Discounted Bitcoin treasuries are going to need a lot more than a 7% price rally from the world’s biggest crypto to stay above water, market watchers warn.

The top crypto climbed to around $94,000 from $89,000 over the past few days.

Yet treasuries’ mNAV ratios, or market-to-net-asset value — which refers to the difference between a company’s market capitalisation and their crypto holdings — is still depressed.

Nearly 40% of the top 100 Bitcoin treasuries are trading below their net asset value, and the rally hasn’t made a dent.

“A Bitcoin rally will naturally improve sentiment across the cohort, but it won’t automatically bail out every treasury company,” Satish Patel, analyst at crypto investment firm CoinShares, told DL News. Instead, “the broader theme has likely matured and become more selective.”

Make no mistake, the Bitcoin treasury trade is in rough shape. Not only are nearly 40% of companies trading below their premiums, but scores of them bought Bitcoin above six figures, with three in every five now underwater on their purchases, according to a December report from BitcoinTreasuries.net.

The sector remains a relentless accumulator, however, adding 30,000 Bitcoin in December, an amount worth over $2.6 billion at current prices. Treasuries now hold nearly 1.1 million Bitcoin.

But the situation isn’t auspicious.

A market cap paradox

Bitcoin’s price rally creates a paradoxical problem for treasury companies.

At the face of it, surging Bitcoin prices is a good thing for these firms.

However, if the price rises faster than the value of their stocks, DATs will find their mNAV actually falling.

The maths works like this: when Bitcoin rises 7%, the value of a company’s Bitcoin holdings increases 7%. But if the stock price only rises 3%, the mNAV actually falls.

Let’s say a company holds 1,000 Bitcoin. Bitcoin rises to $94,000 from $89,000, notching itself a 7% gain, which means the firm’s Bitcoin is now worth $95 million instead of $89 million.

But given the company’s stock price only rose 3%, its market cap only rose to $103 million from $100 million.

And its mNAV? Flopped to 1.08x from 1.12.

For mNAV to improve during a Bitcoin rally, the stock must rise faster than Bitcoin itself. That requires investor confidence the company can continue accumulating Bitcoin without destroying shareholder value.

Many companies, however, have lost traders’ trust.

“As premiums compress toward parity or flip to discounts, new issuance becomes harder to justify and often becomes economically dilutive on a NAV basis,” Patel said.

Winner-takes-most

Patel sees the sector consolidating around a few winners.

“The economics of the treasury model increasingly reward a small number of platforms with the deepest liquidity, strongest distribution, and most consistent access to capital markets,” he told DL News.

In practice, the premium becomes a capital markets franchise and the names with the tightest spreads, active options markets, and a credible institutional investor base are the ones most capable of sustaining an mNAV above 1.0 across cycles, explained Patel.

Strategy is one example. Some of its latest Bitcoin buys have been financed through new stock while shares of the company have traded at a discount. In a traditional mNAV landscape, investors would consider that value-destructive.

Cue Michael Saylor’s scale.

The company holds over 640,000 Bitcoin worth $60 billion, more than elevenfold its closest competitor. Strategy’s liquidity and capital markets depth means it can “sustain actions that would be far more punitive for smaller peers,” Patel said.

Exit liquidity

To be sure, Patel reckons that the rebound won’t go entirely to waste.

The highest-quality companies, like Strategy or Japan’s Metaplanet, should see their premiums reopen first.

What about firms struggling to stay afloat? They may “simply use the rally as exit liquidity,” he said.

In short, strong companies use Bitcoin rallies to raise capital and buy more, while weak ones use rallies to sell stock and survive.

“A persistent rangebound Bitcoin market could expose who has a real capital markets franchise and who was simply riding bullish tape,” Patel added.