The days of diluting shareholders to buy crypto and call it a business model are over.
For Mike Novogratz, CEO of Galaxy Digital, the only way forward for treasuries that aren’t named Strategy or BitMine is to convert themselves into companies with actual products and services.
“You’re not going to get shareholder value just by owning the underlying [asset],” said Novogratz on a January 7 podcast with investor and former Trump Administration official Anthony Scaramucci.
“Management needs to turn [treasuries] into companies.”
Nearly 40% of Bitcoin treasuries trade below the value of their crypto holdings — the key measure that once allowed them to access capital markets and buy more coins.
Moreover, more than 60% bought Bitcoin at a price well above its current level.
Ethereum treasuries have also all but ended their shopping sprees. Only Tom Lee’s BitMine continues to buy Ether every week, and it has amassed more than 50% of all Ether held in the $21 billion sector.
To Novogratz, the model that worked for Strategy, BitMine, and to some extent Joe Lubin, doesn’t work for anyone else.
They can either transform into more conventional businesses with revenue models — abandoning their pure-play treasury marketing ploy — or die slowly as discount vehicles trading at 70 to 80 cents on the dollar.
‘Hype trade’
Novogratz admitted that he also got caught up in the treasury boom alongside many other investors.
“I think we all got caught up in a bit of a hype trade,” Novogratz told Scaramucci.
NAV stands for net-asset-value. It tells investors how much equity value they’re paying for every $1 of crypto the company holds. When the equity is above $1, it trades at a premium; when it’s below, it trades at a discount.
Right now, nearly half of the entire Bitcoin treasury space trades at a discount — and there’s no bottom in sight.
The problem is structural.
With Bitcoin and Ethereum ETFs offering direct exposure, investors don’t need to pay premiums for treasury wrappers, especially when many only did so to chase the gains in stock prices that Strategy once enjoyed.
Saylor’s firm, Strategy, is up nearly tenfold since it began its treasury scheme in August 2020. Lots of companies have tried to mirror that price action, to no avail.
“Three out of 50,” Novogratz said, describing how many treasury companies successfully executed the model.
“The rest of the people have their shovels and they have to dig themselves out of the shit.”
Even Strategy’s stock is now down more than 50% in the past six months.
Transform or die
When asked what he would do if he were running a distressed treasury, Novogratz said he would buy back discounted stock to narrow the spread between that stock and the net asset value.
But more importantly, he would “be looking for an idea where I could play off the skill set of the people in my firm.”
What does that look like?
Take the group of assets that the company holds — be it Bitcoin, Ethereum, or Solana — and say, “Hey, let’s create a neobank. Let’s create something with this capital,” Novogratz said.
