The widely used market capitalization to net asset value (mNAV) metric in the cryptocurrency industry is fundamentally flawed and should be discarded, according to Greg Cipolaro, Global Head of Research at NYDIG. Cipolaro argues that mNAV, often employed by traders and investors to assess the value of crypto-treasury companies, is not only confusing but actively misleading, failing to provide an accurate picture of a company's true financial standing and operational complexities.
The Inadequacies of Traditional mNAV
Cipolaro contends that the industry's definition of mNAV, which typically compares a company's market capitalization to its digital asset holdings, is a "useless metric." One primary criticism is that mNAV does not account for companies that possess significant crypto treasuries but also engage in diverse commercial activities and hold non-crypto assets. For instance, a company might generate substantial revenue from software sales alongside its digital asset accumulation. By solely focusing on the crypto-to-market-cap ratio, mNAV overlooks these other vital revenue streams and assets, giving an incomplete and often undervalued perception of the business. This oversight can lead investors to misinterpret a company trading at a "discount" or "premium" based on its crypto holdings versus its market valuation, without understanding its full operational scope.
The Problem with Convertible Debt Accounting
Another significant flaw highlighted by Cipolaro is how mNAV handles convertible debt. The metric often assumes "outstanding shares" that implicitly include convertible debt agreements, effectively treating potential future equity as current equity. This approach is deemed incorrect from both an accounting and economic perspective. Cipolaro explains that holders of convertible debt would typically demand cash, not shares, in exchange for their debt obligations, representing a far more onerous financial commitment for a digital asset treasury company than simply issuing new stock. Misrepresenting these liabilities distorts a company's true capital structure and financial health. Ultimately, Cipolaro emphasizes that Net Asset Value (NAV), rather than enterprise value or market capitalization, is the crucial metric for evaluating a company's success in growing its digital assets per share.
