The cryptocurrency sector needs to move away from the frequently used market to net asset value (mNAV) metric, which NYDIG’s global head of research, Greg Cipolaro, claims is deceptive and imprecise for investors.
“The existing definition of ‘mNAV’ should be erased and disregarded,” Cipolaro wrote in a recent note. “‘Market cap to bitcoin/digital asset value,’ which is the original definition of mNAV, proves to be an ineffective metric.”
He pointed out that mNAV fails to consider treasury companies that have business operations apart from acquiring and holding significant amounts of cryptocurrency and does not accurately reflect convertible debt in firms.
Investors and traders utilize mNAV, also referred to as multiple of net asset value, to assess the value of companies and make decisions on buying and selling shares by contrasting the value of crypto holdings with market capitalization.
Firms whose crypto holdings exceed their actual worth are seen as trading at a discount, whereas those whose value surpasses their crypto assets are considered to trade at a premium.
Metric is “misleading” to investors
“At best, it’s misleading; at worst, it’s disingenuous,” Cipolaro remarked.
He explained that this is due to two main reasons: mNAV “doesn’t give credit” to crypto treasury companies that possess operations and assets beyond cryptocurrency, like Strategy Inc.’s software sales.
“NAV [net asset value] is critical in the realm of enhancing digital assets/share, not enterprise value or, heaven forbid, market cap,” Cipolaro stated.
He emphasized that if a crypto treasury firm can generate yield, another crucial metric for investors, it could issue equity at a premium to its net asset value.
Debt not represented in mNAV
Cipolaro stressed another reason to abandon mNAV: the metric employs “assumed shares outstanding,” which probably includes convertible debt like unconverted loan agreements.
“If you look closely at the convertible debt component, issues emerge,” he noted. “Automatically classifying convertible debt as equity is incorrect both from an accounting and economic standpoint.”
Cipolaro asserted that convertible debt holders “would seek cash, not shares, in return for their debt.”
Related: Crypto treasury companies present a risk similar to the 2000s dotcom collapse
“This poses a significantly heavier burden for a DAT [digital asset treasury] than merely issuing shares,” he continued, as convertible debt is “essentially volatility harvesting” and crypto treasury firms are “motivated to raise [their] equity volatility.”
Uncertainty surrounding Strive-Semler merger
Cipolaro’s comments followed Strive Inc.’s announcement of its acquisition of Semler Scientific on Monday, marking the first acquisition of one crypto treasury company by another.
The arrangement allows Semler shareholders to receive 21.05 shares of Strive for each share of Semler, while Strive shareholders benefit from an increase in the NAV/share—essentially ‘yield,’ as he described.
Cipolaro indicated that the deal “benefits both parties, although some adjustments are necessary,” as Semler shareholders “are seeing their stock valued above” the net asset value per share of both the existing stock and the newly formed company post-merger.
Strive’s net asset value per share stood at $1.14 as of Friday, while the merged entity is anticipated to have an NAV per share of $1.32.
“Predicting the ultimate trading price of this stock remains challenging,” Cipolaro noted. “It will ultimately rely on the premium or discount to NAV that investors assign to the stock.”
Magazine: How Ethereum treasury companies could ignite ‘DeFi Summer 2.0’
