Crypto Treasuries Face Challenges as Month-Long Market Decline Impacts Balance Sheets

The prolonged downturn in the cryptocurrency market has significantly affected digital asset treasury companies, revealing the vulnerabilities of a business model that relies on volatile crypto assets held in corporate balance sheets.

Key Takeaways

Digital asset treasury companies are experiencing significant pressure as the month-long downturn leads to billions in lost value.
Evernorth, an XRP-focused treasury, has recorded $78 million in unrealized losses, while BitMine is facing $2.1 billion in paper losses due to its Ether holdings.
Analysts are cautioning that many treasuries could be at risk of collapse as their market net asset value (mNAV) declines.

Bitcoin and Ether have both seen substantial price drops over the past month, impacting the valuations of companies that depend heavily on these cryptocurrencies for their value.

Crypto Treasuries Face Challenges

Evernorth's $78 Million Unrealized Loss Amid Pressure on Treasury Firms

A recent analysis from on-chain data company CryptoQuant has detailed the challenges facing treasury firms, spotlighting Evernorth, a treasury focused on XRP, as a prominent example.

This firm is reportedly dealing with $78 million in unrealized losses on its XRP holdings, occurring shortly after it purchased the tokens.

Even well-known companies like Strategy (MSTR), which is recognized as a pioneer in Bitcoin treasury management, have not escaped unscathed. Over the past month, Strategy's stock has decreased by 26% in response to Bitcoin's decline, now sitting more than 50% below its all-time high, per Google Finance data.

Nonetheless, the company retains profitable Bitcoin reserves, with an average acquisition cost around $74,000 per BTC, as indicated by BitcoinTreasuries.net data.

The struggle isn't limited to Bitcoin treasuries; BitMine, the largest corporation holding Ether, is now facing around $2.1 billion in unrealized losses related to its 3.4 million ETH holdings. Over the past month, the firm has added more than 565,000 ETH to its portfolio, further increasing its vulnerability to Ethereum's price fluctuations.

This sell-off has sparked renewed discussions on the viability of digital asset treasury companies (DATs) — firms that emulate Bitcoin's "digital gold" concept by retaining cryptocurrencies as part of their strategic reserves. Experts warn that numerous DATs are experiencing drastic valuation pressures as their market net asset values drop in parallel with cryptocurrency prices.

Some analysts from firms like Breed Capital suggest that Bitcoin-based treasuries may exhibit the most resilience, while others draw parallels between the current situation and the dot-com bubble.

Novogratz Predicts the Peak of Treasury Crypto Boom

Michael Novogratz, CEO of Galaxy Digital, opines that the surge of new crypto treasury firms may be coming to an end, with focus shifting toward which established firms will scale and succeed.

During Galaxy’s Q2 earnings call, Novogratz remarked, “We’ve probably gone through peak treasury company issuance,” suggesting a more cutthroat competitive landscape ahead.

The rise of treasury-oriented cryptocurrency firms was bolstered by favorable regulatory conditions in the United States, with companies such as Strategy, GameStop, Trump Media, and SharpLink investing in Bitcoin, Ethereum, and other digital assets.

However, Novogratz cautioned that market saturation may hinder the ability of new entrants to make an impact, particularly as Ethereum-centric treasuries like BitMine and SharpLink continue to grow.

A report by 10x Research estimates that retail investors seeking Bitcoin exposure via public companies, including Metaplanet and Michael Saylor’s Strategy, have incurred losses of around $17 billion. According to the report, these losses arose from share premiums that previously valued these companies far above the worth of their Bitcoin assets, a situation that has now changed.