The market net asset value (mNAV) of Strategy’s holdings relative to Bitcoin (BTC) fell to 1.174 on October 10, the lowest level in nearly two years.
The company’s shares fell 3% to $307.95 amid widespread weakness in the cryptocurrency market, giving it a market capitalization of $88.4 billion. Strategy is the 121st largest public company in the US with 640,031 BTC worth approximately $75.4 billion.
At the time of writing, Bitcoin was trading at $117,824, down more than 3% in the past 24 hours. The narrowing gap between market capitalization and underlying asset value poses a threat to the sustainability of corporate Bitcoin financial strategies.
Lower mNAV leads to a feedback loop
Jeffrey Kendrick, head of digital asset research at Standard Chartered, warned that maintaining mNAV above 1.0 remains essential for digital asset treasury (DAT) firms to grow their holdings. Values below this threshold indicate a weak balance sheet and potential for consolidation.
Additionally, Strategy and similar treasury companies are facing increased pressure from the PIPE financing structures that funded Bitcoin purchases.
According to a September 25th CryptoQuant report, Bitcoin government bonds have been consistently attracted to discounted PIPE issue prices, with current investors suffering losses of up to 55%.
Patterns create feedback loops. PIPE investors bought at a deep discount and retained the registration rights, which allowed them to be sold to the public after a resale statement was filed.
Once the lockup period ends, selling pressure will weigh on the stock price, compressing the premium for holding the underlying Bitcoin.
Why is it important?
As a result, companies trading below 1.0mNAV will face severe constraints. Without a premium valuation, a treasury company cannot issue stock at an attractive price to fund additional Bitcoin purchases.
The model relies on maintaining a premium that justifies a dilutive capital raise, and CryptoQuant notes that only a sustained rally in Bitcoin can prevent further stock price declines.
As a result, Strategy’s insurance premiums have fallen to levels not seen since February 8, 2024, raising concerns. The company’s initiation of a DAT movement with mNAV compression is not a bullish signal for the market.
While not enough to put the company in trouble, a prolonged period below 1.0mNAV could trigger a death spiral in which the company is unable to raise capital to repay debt or finance its operations.
This spiral will force asset sales and put pressure on Bitcoin prices, leading to further correction.
mentioned in this article
(Tag translation) Bitcoin
