Urgent Warning: NYDIG Demands Deletion of Misleading mNAV Metric for Crypto Treasury Valuation

For many investors in the rapidly evolving cryptocurrency market, understanding the true value of public companies holding significant digital assets remains a challenge. A popular benchmark, the mNAV metric, has long served as a key indicator. However, a recent and urgent warning from NYDIG’s global head of research, Greg Cipolaro, challenges its very existence. He argues that this widely used valuation tool is not only inaccurate but also actively misleads investors. This call to action prompts a critical re-evaluation of how we assess the financial health and potential of crypto treasury companies.

NYDIG Analysis Exposes Flaws in the mNAV Metric

NYDIG’s Greg Cipolaro recently delivered a stark message to the crypto industry: abandon the market to net asset value (mNAV) metric. Cipolaro, a respected voice in digital asset research, believes this valuation tool offers little utility. “The industry definition of ‘mNAV’ needs to be deleted and forgotten,” he stated emphatically in a recent note. He argues that ‘Market cap to bitcoin/digital asset value,’ the original basis for mNAV, serves no practical purpose. This strong stance from a leading financial institution like NYDIG underscores the severity of the issue. Consequently, investors and analysts must consider this expert opinion.

The core problem, according to Cipolaro, lies in mNAV’s oversimplification. It fails to account for crucial aspects of a company’s financial structure and operations. For instance, many crypto treasury companies engage in diverse business activities beyond merely holding large amounts of Bitcoin or other digital assets. The metric also struggles to properly represent a firm’s convertible debt. These oversights create a distorted picture of true value. Therefore, reliance on mNAV can lead to poor investment decisions. This critical NYDIG analysis highlights a significant gap in current valuation practices.

Why the mNAV Metric Misleads Investors

Traders and investors traditionally employ the mNAV metric, sometimes known as the multiple of net asset value, to gauge company worth. They compare the value of a company’s crypto holdings to its market capitalization. Firms holding more crypto than their market value appear to trade at a discount. Conversely, companies more valuable than their crypto holdings trade at a premium. However, this approach, Cipolaro warns, is fundamentally flawed. “At best, it’s misleading; at worst, it’s disingenuous,” he asserts. This strong condemnation highlights the potential for significant investor detriment.

Cipolaro identifies two primary reasons for this misleading nature. Firstly, mNAV does not credit crypto treasury companies for their non-crypto operations and assets. Consider a company like MicroStrategy, which, beyond its substantial Bitcoin holdings, maintains a significant software sales business. The mNAV metric ignores this operational revenue, effectively devaluing a core part of the company’s enterprise. This omission presents an incomplete financial picture. Secondly, the metric overlooks other valuable assets. A company’s overall financial health depends on all its revenue streams. Consequently, focusing solely on digital asset holdings is shortsighted. The metric thus fails to capture the full scope of a firm’s value.

For example, medical device firm Semler Scientific, which pivoted to a Bitcoin treasury strategy, has often traded at a discount to its crypto holdings. This trend persisted even amid increased competition in its original sector. Source: NYDIG. This scenario perfectly illustrates the metric’s failure to capture a company’s diverse value. Cipolaro stresses that “NAV [net asset value] is what matters in the game of increasing digital assets/share, not enterprise value or heaven forbid market cap.” If a crypto treasury company can generate yield, another vital indicator for investors, it can issue equity at a premium to its net asset value. This perspective offers a more robust framework for digital asset valuation.

Unaccounted Debt: A Major Flaw in Digital Asset Valuation

Another compelling reason to discard the mNAV metric involves its problematic use of “assumed shares outstanding.” This calculation often incorrectly includes convertible debt. Convertible debt represents loan deals yet to be converted into equity. “When you peel back the convertible debt part, things unravel,” Cipolaro wrote. Accounting for convertible debt automatically as equity is incorrect from both an accounting and economic perspective. This oversight significantly distorts a company’s true financial leverage.

Convertible debt holders typically demand cash, not shares, in exchange for their debt obligations. This distinction is crucial. “This is a much more onerous liability for a DAT [digital asset treasury] than simply issuing shares,” Cipolaro added. Convertible debt, in essence, becomes a tool for “volatility harvesting.” It incentivizes crypto treasury companies to maximize their equity volatility. This strategy might benefit debt holders but can expose equity investors to greater risk. Therefore, ignoring this liability paints an overly optimistic financial picture. Effective digital asset valuation must consider all forms of debt.

Impact on Investor Metrics and the Strive-Semler Merger

Cipolaro’s insights directly impact how investors should interpret key investor metrics. The mNAV metric, by misrepresenting liabilities and operational value, provides a flawed basis for decision-making. Investors relying on it might misunderstand a company’s true risk profile or growth potential. This is particularly relevant in the context of mergers and acquisitions within the crypto treasury space.

Cipolaro’s note arrived just after Strive Inc. announced its acquisition of Semler Scientific. This landmark deal marked the first time one crypto treasury company acquired another. Semler shareholders will receive 21.05 shares of Strive for every one Semler share. Meanwhile, Strive shareholders “get a step up in the NAV/share — ‘yield,’ essentially,” Cipolaro explained. He suggests the deal “works out for both, albeit after some work.” Semler shareholders are seeing their stock valued above the net asset value per share of both their existing stock and the newly formed company.

For context, Strive’s net asset value per share stood at $1.14 on Friday. The merged entity is likely to achieve a NAV per share of $1.32. “As for where this stock ultimately trades, that’s harder to predict,” Cipolaro admitted. “It will ultimately depend on the premium or discount to NAV that investors put on the stock.” This uncertainty underscores the complexity of valuing these entities, even with a seemingly beneficial merger. The reliance on accurate investor metrics becomes paramount for predicting future performance and investor sentiment.

Beyond mNAV: Towards Robust Digital Asset Valuation

The compelling NYDIG analysis makes it clear: the industry needs to move beyond the flawed mNAV metric. A more comprehensive approach to digital asset valuation is essential. This new framework must incorporate all aspects of a company’s operations, assets, and liabilities. It should consider software sales, yield generation, and the true nature of convertible debt. Investors require tools that provide a complete and accurate financial picture. This allows for informed decisions, mitigating risks inherent in this dynamic market.

Ultimately, the goal is to foster greater transparency and accuracy in crypto investment. By adopting more rigorous investor metrics, the industry can build greater trust and attract a broader range of capital. The warning from NYDIG serves as a crucial reminder. We must continually refine our analytical tools to match the sophistication of the assets we are evaluating. This ensures sustainable growth and responsible investment in the burgeoning digital asset space.