Steve Ehrlich: Digital asset treasuries are trading at deep discounts, M NAVs reveal market valuation challenges, and Ethereum’s staking makes it a superior asset | Unchained

Key takeaways

• Digital asset treasuries are companies holding crypto on their balance sheets, often trading at discounts.
• M NAV is a metric for valuing companies relative to their crypto holdings.
• The decline in crypto prices has significantly impacted M NAVs, raising questions about equilibrium.
• Discounts in NAVs of crypto companies present potential investment opportunities.
• Private credit models lack mechanisms to eliminate discounts like ETFs do.
• Ethereum’s staking capability makes it a productive asset compared to Bitcoin.
• Share buybacks are often insufficient to counteract inflation and debt dilution.
• The crypto industry faces an identity crisis as traditional finance adopts on-chain tech.
• The future of crypto may require adapting to a broader audience beyond crypto natives.
• The current cycle lacks a massive wealth creation event, affecting market dynamics.
• Incentivizing early users through high yields is unsustainable.
• The DeFi mullet strategy may appeal to users wanting benefits without risks.
• The next wave of crypto users will likely come from those valuing tech but not engaged.
• The future of crypto may resemble cloud computing in its evolution.
• The four-year cycle in crypto markets may be obsolete due to tech adoption.

Guest intro

The guest featured on Unchained is a prominent figure in the crypto industry, offering insights into the evolving landscape of digital assets and market dynamics. With extensive experience in analyzing crypto markets, the guest provides a unique perspective on the challenges and opportunities facing crypto companies today. This episode delves into the complexities of digital asset treasuries, market valuations, and the impact of traditional finance adopting on-chain technologies, making it essential listening for anyone interested in the future of crypto.

Understanding digital asset treasuries

• Digital asset treasuries (DATs) are companies stockpiling crypto like Bitcoin and Ethereum.

• DAT stands for digital asset treasury… a lot of these companies are copycats… following the Michael Saylor strategy.

  — Steve Ehrlich

• Many DATs trade at a significant discount compared to their crypto holdings.

• Many digital asset treasury stocks… are trading at even deeper discounts.

  — Steve Ehrlich

• The market sentiment is cautious, with divided opinions on investing in DATs.

• Some investors think that means it’s time to buy others are saying not so fast.

  — Steve Ehrlich

• Understanding DATs is crucial for grasping current market dynamics.
• DATs’ valuation discrepancies highlight potential investment opportunities.

Evaluating M NAVs and market dynamics

• M NAV assesses company value relative to its crypto holdings.

• M NAV stands for net asset value… quantifying how much investors value the company.

  — GuestName

• Recent crypto price declines have lowered M NAVs across the board.

• Their M NAVs almost across the board are below one.

  — GuestName

• Questions arise about the natural equilibrium for M NAVs.

• What is the natural equilibrium for M NAVs for these types of companies?

  — GuestName

• Trading at discounts could represent a value play for investors.
• Understanding M NAVs is essential for evaluating crypto company valuations.

The impact of market discounts on NAVs

• Significant discounts exist in NAVs of companies holding crypto.

• Companies… their NAVs are trading somewhere… at point five.

  — Jack Mallers

• Stock values should align closely with NAVs, with minor fluctuations.

• It should be around one plus or minus a few percentage points.

  — Jack Mallers

• Understanding NAVs is crucial for assessing stock values in crypto companies.
• NAV discounts present potential opportunities for investors.
• The relationship between stock prices and crypto holdings is key to market dynamics.
• NAVs provide insight into the financial health of crypto companies.

The role of private credit models and ETFs

• Private credit models and closed-end funds lack ETF-like arbitrage mechanisms.

• Compared to private credit models… there’s not quite the same mechanism.

  — GuestName

• Ethereum is productive due to staking, generating passive yield.

• Ethereum… seen as a productive asset because you can stake the ether.

  — GuestName

• Market NAVs should stabilize around one once market conditions settle.

• The M NAVs for these companies should be somewhere around one.

  — GuestName

• GBTC offers regulated exposure to crypto for accredited investors.
• Understanding these models is crucial for evaluating investment strategies.

The future of Bitcoin and Ethereum prices

• Conversion of trusts to ETFs can eliminate discounts or premiums.

• ETFs work… arbitrage away any discount or premium.

  — GuestName

• Bitcoin and Ethereum prices are unpredictable, with potential fluctuations.

• It’s really hard to tell… we’re not sure if the bottom’s in or not.

  — GuestName

• Investors should be cautious about assuming historical discount patterns will repeat.

• There are reasons to be very cautious about that.

  — GuestName

• Understanding ETF mechanics is crucial for grasping market pricing dynamics.
• The unpredictability of crypto markets is a critical insight for investors.

The limitations of share buybacks

• Share buybacks often fail to counteract inflation and debt dilution.

• The share buybacks… not large enough to put a meaningful dent.

  — Steve

• Many companies announce large buyback programs but don’t follow through.

• Announced a $1,500,000,000 buyback program but… haven’t bought back close to that.

  — Steve

• Investors should be cautious about interpreting buyback announcements.

• Investors need to be really careful… about buyback programs.

  — Steve

• Understanding buyback limitations is crucial for evaluating financial health.
• Discrepancies between announcements and execution highlight market challenges.

Strategic approaches to stock price recovery

• Long-term, companies need strategic approaches to reverse stock price declines.

• It’s gonna be very hard… it really comes down to being patient.

  — GuestName

• Investors should focus on high conviction bets rather than tactical trading.

• Buy and hold… not be tactical but be strategic.

  — GuestName

• Certain companies risk delisting due to stock price performance.

• At risk of being delisted… stock has been trading under a dollar.

  — GuestName

• Understanding strategic investment approaches is crucial for long-term success.
• Awareness of delisting risks is essential for monitoring stock performance.

The identity crisis in the crypto industry

• Crypto faces an identity crisis as traditional finance adopts on-chain tech.

• Non crypto native entities… taking over the things we thought we would win.

  — Dougie DeLuca

• There is a growing consensus about the uncertain future of crypto.

• A lot of people have clearly been thinking to themselves.

  — Dougie DeLuca

• The industry risks leaving behind crypto natives unless it adapts.

• Crypto natives will largely be left behind unless we choose to react.

  — GuestName

• Understanding the industry’s identity crisis is crucial for future growth.
• Adapting to a broader audience is essential for achieving mass adoption.

The evolution of marketing strategies in crypto

• Early-stage companies leverage social media for go-to-market strategies.

• A big part of their go to market is TikTok and Instagram.

  — GuestName

• Labeling products as crypto or web3 may alienate potential users.

• Crypto becomes baggage… people become scared and lose trust.

  — GuestName

• The focus should shift to demonstrating how tech improves user experiences.

• Focus on the things the tech actually unlocks for people.

  — GuestName

• Companies like Coinbase and Stripe position themselves for adoption.
• Understanding marketing evolution is crucial for user engagement strategies.

The future of crypto and user engagement

• The future of crypto may resemble cloud computing in its evolution.

• People will build applications… because of the unlocks it provides.

  — GuestName

• Success depends on users engaging without needing to be ‘crypto native’.

• Building on chain without… the conscious thought of being a crypto native.

  — GuestName

• Layer one networks may enable innovation rather than being focal points.

• Is the future of some of these L ones… letting someone else innovate on top.

  — GuestName

• Understanding user engagement evolution is crucial for mainstream adoption.
• The comparison to cloud computing provides a framework for crypto’s future.