Ethereum Firm's ETH Sale for Buybacks Sparks "Death Spiral" Fears
A significant move by Ethereum-focused treasury company ETHZilla has sent ripples through the crypto market. The firm recently announced it has sold approximately $40 million worth of its Ether (ETH) holdings to fund an ongoing share repurchase program. This strategy, aimed at narrowing a perceived "significant discount to Net Asset Value (NAV)," has ignited a heated debate among analysts and traders, raising concerns about its potential implications for the broader ETH ecosystem.
Strategic Maneuver or Risky Retreat?
ETHZilla's leadership frames the buybacks as a calculated "balance-sheet arbitrage" rather than a divestment from its core Ethereum exposure. Chairman and CEO McAndrew Rudisill stated that the company is "leveraging the strength of our balance sheet, including reducing our ETH holdings, to execute share repurchases." He highlighted that ETH sales are serving as "cash" while the company's common shares trade below their net asset value, arguing that such transactions would be immediately accretive to remaining shareholders. Since October 24, ETHZilla has already bought back around 600,000 shares for roughly $12 million, signaling its intent to continue as long as the share discount persists.
The "Death Spiral" Warning
Despite ETHZilla's reassurances, the strategy has drawn sharp criticism and skepticism. Popular crypto trader SalsaTekila warned on X (formerly Twitter), "This is extremely bearish, especially if it invites similar behavior. ETH treasuries are not Saylor; they haven’t shown diamond-hand will. If treasury companies start dumping the coin to buy shares, it’s a death spiral setup." Another analyst, Dan Smith, questioned why the company opted to sell ETH instead of utilizing its reported $569 million in cash reserves, suggesting this choice undermines the "ETH-as-reserve" narrative. Critics fear that if other ETH-heavy treasuries adopt this playbook, it could create a "pro-cyclical" market scenario: ETH sales to close equity discounts, leading to increased selling pressure on ETH, which then widens equity discounts again as valuations re-rate to a weaker market. This cycle, they argue, epitomizes the "death spiral" when a treasury asset also serves as a company's signal of conviction. At press time, ETH was trading at $4,156.
