ETHZilla: Discounted To NAV And Finding Its Foothold In The Ethereum Ecosystem

Summary ETHZilla has pivoted from biotech to become a major Ethereum treasury and infrastructure company, holding 102,326 ETH worth $421 ￰0￱ partners with DeFi and tokenization firms, actively deploys ETH for yield, and has resolved most legacy capital structure issues while managing new dilution ￰1￱ $20.65 per share, ETHZ trades at a 22% discount to its $26.46 NAV per share, making it one of the attractive crypto treasury companies at the moment, with share buybacks ￰2￱ is rated a Buy for leveraged Ethereum exposure, but investors should monitor dilution risks and crypto volatility for the long-term ￰3￱ Corporation ( ETHZ ), the former clinical-stage biotech company that faced cash constraints and poor liquidity and had to slow down R&D activities significantly, has become one of the fastest-growing Ethereum USD ( ETH-USD ) strategy ￰4￱ now holds 102,326 ETH worth $421 million at the current ETH spot price of ~$$4,100.

It seems ETHzilla doesn't plan to be just a holder of ETH on the balance sheet but a company that is active in all segments of the Ethereum ￰5￱ has been some announced progress on that ￰6￱ entered a partnership with a company known as Satschel to accelerate ETHZilla's institutional-grade tokenization capabilities and another deployment of $47 million to a liquid restaking platform known as ￰7￱ basically, the company is transitioning into becoming an Ethereum infrastructure and applications services ￰8￱ company completed its rebrand from 180 Life Sciences and ticker ATNF to ETHZilla in ￰9￱ has swiftly accumulated about 102,326 ETH and now holds Ethereum worth about $409 million as of the current ETH spot price near $4,100 and now ranks as the 5th largest corporate holder of ETH.

I would say it has been a busy year as the intersection of institutional finance and crypto continues to deepen, with several publicly traded companies announcing crypto treasury strategies. A handful of these firms had struggled in their core ￰10￱ treasury strategy became a lifeline for some of ￰11￱ the flip side, some companies that pivoted to a crypto treasury strategy did so with a mix of opportunistic timing and financing (using convertible debt to fund crypto asset buys and protect equity) and an approach that goes beyond just accumulating the crypto asset but harnesses all available DeFi and staking opportunities in the asset's on-chain ecosystem to further create ￰12￱ flexibility crypto treasury companies have to actively deploy their crypto assets for yield generation, which further compounds returns, is what the spot crypto ETFs currently lack, and I think this has been one of the reasons why crypto treasury stocks (especially of companies that primarily hold altcoins that produce yield through staking and other DeFi activities) have been seeing increasing interest among ￰13￱ this is where ETHZilla stands ￰14￱ primarily holds ETH and is touting full integration in the Ethereum ecosystem as a selling ￰15￱ is an excerpt from ETHZilla’s website on its strategy: To achieve our mission, ETH must be more than just held: it must be staked, restaked, and strategically deployed throughout the on-chain ￰16￱ partnering with some of the world's top yield generation experts, we plan to put our ETH to work, supplementing staking yields with additional on-chain ￰17￱ also owns an iGaming subsidiary , acquired from Elray Resources in September 2024 in an all-stock deal involving the issuance of 1,000,000 Series B Convertible Preferred Shares and warrants to purchase 3 million ATNF common shares, as the company was still trading under the ATNF ticker at that ￰18￱ preferred shares were later converted into 1.3 million common shares, which were subsequently repurchased and cancelled under a Settlement ￰19￱ structured a $1 million buyback to retire those shares and completed the cancellation back in August, as disclosed in this 8-K ￰20￱ warrants associated with Elray were exercised, and the resulting shares also fell under the same settlement and repurchase structure, effectively neutralizing the original contract and thus cushioning any dilution risk that would have ￰21￱ 3 million warrants were not part of the repurchase program and were later exercised on a cashless basis at an exercise price of $1.68 per share and sold in July/August on the open market between $3 and $4.84.

These transactions are worth mentioning here for clarity on how the company has handled its legacy capital structure issues since the pivot to the ETH treasury ￰22￱ the capital structure headwinds from the legacy business have largely been cleared, fresh and significantly larger dilution vehicles have been introduced since the pivot to becoming an Ethereum ￰23￱ potential dilution pressures include the $506.25 million in outstanding convertible debentures—$156.5 million convertible debentures were first issued and later amended to raise an additional $350 ￰24￱ debentures carry an annual coupon of 2%, mature in 2028, and include investor protection clauses like an exchange cap limiting immediate conversions above 19.99% of the outstanding shares without shareholder approval and a floor price adjustment that prevents conversions below $0.3.

I believe the exchange cap has helped mitigate a hostile equity takeover or heavy dilution in the near term since the initial debenture issuance, as the convertible debentures are deeply “in the money” at the current stock price (conversion price $3.05). It is also worth mentioning that the notes contain a downward-only reset provision on the conversion price, beginning in May next ￰25￱ means that if the stock price drops below conversion price of $3.05, the conversion price for the notes can be reset to a lower figure (potentially closer to the market price), allowing the investor to convert into more shares to cover the same principal amount, thus increasing dilution pressure on existing shareholders while the debenture holder has a better conversion ratio (more shares).

Then there was a $425 million PIPE raise of common stock and pre-funded warrants, though the dilution from these has also largely been absorbed into the current share ￰26￱ then not forgetting the $10 billion ATM which is potentially a source of continuous, incremental ￰27￱ potential dilution from the legacy transactions mostly resolved and that from the debentures partially constrained by some investor protection clauses, then the PIPE impact appears also already absorbed into the current share base, it’s safe to say ETHZ holds the potential to pursue accretive ETH purchases in the near ￰28￱ company is also actively executing share buybacks and earlier this week sold a portion of its ETH holdings worth $40 million to buy back 600,000 ETHZ shares for $12 million as part of an earlier announced $250 million stock repurchase ￰29￱ is Attractive, But For How Long?

It is becoming increasingly rare to find crypto treasury stocks trading below their crypto holdings (especially in a bull market) or even at par with their crypto asset holdings these days, as investors who understand how crypto treasury stocks accrue value and how they tend to trade at high premiums to net asset value NAV are often the early ￰30￱ there is also the insider activity, where companies’ insiders take positions before announcing a crypto treasury pivot. I'm not making this ￰31￱ SEC has had to apply more scrutiny recently, and 200 companies are being looked into as the SEC has cited unusual trading patterns among crypto treasury ￰32￱ ETHZ’s current market price, how early are we to the potential for rerating to reflect future premium-to-NAV gains?

For comparison, I’d be looking at SharpLink Gaming, Inc. ( SBET ) and Bitmine Immersion Technologies, Inc. ( BMNR ), both early adopters of an Ethereum treasury strategy and large holders of ETH that are not a crypto exchange or a crypto mining ￰33￱ these Ethereum treasury plays, ETHZ trades at one of the most attractive discounts to ￰34￱ its reported 16.02 million shares outstanding (that's the current shares outstanding following last week's 10-for-1 split), 102,326 ETH worth $421.7 million at ETH’s current spot price, and $2.22 million in cash, total asset value comes to roughly $423.9 ￰35￱ gives an NAV per share of about $26.46 (which is obtained by dividing total assets of $423.9 million by 16.02 million total shares outstanding).

At the current share price of $20.65, a $26.46 NAV per share implies ETHZ trades at roughly a 22% discount to NAV (calculated by taking the difference between NAV per share and the current share price, dividing that difference by the NAV per share, then expressing the result as a percentage). BNMR holds about 3.24 million ETH which converts to $13.34 billion, and $1.47 million in cash across 284.74 million shares, which gives a NAV per share of roughly $46.84. With a current share price of $53.71, BNMR trades at a 14.7% premium to ￰36￱ holds 859,853 ETH worth $3.54 billion and $5.07 million in cash across 193.13 million shares, implying an NAV per share of about $18.38.

At its current price of $14.31, SBET also trades around a 22% discount to ￰37￱ well-managed dilution and the share buyback currently active, I believe ETHZ will remain attractive in the near ￰38￱ must track both ETH exposure (which drives NAV growth) and share dilution (which affects how much NAV each share represents). ETH price determines total value, but dilution determines your slice of ￰39￱ is why I have earlier broken down the current capital structure of ETHZilla and how much dilution pressure it faces in the near term. I've also used the phrasing “in the near term” throughout this piece because I believe further dilution and volatility effects are inevitable in the long term, given the direct exposure to crypto’s price swings these crypto treasury companies face while lacking a backstop business in most cases or at best still fledgling and in an experimental development stage, like in the case of ETHZilla and the DeFi and tokenization opportunities it says it is pursuing in the Ethereum ￰40￱ While at the current stock price, it is unlikely for ETHZ to fall to the $3.05 conversion price to trigger the downward-only reset, this possibility shouldn’t be ruled out because an implosion in the crypto market will most likely mean a similar decline for ETHZ stock.

I've also mentioned the dilution risks that investors face with ETHZ, as a $10 billion ATM program is active and could lead to incremental share issuance over ￰41￱ Overall, ETHZ remains an attractive buy for investors seeking leveraged exposure to Ethereum with some capital structure protections in place.