Crypto treasury mNAV metric ‘needs to be deleted’

The crypto industry should stop using the popular market to net asset value (mNAV) metric as it is inaccurate and misleading to investors, says NYDIG’s global head of research, Greg Cipolaro.

“The industry definition of ‘mNAV’ needs to be deleted and forgotten,” Cipolaro in a note on Friday. “‘Market cap to Bitcoin/digital asset value,’ the original definition of mNAV, is a useful metric for nothing.”

He added that mNAV doesn’t account for treasury companies that conduct other business outside of buying and holding vast amounts of crypto, and doesn’t properly represent a firms convertible debt.

Traders and investors use mNAV, sometimes also called multiple of net asset value, to determine the value of companies and when to , comparing the value of crypto holdings to market capitalization.

Companies that hold more crypto than they’re worth are considered to , while firms that are more valuable than their crypto holdings trade at a premium.

Metric is “misleading” investors

“At best, it’s misleading; at worst, it’s disingenuous,” Cipolaro said.

The reason, according to Cipolaro, is two-fold, as mNAV “doesn’t give credit” to crypto that have operations and assets outside of crypto, such as Strategy’s software sales.

“NAV [net asset value] is what matters in the game of increasing digital assets/share, not enterprise value or heaven forbid market cap,” Cipolaro wrote.

He said if a crypto treasury company , another key metric for investors, it can issue equity at a premium to its net asset value.

Debt unaccounted for by using mNAV

Cipolaro argued another reason to stop using mNAV is that the metric uses “assumed shares outstanding,” which likely includes convertible debt such as loan deals that are yet to be converted. 

“When you peel back the convertible debt part, things unravel,” he wrote. “Accounting for convertible debt automatically as equity is not correct from an accounting or economic perspective.”

Convertible debt holders “would demand cash, not shares, in exchange for their debt,” Cipolaro said.

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“This is a much more onerous liability for a DAT [digital asset treasury] than simply issuing shares,” he added, as convertible debt is “essentially volatility harvesting” and crypto treasury companies are “incentivized to maximize [their] equity volatility.”

Hard to predict if Strive, Semler merger is good deal

Cipolaro’s note came after Strive Semler Scientific on Monday, the first time a crypto treasury company had acquired another.

The deal sees Semler shareholders get 21.05 shares of Strive for every one share of Semler, while Strive shareholders “get a step up in the NAV/share — ‘yield,’ essentially,” he explained.

Cipolaro said the deal “works out for both, albeit after some work,” as Semler shareholders “are getting their stock valued above” the net asset value per share of both the existing stock and the new company formed in the merger.

Strive’s net asset value per share was $1.14 as of Friday, while the merged company is likely to have a NAV per share of $1.32.

“As for where this stock ultimately trades, that’s harder to predict,” said Cipolaro.”It will ultimately depend on the premium or discount to NAV that investors put on the stock.”

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