Crypto Treasuries Face Challenges as Premiums Narrow

By: Eva Baxter

The cryptocurrency market, particularly companies holding significant Bitcoin reserves, is experiencing a shift as premiums on digital asset treasuries (DAT) diminish. This trend is attributed to several factors impacting these companies' valuations, as outlined by Greg Cipolaro, global head of research at the New York Digital Investment Group (NYDIG).

Notably, the gap between share prices and net asset values (NAV) for major Bitcoin holding companies such as Metaplanet and Strategy has continued to compress, despite Bitcoin reaching new price highs earlier this year. This narrowing of premiums reflects several underlying pressures including looming supply unlocks, shifts in corporate strategies, increased issuance of shares, as well as profit-taking by investors. Investors are becoming anxious over the potential release of tokens, which could logically depress prices if accompanied by selling pressure.

The reduced investor appetite for Bitcoin-treasury companies is also seen in the slower buying activity. Strategy, for instance, which accounts for a substantial portion of Bitcoin holdings among corporate treasuries, saw its average monthly Bitcoin purchase drop significantly from highest points earlier in the year. The monthly growth in acquisitions has also witnessed a pronounced deceleration. Additionally, the stock prices of these treasury firms face pressures, trading at or below recent fundraising levels, risking a sell-off if newly issued shares enter the market.

To mitigate these challenges, Cipolaro has proposed measures such as stock buybacks. By repurchasing shares, companies can help bolster their stock prices by reducing the overall number of shares outstanding. However, as Bitcoin itself undergoes price fluctuations, these firms must navigate a landscape where their stock valuations can be severely impacted, often more so than the cryptocurrency itself.