Digital asset treasuries were flying high this year until bitcoin’s sudden October crash. Now many of those companies are sitting on unrealized losses.
Over 180 public companies currently hold crypto on their balance sheets, with roughly 100 of that total having followed some version a the playbook that Strategy (MSTR) co-founder Michael Saylor pioneered in 2020 by issuing debt and equity to rapidly accumulate bitcoin.
The approach gained favor earlier this year when bitcoin prices were on the rise, with investors betting on bullish trends for crypto under the Trump administration.
But bitcoin’s more recent volatility has prompted a sell-off across the digital asset treasury (DAT) space.
Strategy’s stock has fallen roughly 40% since bitcoin’s Oct. 10 liquidation.
Investors have punished Strategy’s imitators even worse over the past month. KindlyMD (NAKA) has tumbled 39%. Eric Trump’s American Bitcoin (ABTC) is down 60%. Anthony Pompliano’s ProCap Financial (BRR) has fallen 65%.
Meanwhile, shares in treasury companies holding ether, the second-largest cryptocurrency, are down. Bitmine Immersion Technologies (BMNR), chaired by Fundstrat’s Tom Lee, is down more than 33% since October’s crypto sell-off as the token has fallen more than 25% in the same period.
Other ether-holding treasury companies, like sports betting company SharpLink Gaming (SBET) and computing firm Bit Digital (BTBT), have seen their stocks tumble about 40% over the past two months.
The key focus for these firms has been a ratio known as mNAV, which measures their market capitalization in relation to the value of crypto they hold on their balance sheets. An mNAV below 1 indicates that investors value a treasury company less than the crypto on its balance sheet.
In Strategy’s case, that metric inched toward 1x in late November, raising concerns that the company could eventually be forced to sell some of its bitcoin to pay out dividends and debt payments.
Read more: How to navigate a crypto meltdown
In response, earlier this month, the company announced a $1.44 billion cash reserve fund to sustain its hefty dividend payouts and interest on debt for the next 21 months, should bitcoin volatility persist.
Strategy CEO Phong Le has pushed back on the notion that a compressed mNAV in a bitcoin downturn poses a threat to the company’s business model.
He argues that Strategy is an operating company, not a passive fund like an ETF.
“Our products are bitcoin-backed securities,” Le said. ” In that particular case, the valuation of the company shouldn’t be equal to the underlying assets. The valuation of the company should be equal to the ability to grow the underlying assets, grow income, and grow the business.”
Read More: Crypto winter could spur ‘Darwinian phase’ for digital asset treasury
