The Problem With Just Holding Crypto

Here's an uncomfortable truth about cryptocurrency treasury companies: most of them aren't really companies at all. They're just wrappers around digital assets, and Galaxy Digital (GLXY) CEO Mike Novogratz thinks that's a problem.

In a conversation with SkyBridge Capital founder Anthony Scaramucci, Novogratz laid out why these firms will continue trading at steep discounts to their net asset value unless management does something more creative. We're talking 80% to 95% of NAV, which means investors are essentially paying a penalty for the privilege of owning crypto through a stock.

"Remember the guys running those, the CEOs of those DATs, and the boards, their job is shareholder value. So, what I'm feeling pretty comfortable about is you're not going to get shareholder value just by owning the underlying asset," Novogratz explained.

Translation: if you're just sitting on a pile of Bitcoin (BTC) or Avalanche (AVAX), why should anyone pay extra to own shares in your company instead of buying the crypto directly?

The Saylor Exception

Novogratz pointed out that the old playbook worked for exactly two people: Michael Saylor and Tom Lee. For a while, Strategy Inc. (MSTR) managed to get investors so excited that the stock traded at a premium to its Bitcoin holdings. That's the dream scenario where you hype people into bidding up shares and selling them for more than the underlying assets are worth.

"It worked for Michael Saylor. It worked for Tom Lee," Novogratz said. "It worked for nobody else."

And here's the kicker: even Strategy, the world's largest Bitcoin holder, is now trading 86% below the value of its BTC holdings. The premium disappeared, and what's left is a stark reminder that this business model has real limitations.

So What's The Solution?

When Scaramucci asked what Novogratz would do if he ran a crypto treasury company, his answer was refreshingly straightforward: actually build something.

"I would be looking for an idea where I could play off the skill set of the people in my firm," Novogratz replied. The goal should be creating something distinct from exchange-traded funds, something that generates a real "narrative" for why the company deserves to exist.

In other words, turn your crypto treasury into an actual operating business with differentiated value. Otherwise, you're just a more expensive, less efficient version of a crypto ETF.

The Irony Of Their Own Bets

Here's where it gets interesting: both Novogratz and Scaramucci are involved with the exact type of companies they're critiquing.

Scaramucci serves as a strategic advisor to AVAX One Technology Ltd. (AVX), which focuses on Avalanche holdings. Meanwhile, Galaxy Digital led a private investment in Forward Industries, Inc. (FORD), currently the biggest SOL-focused treasury company, alongside Jump Crypto and Multicoin Capital.

So they're betting on these companies while simultaneously warning that most of them won't create shareholder value. That's either hypocritical or optimistic, depending on whether they think their portfolio companies will be the exceptions.

A Crowded, Risky Field

The crypto treasury space has exploded in popularity. At least 200 such companies now exist with a combined market capitalization around $150 billion, up over threefold from a year ago, according to analysis by law firm DLA Piper.

That's inspired by Strategy's earlier success, but there's a catch: many of these firms are chasing obscure, volatile tokens rather than sticking with established cryptocurrencies. Moody's Ratings Senior Analyst Cristiano Ventricelli warned that equities of such companies face intensified pressure when crypto markets drop.

When you own shares in a company that owns a volatile asset, you're essentially taking on double volatility. The asset can drop, and the discount to NAV can widen simultaneously. Not exactly a recipe for sleeping well at night.

Price Action: Shares of Strategy (MSTR) and Bitmine Immersion Technologies Inc. (BMNR) closed up 3.18% and 3.03%, respectively, during the regular trading session.