Encryption Reserve Strategy: Valuation Method for the New Darling of US Stocks

The recent hot momentum of the encryption bull market first manifested in the US stock market. As the "encryption asset reserve strategy" becomes the new darling of the US stock market, the linkage between the cryptocurrency circle and the stock market is becoming increasingly close. In this context, how to accurately evaluate a company's stock value has become the focus of investors' attention. Should one solely value the scale of the company's held encryption assets, or should one pay more attention to its ability to continuously purchase encryption assets?

For investors closely following cryptocurrency-related US stocks, the term NAV (Net Asset Value) may be quite familiar. Many analysts use NAV to determine whether cryptocurrency stocks are overvalued or undervalued, while some use NAV to compare the stock prices of different cryptocurrency reserve companies.

It is worth noting that when a publicly listed company starts to implement an encryption reserve strategy, the $1 worth of cryptocurrency it holds often obtains a valuation of more than $1 in the market. These companies frequently exceed their NAV by continuously increasing their holdings of cryptocurrency assets or repurchasing shares.

However, for ordinary investors, cryptocurrency projects often lack rigorous valuation metrics, let alone using these metrics to evaluate the traditional stock market. Therefore, it is necessary to gain a deeper understanding of the NAV indicator to help investors focused on the correlation between cryptocurrencies and stocks better understand its operational logic and valuation methods.

NAV: A quantitative measure of stock value

Before delving into encryption of US stocks, we need to first understand the basic concept of NAV. NAV is not designed specifically for the encryption market, but is one of the commonly used methods in traditional financial analysis to evaluate a company's value. It aims to answer a simple question: "What is the actual value per share of a company's stock?"

The calculation method of NAV is straightforward, which is the total assets of the company minus total liabilities, divided by the number of shares outstanding to determine the value per share. This metric is particularly applicable to asset-driven companies, such as real estate companies or investment fund companies. The assets of such companies are usually relatively transparent and easier to value, so NAV can better reflect the intrinsic value of their stocks.

In traditional markets, investors often compare the NAV with the current stock price to determine whether a stock is overvalued or undervalued:

• Stock price above NAV: It may indicate a stock premium, suggesting that investors are optimistic about the company's future growth.
• Stock price below NAV: This may indicate that the stock is undervalued, the market lacks confidence in the company, or there is uncertainty in asset valuation.

When NAV is applied to the encryption of US stocks, its meaning undergoes subtle changes. In this emerging field, NAV is primarily used to measure the impact of the company's held encryption assets on its stock value. This means that NAV is no longer simply the "assets minus liabilities" formula, but also requires special consideration of the value of the cryptocurrency assets held by the company. The price fluctuations of these encryption assets will directly affect the company's NAV, which in turn affects its stock price.

Taking a well-known technology company as an example, its NAV calculation will particularly emphasize the value of its Bitcoin holdings, as this portion of assets accounts for a significant majority of the company's total assets.

When encryption assets are included in the NAV calculation, the following changes need to be considered:

1. NAV volatility has significantly increased: Due to the sharp fluctuations in cryptocurrency prices, NAV is no longer as stable as in traditional markets.
2. The NAV value is "amplified" by encryption assets: Encryption assets often receive a premium in the market, with investors willing to pay a price above their book value for the related stocks. For example, a company holding 100 million USD in Bitcoin assets may have a stock price that reflects the market's expectations for future appreciation of Bitcoin, resulting in a company market value of 200 million USD.

The market's bullish expectations for Bitcoin's future price may bring additional premiums to the company's NAV; conversely, during periods of low market sentiment, the reference value of NAV may decline.

mNAV: Encryption US Stock Market Sentiment Indicator

In addition to NAV, there is another indicator often mentioned by analysts and industry experts - mNAV. While NAV is a fundamental metric for measuring stock value, mNAV serves as a more advanced tool that is more aligned with the dynamics of the encryption market.

NAV mainly reflects the company's current net assets (mainly encryption assets) status, without involving the market's expectations for these assets; while mNAV is a more market-oriented indicator used to measure the relationship between the company's market value and its encryption asset net value. Its calculation formula is:

mNAV = Company Market Value / encryption Asset Net Value

The "encryption asset net value" here refers to the value of the cryptocurrency assets held by the company minus the related liabilities.

mNAV can better reveal the market's expectations for these assets, reflecting investors' premiums or discounts on the company's encryption assets. For short-term investors focused on market sentiment, mNAV is a more sensitive reference indicator:

When the price of Bitcoin rises, investors may be more optimistic about the future performance of companies driven by encryption assets. This optimism is reflected through mNAV, causing the market price of the company's stock to be higher than its book value (NAV).

If mNAV is above 1, it indicates that the market places a premium on the company's encryption assets; if mNAV is below 1, it means that the market lacks confidence in the company's encryption assets.

Reflexive Flywheel and Risk Warning

In a bull market characterized by the linkage between cryptocurrencies and stocks, the concept of "Reflexivity Flywheel" has become an important theory to explain the surge in stock prices of certain companies. This concept, derived from the reflexivity theory of the famous investor Soros, has formed a positive feedback loop in the current market:

The company first issues stocks or raises cash through ATM (At-The-Market) financing, and then purchases a large amount of encryption currency; the increase in encryption currency holdings raises NAV and mNAV, attracting more investors, leading to a rise in stock prices; a higher market value makes it easier for the company to refinance and continue to increase its holdings of encryption currency... thus forming a self-reinforcing, continuously expanding flywheel effect.

However, investors need to be cautious, as this flywheel effect may reverse into a "death spiral" in certain situations. For example, when cryptocurrency prices experience a significant pullback, regulatory policies tighten, or financing costs surge, stock prices may plummet quickly, leading to a sharp drop in mNAV, ultimately resulting in significant losses for investors.

Therefore, when evaluating encryption reserve companies, investors should not overly rely on a single indicator. Metrics such as NAV and mNAV are just part of the toolbox. Rational investment decisions also require a comprehensive consideration of various factors such as the macro trends of cryptocurrencies, the company's debt levels, and growth rates. Only through a thorough analysis can one seize investment opportunities in a new cycle where opportunities and risks coexist.