Greg Cipolaro, the Research Director at NYDIG, is advocating for the crypto sector to discontinue the use of the “market-to-net-asset value” ratio (mNAV) in their analyses.
In a statement made on September 26th, he asserted that this metric presents an unclear and potentially misleading picture for investors, urging its abandonment.
Cipolaro clarified that the mNAV ratio was originally designed as a tool for comparing a company’s market capitalization against the value of its digital asset holdings. However, he contends that this comparison fails to provide meaningful insights into the underlying business operations.
Did you know?
Subscribe – We publish new crypto explainer videos every week!
What is FUD in Crypto? (Fear, Uncertainty & Doubt Explained)
Many cryptocurrency-holding firms engage in diverse activities beyond simply holding digital assets, such as product sales or service provisions, which are disregarded by the mNAV calculation. Consequently, this metric can obscure critical aspects of a company’s operational performance.
He further highlighted the flawed treatment of convertible debt within the mNAV framework. The ratio frequently assumes that such debt has already been exercised and converted into equity, which isn’t necessarily true.
Lenders may opt to demand repayment in cash, leading to a more substantial financial strain than if the debt were converted into new shares.
Historically, crypto traders have employed mNAV to determine whether a company is undervalued or overvalued relative to its cryptocurrency reserves. Companies trading at prices below their crypto holdings were considered to be trading at a discount, while those priced above were deemed to be trading at a premium.
Instead, he recommends investors focus on the net asset value itself, evaluating the amount of digital asset ownership represented by each share, alongside a thorough analysis of the company’s asset management practices and revenue generation strategies.
In related news, CryptoQuant recently cautioned that crypto treasury firms utilizing private investment in public equity (PIPE) financing may experience share value declines. To understand why, dive into the complete analysis.