NYDIG Urges Crypto Industry to Abandon 'Misleading' mNAV Metric

NYDIG, a prominent digital asset firm, is calling for the crypto industry to cease using the market-to-net asset value (mNAV) metric for valuing digital asset treasury (DAT) companies. The firm argues that mNAV is inaccurate and misleading to investors, failing to account for crucial financial aspects of these companies.

Key Takeaways

• NYDIG's global head of research, Greg Cipolaro, stated that the mNAV metric should be "deleted and forgotten."

• The metric inaccurately represents companies with operations beyond crypto holdings and miscalculates convertible debt.

• NYDIG suggests focusing on Net Asset Value (NAV) per share and yield as more accurate valuation indicators.

The Problem with mNAV

Greg Cipolaro, NYDIG's global head of research, has strongly advocated for the abandonment of the mNAV metric, which is commonly used to compare a company's market capitalization to its digital asset holdings. Cipolaro asserts that the metric is "at best, misleading; at worst, it's disingenuous."

The primary issue, according to NYDIG, is that mNAV fails to acknowledge companies that have diversified operations and assets outside of their cryptocurrency reserves. Many DAT companies engage in other business activities, such as software sales, which contribute to their overall value but are ignored by the mNAV calculation.

Convertible Debt Concerns

Another significant flaw highlighted by NYDIG is how mNAV handles convertible debt. The metric often relies on "assumed shares outstanding," which can incorrectly include convertible debt that has not yet been converted into equity. Cipolaro explains that convertible debt holders would typically demand cash, not shares, in exchange for their debt, making it a more substantial liability than simply issuing more stock. This misrepresentation can incentivize companies to maximize equity volatility, a practice NYDIG views as problematic.

Alternative Valuation Metrics

NYDIG proposes that investors should instead focus on Net Asset Value (NAV) per share and the concept of "yield" when evaluating DAT companies. Cipolaro argues that NAV is the critical factor for increasing digital assets per share, rather than enterprise value or market capitalization. If a company can generate yield, it can potentially issue equity at a premium to its NAV, providing a more accurate reflection of its financial health and growth potential.

Impact of Recent Merger

Cipolaro's remarks come in the wake of the first-ever merger between two crypto treasury companies: Strive Inc. acquiring Semler Scientific. While the deal aims to increase NAV per share for shareholders, NYDIG suggests that predicting the stock's future trading performance will depend on the market's perception of the premium or discount to the new NAV, underscoring the need for more reliable valuation methods.

Sources

• Crypto Must Stop Using ‘Misleading’ mNAV Metric: NYDIG, Cointelegraph.

• Crypto treasury mNAV metric ‘needs to be deleted’ — NYDIG — TradingView News, TradingView.

• NYDIG Calls for Bitcoin Treasury Companies to Drop 'Misleading' mNAV Metric, Yahoo.

• NYDIG: The mNAV evaluation metric used by Digital Asset Treasury (DAT) companies is misleading, Bitget.

• First Bitcoin Treasury Merger Raises Questions About How To Value DATs, CryptoDnes.bg.