ETHZilla has sold $40 million in Ethereum to fund stock buybacks amid a 30% NAV discount, highlighting growing distress in the crypto treasury sector. Meanwhile, Japan’s Metaplanet trades below its Bitcoin reserves, spotlighting escalating risks for the industry.
Analysts warn that crypto treasury firms face three dangerous options likely to fuel a sector-wide leverage expansion if market pressures continue.
Treasury Firms Confront Valuation Challenges
The Bitcoin treasury model faces new pressures as several firms fall below net asset value (NAV). Metaplanet’s modified Net Asset Value (mNAV) recently slipped to 0.99 despite 115.7% Bitcoin-related revenue growth in Q3.
While it has since recovered to 1.03, the decline marked an unusual scenario where the company’s market value went lower than its direct Bitcoin holdings.
Metaplanet mNAV. Source: Metaplanet Analytics
Since June, Metaplanet shares have plummeted about 70%, erasing the previous premium for the corporate Bitcoin treasury strategy. This mNAV inversion suggests declining market faith in Bitcoin-focused business models and raises key questions about their resilience under pressure.
Fidelity Digital Assets research indicates that non-mining public companies now hold over 700,000 BTC and 3 million ETH, a substantial concentration of these assets. Current conditions expose vulnerabilities in this approach to asset management.
Corporate Buying Pauses, Markets at Risk
Recent market analysis uncovers a notable lack of corporate Bitcoin purchases following drawdowns. Coinbase’s Head of Institutional Research, David Duong, points out that Bitcoin buying by treasury companies is near year-to-date lows, with no visible recovery during rebounds.
This absence weakens market structure, as such firms typically shore up demand during volatile phases. Without discretionary balance sheet deployment, it is clear that most treasuries have limited confidence in today’s conditions.
On Ethereum, buying remains concentrated in one entity. If this support disappears, the market’s vulnerability will increase sharply, further exposing its reliance on a small cadre of large buyers.
ETHZilla’s $40 million Ethereum sale for stock buybacks highlights the tough balancing acts now required.
While the move aims to support share value as discounts swell, it marks a shift away from crypto asset accumulation strategies.
Treacherous Paths Facing Treasury Firms
Against these backdrops, Charles Edwards of Capriole Investments outlines three options for treasury companies trading below mNAV. Each option carries significant risk but has the potential to reshape how the sector manages crypto assets.
“The masses of treasury companies trading below mNAV have only 3 options: 1. Sell underlying = bad for coin + bad for business 2. Get acquired 3. Grow leverage to increase ‘yield’ and stand out,” Edwards outlined.
The first path, selling crypto reserves, could damage both asset prices and business models. Liquidations might signal surrender and drive valuations even lower.
The second choice, pursuing acquisition, may offer distressed firms an exit. However, industry consolidation will reduce independent players and concentrate holdings even further.
The third, and riskiest, option is increasing leverage to enhance yields. Edwards cautions that this gives rise to “incentives aligned for massive leverage growth of the sector,” a scenario that could spark a wider crisis if markets weaken.
In the coming weeks, treasury companies will face critical tests. They must navigate these pressing challenges without unbalancing the market through risky leverage.
Metaplanet’s extraordinary general meeting on December 22 could reveal how such firms plan to adapt and survive amid lasting mNAV pressures.
