownership by SoftBank Group Corp., one of the world’s leading investment holding companies. Twenty One and CEP have also entered into subscription agreements with investors to raise, at closing, $585 million of total additional capital consisting of (i) $385 million through convertible senior secured notes and (ii) $200 million through a common equity PIPE financing.
| Rather than an IPO prospectus and a Form S-1, this process uses a combined proxy statement and Form S-4. The business combination is deemed an offer and sale of securities, so Securities Act liability attaches to disclosures. Must meet stock exchange listing standards and must file a post-closing “Super 8-K” with full financials. High redemption rates by SPAC shareholders can reduce cash. Consequently, sponsors often arrange PIPEs to assure adequate funding. In 2022, the SEC proposed rules to align de-SPAC disclosures and liabilities more closely with IPOs (requiring fairness opinions, limiting use of safe harbors, etc.). |
Reverse Merger (RTO) | A private crypto company instead might take over an existing publicly traded company (often a shell or a “fallen angel”) by merging into it or otherwise acquiring control. The private company’s shareholders receive a controlling stake. The public company adopts the crypto business.
| Usually structured as a private share exchange exempt from registration. But because most shells are SEC-reporting, the combined company must file Form 8-K with detailed information akin to an IPO. There is no SEC review before closing, so less upfront delay, but shell company rules now essentially require the same financial disclosures as an IPO. Reverse mergers provide no grace period on SEC reporting or internal controls. The crypto company must have audited financials and must satisfy all public company requirements immediately. Diligence is critical (legacy liabilities, shareholder base, etc.) and stock exchanges may require satisfaction of “seasoned company” criteria or impose a “seasoning” period before listing if the shell was traded over the counter.
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| PIPE Financing (Private Investment in Public Equity) | A public company (which might be a SPAC) sells a block of stock or convertible notes privately to accredited investors, thereby raising capital, often with the intention of using that capital to buy digital assets to carry out a treasury strategy. PIPEs often accompany SPAC mergers or phased acquisitions.
| PIPE shares are sold under a private offering exemption (Regulation D or Section 4(a)(2)) such that there is no immediate SEC registration, but investors get restricted stock. Issuers typically covenant to file resale registration(s) later so PIPE investors will have better liquidity. For DATCOs, a key legal point is using PIPE proceeds in compliance with disclosures made to the PIPE investors (i.e., representing clearly whether funds will be used to buy crypto). Nasdaq’s “20% rule” also may be implicated. That rule provides that if a PIPE would cover more than 20% of pre-deal shares at a discount, then shareholder approval may be required unless it’s part of a SPAC merger or qualifies as “public.” Nasdaq has scrutinized some crypto PIPE structures to assure that they don’t evade this rule. PIPE investors often negotiate for protections (e.g., anti-dilution, lockups, board seats) that also must be disclosed. And large PIPEs can raise issues under the Investment Company Actif the company becomes primarily a pool of investment assets (discussed in Section II, below).
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| “Phased” Acquisition (Treasury-Only Strategy) | This is a two-step approach in which a crypto company (or investor group) first takes a minority stake in an existing public company, often via PIPE or block purchase, to quickly access public markets and implement a crypto treasury strategy, with the option of increasing ownership later. The public company, with fresh capital or new strategic direction, then buys digital assets for its treasury (becoming a DATCO) even though the crypto acquirer held less than a majority of the stock initially. Example: In 2025 we have seen crypto investors take 10–15% PIPE stakes in small public companies, which then announce large Bitcoin purchases. In mid-2025, SharpLink Gaming (NASDAQ: SBET) received a PIPE investment and pivoted to an Ethereum-based treasury strategy, after which its stock surged. | This model avoids an immediate change-of-control, so no shareholder vote is triggered if the PIPE covers less than 20% of the shares. It can close faster and with less disclosure than a full merger. But the crypto investor’s rights must be carefully documented contractually (board seats, vetoes, etc.) since they lack majority control. Stock exchange rules on “change of control” still apply. If the minority stake comes with outsized governance influence, the stock exchange may require shareholder approval. The downside is uncertainty. The crypto company is exposed as a minority shareholder; any plan to later acquire a majority interest would require another transaction, subject to approvals. Legally, this structure helps avoid classification as an unregistered investment company because the operating public company remains in place with its business and revenues, now supplemented by crypto assets. Nonetheless, the public company must disclose the new strategy and risks thoroughly. Also, Regulation FD and insider trading laws apply. |
The table above demonstrates that no path to becoming a DATCO is “low-regulation.” A traditional IPO offers the most transparency and market rigor, but requires the company to already have a compelling track record or narrative. ETPs must navigate the listing requirements of exchanges and SEC requirements peculiar ti crypto assets. SPAC mergers soared in popularity for crypto firms in 2020–2021 as they provided a faster, story-driven route to public markets. By early 2022, various crypto-focused SPAC deals had closed (e.g., Diginex/Eqonex, Cipher Mining via Good Works, Bakkt via VPC, Core Scientific via PDAC), and many more were announced (Circle, eToro, Bullish, etc.). But SPACs faced high redemption rates and, as the SEC tightened rules (proposed in March 2022) to curb rosy projections and sponsor conflicts, several planned crypto SPACs were delayed or canceled.
The SEC issued accounting bulletins and exchanges issued seasoning requirements after a wave of Chinese company completed reverse mergers a decade ago. The SEC again warned in early 2018 that it would scrutinize companies that suddenly pivot to blockchain through business combinations or name changes. While a reverse merger can be executed quickly, it will not avoid SEC scrutiny. Indeed, a “Super 8-K” filing with full Form 10 information is required within four business days of closing, assuring that the combined entity will disclose essentially the same information as in a registered offering.
PIPEs are more of a financing tool for public companies than a standalone path to going public, but they have been critical for DATCOs. Many companies adopted the “MicroStrategy playbook.” That playbook is to go public or use an existing public vehicle; next, raise additional funds through PIPE or debt offerings; then buy large amounts of crypto. Strategy’s use of convertible note PIPEs allowed it to buy billions of dollars of Bitcoin quickly, effectively leveraging public markets to create a crypto investment fund within a corporation. Other companies, like Marathon Digital Holdings, similarly sold shares “at-the-market” to fund Bitcoin accumulation.
These transactions are lawful if properly exempt or registered, assuming the disclosure is materially accurate and complete, but they underscore how a publicly traded stock can be a continuous capital machine for crypto purchases. In late 2024 and 2025, the SEC reportedly sent letters to more than 200 companies that had jumped on the crypto treasury bandwagon, reminding them of Regulation FD obligations, after suspicious trading patterns suggested that some PIPE investors might have traded on advance knowledge of forthcoming Bitcoin purchases.
Finally, “phased acquisitions” or minority investment strategies for DATCO formation gained traction in 2025 as crypto investors sought faster deals amid SPAC fatigue. Taking a non-controlling stake in a public company can be faster and less expensive than a traditional reverse merger since it avoids an immediate shareholder vote and extensive SEC review. The public company can effectively become a crypto ETF in corporate form. It can raise cash via PIPE and deploy it into crypto assets without the regulatory approval that an ETF would require.
This innovative approach hinges on trust and contractual right, because the crypto investor must be comfortable that the public company’s board will cooperate in executing the treasury strategy and potentially, down the line, approve a merger or other change of control. It also raises unique fiduciary questions. Specifically, the public company board must determine that concentrating treasury assets in crypto assets is in the best interest of all shareholders, not just the new PIPE investors.
In sum, U.S. securities laws do not provide any shortcut around disclosure and investor protection simply because the asset involved is crypto. Whether a DATCO goes public via IPO, SPAC, or stealthy PIPE, the SEC mandates robust, truthful disclosure at each step.
II. Key Securities Law Issues in Forming and Operating a DATCO
Forming a DATCO implicates several areas of U.S. securities law beyond the basic mechanics of selling stock to investors. Prominent legal considerations include: (A) Securities Act registration vs. exemption for crypto-centric offerings; (B) the Investment Company Act and the need to avoid inadvertently becoming an unregistered investment fund; and (C) broker-dealer or exchange regulatory issues if the DATCO’s activities go beyond passive holding.
A. Securities Act Registration and Exemptions
Under the Securities Act, any offer or sale of securities (company stock, security tokens, etc.) must either be registered with the SEC or qualify for an exemption. When creating a DATCO, this issue arises in multiple contexts:
- IPO or Direct Listing: A full registration statement (Form S-1) is required, with all the attendant disclosures (business description, risk factors, MD&A, audited financials, etc.). For a crypto-focused company, this means up-front scrutiny by the SEC of its business and any token holdings. ETPs need support at the SEC and otherwise from the stock exchange targeted for listing.
- SPAC Mergers: SPAC deals use a Form S-4 (or F-4) registration statement for the issuance of new shares to the target’s owners and a proxy solicitation for the SPAC’s shareholders. Thus, even though the target company (the crypto business) doesn’t do an IPO, it effectively undergoes an SEC review via the S-4 filing. Material information about the target must be disclosed. Notably, financial projections included in de-SPAC proxy filings are not sheltered by the Private Securities Litigation Reform Act safe harbor if the SPAC is considered a “blank check company” which historically enjoyed a safe harbor for forward-looking statements. The SEC’s 2022 proposal would explicitly remove safe harbor protection for SPAC merger projections, treating the de-SPAC akin to an IPO. In practice, crypto companies attempting to go public via SPAC found themselves having to extensively register and justify their business models.
- Reverse Mergers and Phased/PIPE Deals: These typically rely on exempt offerings. In a reverse merger, the issuance of shares by the public shell to the private company’s shareholders is usually accomplished under Section 4(a)(2) (a non-public offering) or Rule 506 of Regulation D, since the recipients are a small group of sophisticated insiders (the private company owners). Likewise, a PIPE sale of shares to institutional investors will rely on one of those exemptions. Therefore, at the moment of the transaction, no Securities Act registration is filed. But the combined or recapitalized company often files a Form S-3 or S-1 for resale registration soon after, in order to register resale of the restricted shares by those investors. For example, if a DATCO raises capital via PIPE to buy Bitcoin, the PIPE investors will insist on registration covenants so they can eventually resell their shares in the open market.
Importantly, even when initial issuance is exempt, anti-fraud provisions still fully apply (SEC Rule 10b-5). The company must not make materially false or misleading statements in offering documents or press releases about the transaction. In the rush of 2021’s crypto pivot trend, the SEC was concerned that some companies might tout plans to purchase digital assets without robust disclosure, purely to spike the stock. The SEC has authority to police securities fraud even if no registration statement is filed.
In summary, most DATCO formations eventually involve an SEC registration, either directly (on an S-1 or an S-4) or indirectly (Super 8-K plus resale S-3). Even novel routes like phased acquisitions do not fully escape the SEC’s reach. They simply postpone it. Regulators have signaled that the substance, not the form, governs. As former SEC Chair Gensler put it in a 2023 speech: “When investors put their money at risk, it’s the economic realities of the investment that matter,” not what jargon or structure is used. Current SEC Chairman Atkins also has warned market participants that the SEC will continue to scrutinize the economic realities of crypto assets. If a DATCO raises money by selling stock to to invest in crypto, then the SEC expects compliance with the spirit of the securities laws, meaning full and fair disclosure to investors about the risks of that investment.
B. Investment Company Act Considerations
One trap for unwary DATCOs is the Investment Company Act, which regulates companies engaged primarily in the business of investing, reinvesting or trading in securities. A company that falls within the Act’s definition of “investment company” must either register as an investment company (subject to onerous regulation) or else fit within an exemption. Traditional operating companies generally avoid Investment Company Act issues because they are primarily engaged in some business other than investing, reinvesting or trading in securities. This can be determined by examining the sources and amounts of their income and assets.
A company that holds itself out as being primarily engaged in a business whose assets are, and whose income is derived from, non-security commodities (such as BTC or ETH) is not an investment company unless it is an inadvertent investment company. An inadvertent investment company is a company that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities worth at least 40% of its total assets (excluding government securities and cash) on an unconsolidated basis. Two examples will illustrate the application of this test to DATCOs:
- In the first case, consider a DATCO 35% of whose treasury holdings are treasury assets that are correctly classified as investment contracts or other securities. That DATCO is not an inadvertent investment company. Its management has nothing to be concerned about relative to the Investment Company Act as long as the amount of treasury holdings that are securities stays below 40%. Again, this assumes that it is not holding itself out as an investment company or that it has an operating business other than securities investment in which it is primarily engaged – ideally, both assumptions will be correct.
- In the second case, consider a DATCO 45% of whose treasury holdings are digital assets that are correctly classified as investment contracts or other securities. That DATCO is required to register with the SEC as an investment company regardless of how it holds itself out to the public, unless an exemption applies. Possible exemptions are beyond the scope of this report. Failure to register with the SEC as an investment company when required to do so has onerous consequences, including SEC enforcement action and the voiding of contracts. The classification of a given digital asset as a security, or not, is a case-by-case determination, and the SEC has been reluctant to make determinations with respect to most digital assets. Thus, a DATCO must carefully monitor its asset composition and obtain competent legal advice regarding the classification of its digital assets.
To address these concerns, DATCOs can employ these strategies:
- Retain some operational business: Many a high-profile DATCO has an operating segment alongside its treasury. Strategy still runs an enterprise software business, for example, albeit one now dwarfed by its Bitcoin holdings in terms of the value of its assets. This enables Strategy to assert correctly that it is an operating company, not an investment company. This is analogous to how some companies in the past maintained a small operating business so as to avoid being deemed an investment trust.
- Rely on Rule 3a-2 for Transient Status: In case a company finds itself over the 40% threshold temporarily, the Investment Company Act does provide a one-year safe harbor under Rule 3a-2 for transient investment companies, allowing them a grace period within which to return to compliance. A company could invoke this rule if, for example, a spike in the market price of its treasury holdings that are securities (including crypto assets that are securities) suddenly drives the value of those holdings above 40% of its total assets. In such a case, it then has a year to rebalance or change its business mix.
- Pursue an Exemption or No-Action Relief: In theory, a company could seek SEC exemptive relief to operate as a hybrid special-purpose vehicle. This would be a complex and novel application. To date, no public DATCO has gone this route. But the Atkins SEC is open for business and we expect applications for novel arrangements to be made. They would entail conditions akin to an ETF, like secure custody, independent directors, limits on leverage, etc.
- Own Digital Assets That Are Highly Likely to Be Correctly Classified as Non-Security Commodities: There are thousands of digital assets. We have studied and expressed legal conclusions about nearly 100 of them. Some are securities. Others are not. Many are somewhere in-between. That determination is fact-intensive, and the result can vary over time. A DATCO with savvy management will only invest in digital assets in which it has a high level of confidence that less than 40% of the total assets of the company are securities (crypto assets or otherwise). Expert legal counsel can help management make that determination.
The CLARITY Act that is pending in the Senate will, if and when enacted, help clarify which digital assets are, and which are not, securities. Until then, and even afterward, DATCOs will need to be structured and operated within the bounds of existing case law, authoritative interpretations and regulatory guidance.
