The seventh-largest Ethereum Digital Asset Treasury (DAT) firm, ETHZilla Corporation (ETHZ), has initiated a significant sell-off of its Ethereum (ETH) holdings, sparking concerns across the crypto market. This strategic move, aimed at strengthening the company's financial position, could potentially set a precedent for other DATs and exert considerable pressure on Ethereum's price.
ETHZilla's Strategic Sell-Off
ETHZilla announced the sale of $40 million worth of ETH to fund an aggressive share buyback program. CEO McAndrew Rudisill justified this decision by stating it would reduce share dilution and boost the company's Market-to-Net-Asset-Value (mNAV). By repurchasing shares while its stock traded below NAV, ETHZilla aims to enhance its value per share. The firm plans a larger $250 million share buyback, entirely funded by offloading its ETH reserves. Following this announcement, ETHZ's stock saw a substantial rally, indicating a positive market reaction to the strategy from an equity perspective.
Potential Ripple Effect on Ethereum's Value
While beneficial for ETHZilla's stock, this trend raises alarms for Ethereum's underlying value. Industry experts, like Charles Edwards of Capriole Investments, warn that if other DATs — many of which are also trading at a discount to their mNAV — follow ETHZilla's lead, it could be "bad for coin." When a DAT's mNAV is at a discount, it hinders their ability to raise capital and acquire more ETH. Instead, selling existing ETH holdings to improve share value becomes an attractive, albeit concerning, alternative. Given that DATs collectively control a significant 5% (approximately 6 million ETH) of the total Ethereum supply, a widespread sell-off could create substantial sell pressure, potentially capping ETH's price action unless absorbed by other market forces, such as Exchange Traded Funds (ETFs).
