The data reveals that a majority of Ethereum treasury companies are trading below mNAV, demonstrating the effect of the latest price drop.
Ethereum Treasury Companies Look in Bad Health
In a new thread on X, Capriole Investments founder Charles Edwards discussed some metrics related to Ethereum treasury companies. A treasury company refers to a public company that has adopted a digital asset like Bitcoin or Ethereum as its reserve strategy.
The idea was popularized by Michael Saylor’s Strategy (formerly MicroStrategy), which became a BTC treasury company in 2020. Since then, the company has become by far the largest holder of enterprise digital assets, with a whopping $47.54 billion invested.
Previously, companies only considered the number one cryptocurrency as a viable reserve asset, but this year the number of holders of ETH, the coin ranked just behind BTC, has increased.
The Ethereum treasury frenzy peaked in August, but since then the associated growth rate has seen a slowdown, as seen in the chart below shared by Edwards.
The data for the institutional buying related to ETH over the last few years | Source: @caprioleio on X
The chart clearly shows that the rate of change for Ethereum Treasuries is positive even after the downturn, suggesting that companies remain in net accumulation. This means that, despite the outflows that spot exchange-traded funds (ETFs) have experienced recently, institutional purchases still remain outpacing cryptocurrency supply growth, albeit only just.
As corporate accumulation continues, the ETH cash business model may not work for many companies. As the analyst pointed out, the majority of companies have an mNAV value below 1.
The percentage of the companies that are trading below mNAV | Source: @caprioleio on X
mNAV, for Multiple of Net Asset Value, is a metric that compares a treasury company’s market capitalization to the total value of its reserve assets. The indicator being less than 1 naturally implies that the valuation of the company is lower than the value of its cash flow.
Around 64.3% of all Ethereum treasury companies currently belong to this zone. “This means that the situation for treasury companies is much more unhealthy for ETH than for Bitcoin,” Edwards explained.
Clearly, ETH Treasuries are under pressure, so are any of them reacting by selling? The data suggests there aren’t many, as the net buy/sell ratio associated with it still remains strong.
Looks like the buy/sell ratio has seen a drop in recent days | Source: @caprioleio on X
That said, even though almost all companies holding Ethereum are still net buyers, the buy/sell ratio has started to show a decline as the asset’s price has seen its recent bearish move.
ETH Price
Ethereum plunged towards $3,000 on Sunday, but the coin has since seen a slight jump back to $3,200.
The trend in the price of the asset over the last five days | Source: ETHUSDT on TradingView
Featured image of Dall-E, capriole.com, chart from TradingView.com
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