A possible bitcoin sale could effectively prevent the emergence of new digital asset treasury companies, according to Matthew Sigel from VanEck.
In the rapidly evolving world of digital assets, a new trend has emerged: Crypto Treasury Companies, also known as Digital Asset Treasury Companies (DATCOs), are increasingly becoming a part of the landscape. One key metric that sheds light on the valuation and sustainability of these companies is the Multiple of Net Asset Value (MNAV).
How MNAV Works
MNAV is a valuation metric that compares a company's market value to its net asset value, specifically its Bitcoin or digital asset holdings. If a company has $100 worth of Bitcoin and no liabilities, its Net Asset Value (NAV) is $100. If the market values that company at $200, the MNAV is 2.0x, indicating that the market values the company’s equity and management above the sum of its crypto holdings, due to expectations of growth, efficient capital deployment, or strategic advantages.
Implications for Bitcoin Sell-Offs and Company Survival
The MNAV premium is crucial for companies to sustain growth by equity issuance rather than debt. A fall in Bitcoin’s price causes NAV to drop, potentially collapsing the MNAV premium and causing the stock price to fall disproportionately. Reduced market cap and MNAV premium tighten access to capital markets, limiting the ability to raise funds to buy more BTC or refinance debt.
If companies rely on debt or face margin calls, they may be forced to sell BTC, causing further downward pressure on BTC price (a "death spiral"). This spiral can cascade into multiple treasury companies facing forced sell-offs, potentially leading to bankruptcies or industry consolidation.
However, many crypto treasury companies primarily use equity financing, allowing them to avoid extreme leverage and systemic risk. Yet, the risk remains if leverage increases.
Case Example: Strategy (MicroStrategy rebranded)
Strategy, a prominent crypto treasury company, aggressively issues shares at an MNAV premium to raise capital and buy BTC. The company’s enterprise value divided by Bitcoin NAV defines their MNAV. If Bitcoin’s price growth slows, or if the cost of financing outpaces Bitcoin’s returns, the MNAV can fall below 1, causing dilution and value erosion. Long-term sustainability depends on maintaining Bitcoin growth rates that outpace financing costs; otherwise, equity dilution and potential sell-offs threaten company value.
In conclusion, MNAV is a vital metric for understanding how crypto treasury companies operate, raise capital, manage risk, and confront market downturns impacting Bitcoin and company survival. Premium MNAV (above 1) enables companies to grow crypto holdings per share via equity issuance. Declines in Bitcoin price and MNAV can trigger capital access problems, forced asset sales, and company failures ("death spiral"). Use of equity financing reduces systemic risks versus heavy leverage. The long-term viability of this model depends on Bitcoin price growth outpacing financing costs and maintaining investor confidence in MNAV premiums.
In the context of Crypto Treasury Companies, the Multiple of Net Asset Value (MNAV) helps identify if the market values the companies equities and management above their crypto holdings, due to expectations of growth or strategic advantages (MNAV > 1). A fall in Bitcoin's price and subsequent drop in Net Asset Value (NAV) may cause the MNAV premium to collapse, decreasing access to capital markets, forcing companies to sell cryptocurrencies, and potentially leading to bankruptcies or industry consolidation (death spiral).
