There are companies with treasuries in bitcoin, ether and solana, among other assets.
The mNAV metric is crucial for evaluating companies adopting cryptocurrencies.
The market is beginning to fill with companies whose focus is the treasury of bitcoin (BTC), ether (ETH), solana (SOL), among other cryptocurrencies, but the majority of investors would be valuing them poorly.
Matt Hougan, Chief Investment Officer at Bitwise, detect misinterpretations that cause these companies to trade much above or below what is reasonable.
“I see a lot of poor analysis of companies with cryptocurrency treasuries,” Hougan notes. “Specifically, I see misinterpretations about whether they should trade at the same level, above or below the value of the assets they own, what we know as their mNAV.”
Why does mNAV rule in companies with cryptocurrency treasuries?
The mNAV, or market net asset value, measures the market capitalization of companies against the market value of the cryptocurrencies that the company has on its balance sheet.
When the ratio is below 1 the stock trades at a discount; When it exceeds it, it quotes at a premium. Hougan proposes a simple and powerful approach. “The first thing we should ask ourselves when analyzing companies with cryptocurrency treasuries is how much they would be worth if they had a fixed useful life.”
The first key that the businessman mentions is an exercise in which you have to imagine that a company liquidates. «If the company announced that it was closing this afternoon and distributing all of its bitcoin among shareholders, the price would immediately adjust to the exact value of those holdings and the mNAV would be 1.0. When extending the horizon to twelve months, however, inevitable adjustments appear.
For the second key, Hougan identifies three reasons that push down the valuation of practically all companies with cryptocurrency treasuries. The first is temporary illiquidity. “No one is willing to pay one hundred percent today for a bitcoin that they will only receive in a year,” so the investor demands a discount that Hougan easily places at around 10%.
As a third key, the specialist mentions that in the United States regulatory environment there is only one convincing justification for a company with cryptocurrency treasuries to trade above its mNAV and that is to be able to sustainably increase the amount of crypto assets per share.
4 real avenues for cryptocurrency treasuries
Hougan has observed four real ways to achieve the objective that, according to him, justifies a company with cryptocurrency treasuries trading at a premium (i.e. above your mNAV). That goal is to sustainably increase the amount of digital assets per share.
The first is to issue debt in dollars and allocate the money to buy more crypto assets, a method that Strategy, the publicly traded company with the most BTC in its treasuries, has successfully used when the price of bitcoin rises. However, as CriptoNoticias has reported, it was listed below the market value of its holdings in the digital currency, which has brought it to the brink of a reclassification that could expel it from the main stock indices.
The second goes through lend part of the holdings and collect interest in the same currency. The third uses derivatives, such as selling covered call options to generate additional income with which to buy back more assets, although it means giving up some of the upside potential.
The fourth way is to acquire cryptocurrencies at a discount, either by purchasing blocked lots, other companies that are trading below their value, repurchasing own shares or acquiring profitable businesses whose cash flow is used to accumulate more cryptocurrencies.
A decisive advantage for companies with cryptocurrency treasuries
“Most of the factors that generate a discount are certain, while those that allow pricing at a premium are uncertain,” summarizes Hougan. For that reason, the vast majority of companies with cryptocurrency treasuries will trade at a discount and only a few exceptional ones will manage to do it with premium
Furthermore, size plays a determining role. Larger companies issue debt on more favorable conditions, lend larger volumes, access more liquid derivatives markets and close acquisition operations that smaller companies cannot even contemplate, he says.
Hougan concludes clearly: “In the last six months all companies with cryptocurrency treasuries have risen and fallen in unison. In the future we will see a much more marked differentiation. Those that execute well will trade at a premium; those that fail will do so at a deep discount. These three keys allow us to separate one from the other in advance.”