Crypto Treasury Stocks Trade Far Below Their Holdings. Is It Time to Buy?

I spoke with a number of people for the story and they all kind of said that once everything shakes out and it's not entirely clear when that's going to happen. The ends for these companies

happen. The ends for these companies should be somewhere around one.

>> Welcome back everyone. Crypto prices are down. Bitcoin is off about 30% from its

down. Bitcoin is off about 30% from its recent highs and Ether has dropped even more. But some digital asset treasury

more. But some digital asset treasury stocks or DATs are trading at even deeper discounts. in some cases valued

deeper discounts. in some cases valued at half of their crypto holdings. These

are companies that stockpile Bitcoin and ETH on their balance sheet. And during

the bull run, many traded at massive premiums, but now with sentiment fading, they've flipped. Some investors think

they've flipped. Some investors think that means it's time to buy. Others are

saying not so fast. To help us unpack it all, we're joined by Unchained executive editor Steve Erlick, who dug into this in a new article that we just published.

If you're watching this on X, uh, we should be posting this link, uh, in the first comment. If you're on YouTube, it

first comment. If you're on YouTube, it is in the show notes. Welcome, Steve.

>> Hey, Laura.

>> So, you just came out with an article about how many digital asset treasuries or DATs are trading at a massive discount, and you looked into whether or not uh they might be a good buy. But

before we dive into all the particulars, why don't we just make sure listeners have, you know, some of these basic definitions and understandings down. So

explain what a DAT is and you know this concept of NAV and MNAV.

>> Yeah. Um thanks. So a DAT stands for digital asset treasury. U even if you're not familiar with the term I would imagine most people watching this uh are aware of strategy formally micro

strategy that has amassed tens of billions of dollars of bitcoin since it uh started accumulating the asset back in August of 2020. Essentially, these

companies now, it took about five years or so, but uh a lot of these companies are are copycats. Um like very explicitly following the the Michael Sailor strategy playbook of trying to

find ways to uh stockpile assets, Bitcoin, ETH, Salana, and then a lot of longtail assets um in a way that is accreative from a capital point of view

where value the tokens keeps increasing, lets you raise more money to buy um more of the asset. And then you want to kind of create this like self-perpetuating flywheel cycle of of generating

additional value for uh for shareholders. It really took off like a

shareholders. It really took off like a like a rocket ship over the summer. I

mean billions and billions of dollars have been raised to funnel crypto into these companies and for a while uh it looked like a really smart business move. Uh many of these companies were

move. Uh many of these companies were trading at MNAVs above one. Uh, NAV

stands for like net asset value, M, NAV, multiple. It's kind of similar to um in

multiple. It's kind of similar to um in traditional finance that the price to book ratio or or metric that people might look at when they're uh when they're evaluating stocks. And it really

just kind of tries to quantify how much investors value the company on top of whatever their their holdings of of crypto actually are. So, if the MNAB is one, that basically means that the

company itself is worth very little and it's really just the value of the assets. If it's more than one, um

assets. If it's more than one, um there's a few reasons for that. I mean,

a lot of hype and a lot of FOMO, but some of these companies try to either um create operating businesses on top of them or try to creatively use their balance sheets um in DeFi and other

lending markets, etc. uh to sort of create additional return on equity that could be turned into a uh an end nav above one. Um some of the so that's kind

above one. Um some of the so that's kind of what's been happening. But when kind of the air came out of the crypto balloon, especially over these last couple months when Bitcoin went from

$126,000 all the way down to I think testing 80,000 as of a couple weeks ago, these DATs which really trade as high beta plays on their underlying assets

both positively and negatively um strict um almost universally and very dramatically reversed to the point now where their MNAVs uh almost across the

board are below on what that means is that investors now are valuing these companies less than even the the value of their crypto holdings and I really

was curious uh it's it's not so much a secret why this happened uh frankly we've written about it plenty of others have written about how uh this trend it was unsustainable and that we were going

to see these reversals but it led to a couple of bigger questions like one what is the uh natural like equilibrium for MNAMS for these types of companies and And then two uh as you kind of mentioned

in the intro if they are trading at dramatic uh discounts to uh to their MNAV um far much farther below one is

this a value play uh if you want to bet on the crypto market going up even if it's in six months a year or two years could you get an extra kind of get an extra discount get some extra gains if

you buy stocks in these um sort of I don't know if struggling is the right word but but the companies that are are not flying as high as they once as opposed to just buying on spot. So

that's really what I wanted to try to understand.

>> So give us a sense of how big the discounts are in terms of, you know, where the stock price is at in relation to how much uh crypto they they hold.

>> So they they vary pretty widely and and in the story that we just published, we included a chart where I broke down some of the some of the bigger ones. And I

really just focused on Bitcoin and Ethereum, but but I could have gone to Salana and plenty plenty of the other longtail assets. But I mean in general

longtail assets. But I mean in general uh there are companies that where their MNAVs are trading um somewhere I'll pull it up right here. Uh so uh 21 Capital

Jack Mer's group and uh and Tether they're trading in an MNAV of 0.5. Uh

Nakamoto or Kindly MD uh that's David Bailey's uh that's at 0.53. Uh Similar

Scientific which actually I think was the first DAT to ever drop below an MNAV of one is at 0.57. And then um Pro Cap Financial, Anthony Pompiano's group,

which only recently um much like Counter Equity Partners u finalized its business combination agreement and and fully kind of went started trading on public

markets. That's at 7. So those are um

markets. That's at 7. So those are um pretty significant discounts. Uh by far the largest discount of a company that I looked at was Ether Machine. That's

Andrew Keyy's group focused on Ethereum.

But that number as I point out in the story is actually a little uh misleading because that particular company is still finalizing its business agreement and there's a massive dilution in shares

that's going to be created which will increase the uh the market cap. So it's

hard to uh forecast exactly where that MNAB will end up but it's not going to be 0.13. And then ETHZilla is another

be 0.13. And then ETHZilla is another one that uh it's an Ethereum company where its MNAV is at 0.56. And this one made some news in the last couple months because it uh broke I don't know if this

is quite a cardinal rule but it was I believe the first that to actually sell crypto to buy back shares which is sort of anathema to at least purists of crypto.

>> And so what should the value of these stocks be in comparison to the value of the crypto that they hold?

The answer is it depends, but I did speak with a number of experts about this and and the answer is it should be around one like plus or minus a few percentage points either either up or

down. uh one uh one industry uh person I

down. uh one uh one industry uh person I spoke with uh talked uh compared these to kind of like private credit models or private credit funds um or closed end

funds where there are management fees and and there's not quite the same mechanism to sort of arbitrage away a discount or premium like there is in an ETF. So it's natural for those types of

ETF. So it's natural for those types of funds to trade at an end of a little bit below one. But if the overall price of

below one. But if the overall price of the asset, the underlying um securities etc is up, investors will make out fine.

Especially for an asset uh or that attracts something like Ethereum, which is seen as a productive asset because you can uh stake the ether you have, you can restake it. Uh there are plenty of

other things that you can do to sort of generate passive yield at least maybe like 2.7 to 3% depending on what the um the staking rates are. um that type of

company, if they do things properly, might be able to trade at a uh at a slight premium over time. Bitcoin is a little tougher because it's not quote unquote a productive asset like Ether.

Um miners don't have to stake their Bitcoin to to get additional Bitcoin.

They just have to buy more uh more AS6 and and and and hook them up to power.

So, um there are still ways to deploy Bitcoin in lending markets, even in DeFi, but it's not quite the same thing.

But I spoke with a number of people for the story and they all kind of said that once everything shakes out and it's not entirely clear when that's going to happen. The ends for these companies

happen. The ends for these companies should be somewhere around one.

>> Okay. So there is um an example that people in crypto will be quite familiar with uh from the past that could be used as a comparison for you know what might

happen to an asset that is trading at a discount compared to the crypto that it holds. However, there are reasons why

holds. However, there are reasons why this comparison is not apples to apples.

So explain you know what the differences are in terms of like the DAT's ability to close this gap versus something like you know what people might be familiar

with this which is GBTC.

>> Yeah. So so GBTC uh is a very famous um I would say famous not infamous it's a very famous sort of uh uh investment trust in crypto. It actually was I

believe it launched in 2013 by Barry Silbert's digital currency group. um the

very first like kind of regulated way for investors and and this had to be accredited investors to get exposure to crypto without actually having to buy and hold the asset themselves. So it was

very popular and for that reason and then for another reason because it was only available to accredited investors but then eventually let me rephrase only accredited investors could create shares

through the trust. But then after either 12 months and then eventually 6 months before this trust converted to an ETF, they could then sell those on OTC markets to retail investors who would

pay premiums, sometimes 100% premiums to buy these shares because they didn't want to deal with the headache or hassle of actually having to go to Coinbase wherever and getting the crypto. It was

a great trade. However, that premium flipped to a discount in February of 2021. And during the bare market of

2021. And during the bare market of February of of sorry, bare market of 2022, which sort of bottomed out when FTX collapsed in November of that year, the discount dropped all the way to 50%

and it it stayed that way for a long time. really didn't recover until uh

time. really didn't recover until uh Grayscale won a lawsuit against the SEC and I believe it was August of 2023 to kind of finally move away to convert it

to an ETF where it would uh not automatically but it was sort of by necessity move to an MAF of one because they were they would have authorized participants that would um sort of

arbitrage away any discount or premium.

That's how ETFs work. It's a it's easy to look at those discounts, look the discounts on these stats and be like, "Hey, history is repeating itself." But

as you mentioned, there are a few reasons to be very cautious about that one. Uh at that point, but especially by

one. Uh at that point, but especially by the time that Gayscale won this uh lawsuit against the SEC, the uh the market bottom had already sort of

finished and Bitcoin crypto was already on its way way back up. I mean, remember by then I think Black Rockck had even filed to list a spot Bitcoin ETF in June of that year. So, there was already some

momentum and the fact that the SEC lost this lawsuit, there was kind of a very clear uh timeline on when the conversion would happen. I mean, we didn't know for

would happen. I mean, we didn't know for sure, but it was weeks or months, not years. In this case, it's really hard to

years. In this case, it's really hard to tell. Um, you ask 25 different people

tell. Um, you ask 25 different people where Bitcoin's going or Ether and get a hundred different answers. So, we're not sure if the bottom's in or not. these

discounts, they might seem large, but they could they could continue to widen.

And then there's just a lot of other red tape and and nuance. There's a lot of other um I guess fine print associated with these companies. Um most important of which there is no just clear way to

arbitrage away the discount like there is um with with GBDC or with with ETFs.

uh the closest that some of these companies are doing is trying to engage in share buybacks, but based on the numbers that I did, uh those buybacks don't come close to like sort of matching the inflation or massive

dilution that came with creating these debts. So, it it's like it's like trying

debts. So, it it's like it's like trying to kind of shoot a BB gun at a at a coming freight train. So, there's a lot that has to happen and each company's specific has specific um sort of

circumstances surrounding it. But any

analogy or similarity between GBTC and these companies, I think is unfounded.

>> All right. So, in a moment, we're going to talk about what it is that these companies are trying to do to bring their prices back up to um an MNAV of one. But, um first, we're going to take

one. But, um first, we're going to take a quick word from those sponsors make the show possible. If you love the conversations we have here on Bits and Bips, you're going to love our brand new Bits and Bips newsletter. Our team will

break down the key macro trends impacting crypto, the biggest market moves, and expert insights you won't find anywhere else. Whether it's the Fed, inflation, or major Dow proposals,

if it affects crypto, we've got you covered. Best part, it's completely

covered. Best part, it's completely free. Stay ahead of the market and

free. Stay ahead of the market and subscribe now at bitsandbips.behive.com.

That's bitsandb.behive.com.

Find the link in the show notes. Back to

my conversation with Steve. So, some of these firms are trying to fight back with things like share buybacks or staking strategies. What are you seeing

staking strategies. What are you seeing in terms of what kinds of tools they're using and which of these do you think might be successful in helping them?

Well, it's really hard to to kind of see anything that's going to be massively successful because like I said before, these share buybacks, uh, they're really

not large enough to put a meaningful dent in just the the massive, uh, supply inflation that was created and and how these deals were structured. So, that's

one. Two, uh, investors need to be really careful when they see some of these big topline numbers about buyback programs. Uh I like for instance um Sharpling Gaming, a big ether one

announced a $ 1.5 billion buyback program, but I don't think they've bought back anywhere close to that. Um

Eidzilla has a $250 million program, but as far as I can tell, they've only spent $40 million to buy back shares. So you

see a big topline number that's not a requirement that they spend it, and they certainly aren't going to spend it all at once. They're going to try to kind of

at once. They're going to try to kind of use it flexibly. And the logic is well if you're looking at if you're trying to acquire this crypto creatively you want to buy it at a discount buy back your own shares theoretically like if uh if

one share is supposed to equal one ETH but you can buy a share for.7 that's

accreative but it it's just not enough to move the needle and then the other issue too is psychologically once these companies kind of um cross the Rubicon and begin buying max shares it's going to be harder to make the case to

continue to raise it creatively in the future because investors are going to remember this and they're not going to fall for the same type of FOMO. So, like

really the way that I kind of my big takeaways from the story from my own reporting and interviews I did is that it's going to be very hard for certain companies to just flip a switch or or there's no magic bullet to reverse this.

It's really going to come down to being patient and uh if you believe uh which which I do and the people I spoke to for this article believe that long-term MNABs are going to settle somewhere

around one. You need to buy and hold and

around one. You need to buy and hold and and not be tactical but be strategic like have a high conviction bet here and then wait to see what's going to happen.

Isn't going to be a big market reversal?

Uh are there is there going to be a wave of M&A where some companies get acquired perhaps at premiums to their shares? Um

uh Strive uh Strive which is VC Ramaswami's group is looking to acquire Simler Scientific and the deal uh prices Semar shares at a very large premium to um to where

they're sitting at now. Um however I mean that deal may not close because Sembler shares are going down as part of this broader market. That deal was consummated in September before all this

recent crash crashing happened. But like

there are some ways that that things could work out and I do believe long-term things will work out but it's going to be a bumpy road.

>> Yeah. Um so you know as you mentioned there there's nothing that will you know force this to head back to one but you already started naming different like things that you think investors should should think about. Are there any other

factors that you think they should look at before, you know, deciding, oh, I'm going to get some, you know, cheap stock that will eventually rise or because I like it seems like there's particulars around each company.

>> Yeah, I mean there are particulars around each company. I mentioned the one with uh with Simler Scientific. Uh you

need to be careful about that. Um kindly

MD, Naka, Naka, that's the ticker. They

actually were served a warning from NASDAQ. um they're at risk of being

NASDAQ. um they're at risk of being delisted in the next six months because their stock has been trading under a dollar for 30 consecutive days. Uh

however, I did speak with um one analyst about this. It it's not a huge concern

about this. It it's not a huge concern because uh it you could even do something like a reverse stock split and then therefore that would kind of like um contract the float and the price

would go up. So you kind of meet that that threshold. So this that just kind

that threshold. So this that just kind of shows sort of the struggle with that particular company uh with Ether Machine as I said before that one seems to be

very cheaply priced especially with the 0.13 MNAF but keep in mind that because that deal out of all the other ones I mentioned in the article has not closed

yet there is going to be a massive cell wall coming once that happens as one of the very first stories that I wrote about that back in the spring was about how pipe shares um it stands for uh

private investment of public equity. Um

like these big nine figure deals that were used to sort of bootstrap these these companies. These pipe shares would

these companies. These pipe shares would be sold. Uh these pipe shares pipes

be sold. Uh these pipe shares pipes would be raised. The investors would get these shares and then usually about 30 days or so after all the business deal closes, these shares would become

liquid. And what happened is back or

liquid. And what happened is back or back in the early part of the year, um these investors were sitting on profits.

So they would sell immediately and prices would crash 50 or 60%. Every

company on this list has gone through that except for Ether Machine, which is still going to have to go through that.

Maybe the the maybe investors will hold on because the market's already at the bottom. They don't want to sell at the

bottom. They don't want to sell at the bottom, but that is something that's going to have to be kept in mind if you want to buy stock in that company. So

every company's a little bit different.

Uh, but that just kind of speaks to any investor in a very not official financial advice point of view. If

they're going to try to if they want to try to buy one of these companies, really understand the mechanics of the deal. So, you understand um sort of the

deal. So, you understand um sort of the hoops that will have to be jumped through in order to kind of get that back to one.

>> All right, great Steve. Thanks so much.

That was incredibly insightful, super interesting analysis. A reminder to

interesting analysis. A reminder to everyone that the full article is available at our website, unjeencrypto.com.

unjeencrypto.com.

And if you're not yet subscribed, Steve's newsletter, Bits and Bips, is what you need to stay ahead of the markets. Again, if you're watching this

markets. Again, if you're watching this on X, you can check out the link in the first comment. And if you're on YouTube,

first comment. And if you're on YouTube, it's in the show notes.

Unchained is produced by Laura Shinn with help from Matt Piltard, Juan Oranovich, Margaret Curia, and Pam Majunar. Thanks for listening.

Majunar. Thanks for listening.