NYDIG Warns Against Misleading mNAV Metric in Crypto Valuations

NYDIG Sounds the Alarm on Misleading mNAV Metric in Crypto

The crypto industry should stop using the popular market to net asset value (mNAV) metric as it’s inaccurate and misleading to investors, according to Greg Cipolaro, NYDIG’s global head of research. In a note published Friday, Cipolaro stated, “The industry definition of ‘mNAV’ needs to be deleted and forgotten.” He further asserted that “'Market cap to bitcoin/digital asset value,' the original definition of mNAV, is a useful metric for nothing.”

Cipolaro contends that mNAV fails to account for treasury companies engaged in activities beyond simply buying and holding crypto, and it inadequately represents a firm's convertible debt. Traders and investors often rely on mNAV, also known as multiple of net asset value, to assess company valuations and inform buy/sell decisions by comparing crypto holdings to market capitalization.

Why mNAV is Considered Misleading

Cipolaro deems the mNAV metric “at best, misleading; at worst, disingenuous.” He explains that mNAV “doesn’t give credit” to crypto treasury companies with operations and assets beyond crypto holdings, such as Strategy Inc.’s software sales. He emphasizes, “NAV [net asset value] is what matters in the game of increasing digital assets/share, not enterprise value or heaven forbid market cap.”

He further elaborates that if a crypto treasury company can generate yield, a crucial metric for investors, it can issue equity at a premium to its net asset value. This ability to generate yield through operations beyond simple crypto holdings is not reflected in the mNAV.

The Problem with Unaccounted Debt

Cipolaro's argument extends to the issue of convertible debt. He points out that mNAV relies on “assumed shares outstanding,” which often includes convertible debt from loan deals yet to be converted. “When you peel back the convertible debt part, things unravel,” he writes. “Accounting for convertible debt automatically as equity is not correct from an accounting or economic perspective.”

He emphasizes that convertible debt holders “would demand cash, not shares, in exchange for their debt.” This liability isn't properly represented when convertible debt is automatically treated as equity in mNAV calculations.

The Strive and Semler Merger

Cipolaro’s analysis comes after Strive Inc. announced its acquisition of Semler Scientific on Monday, marking the first instance of a crypto treasury company acquiring another. The deal entails Semler shareholders receiving 21.05 shares of Strive for every Semler share, while Strive shareholders “get a step up in the NAV/share — ‘yield,’ essentially,” as Cipolaro explains.

Cipolaro believes the deal “works out for both, albeit after some work,” because Semler shareholders “are getting their stock valued above” the net asset value per share of both the existing stock and the new company resulting from the merger. Strive’s net asset value per share stood at $1.14 as of Friday, while the merged entity is projected to have a NAV per share of $1.32.

“As for where this stock ultimately trades, that’s harder to predict,” Cipolaro concludes. “It will ultimately depend on the premium or discount to NAV that investors put on the stock.” The market's perception of the merged company's ability to generate yield and manage its balance sheet will ultimately determine its valuation.