The crypto treasury industry’s reliance on the market to net asset value (mNAV) metric has come under scrutiny. According to Greg Cipolaro, NYDIG’s global head of research, the mNAV metric should be abandoned due to its misleading nature for investors.
Understanding the Flaws of the mNAV Metric
The concept of mNAV, originally defined as ‘market cap to bitcoin/digital asset value,’ is criticized for its lack of utility. Cipolaro argues that this metric does not account for the diverse business operations of treasury companies beyond simply holding crypto assets.
For traders and investors, mNAV, also referred to as the multiple of net asset value, is employed to assess company valuations, influencing decisions on buying and selling shares. However, companies with crypto holdings exceeding their worth may trade at a discount, while those with greater value than their crypto holdings often trade at a premium.
Why mNAV Is Misleading
According to Cipolaro, mNAV is misleading and, at worst, disingenuous. A significant flaw is its failure to recognize the full scope of operations and assets of crypto treasury firms, such as those of Strategy Inc. with its software sales arm.
Cipolaro emphasizes the importance of net asset value (NAV) in evaluating digital assets per share. He suggests that if a crypto treasury can generate yield, it can issue equity at a premium to its NAV, offering a key metric for investors.
Debt Complications in mNAV Evaluation
Another significant issue with mNAV is its inclusion of “assumed shares outstanding,” which often encompasses convertible debt not yet converted. Cipolaro argues that treating convertible debt as equity is inappropriate from both an accounting and economic perspective.
Convertible debt holders typically prefer cash over shares in exchange for their debt, making it a more complex liability for digital asset treasuries than simply issuing shares. Cipolaro describes this as “volatility harvesting,” where companies are incentivized to maximize equity volatility.
Implications of the Strive and Semler Merger
Cipolaro’s remarks coincided with Strive Inc.’s acquisition of Semler Scientific, marking a first in the crypto treasury sector. Semler shareholders receive 21.05 shares of Strive per share, while Strive shareholders benefit from a NAV/share step-up, essentially a yield.
Although the merger appears beneficial, with Semler shareholders receiving stock valued above the NAV per share of both the existing and new entity, the ultimate trading value of the stock remains uncertain. This will depend on the premium or discount to NAV that investors apply.
As of the previous Friday, Strive’s NAV per share stood at $1.14, with the merged entity projected to have a NAV per share of $1.32. Cipolaro notes that predicting the final trading position of the stock is challenging.
