At present, one will find bitcoin-holding companies trading at prices that do not reflect the value of the coins on their books. Take ProCap as an illustration: in order to make payments to preferred shareholders, it sold some Bitcoin and was able to buy back its shares at a considerable discount. Such is the way public companies are handling the crypto side of their balance sheets these days.
How Bitcoin-Holding Companies Are Priced
The host of Pro Blockchain Media Live has pointed out that a number of these firms are trading for 70 or 80 cents on the dollar of their Bitcoin. Put simply, the market assigns a lower value to the company than what its Bitcoin holdings add up to. One can measure this discrepancy by the ratio of market cap to the value of the Bitcoin assets; a reading below one indicates a discount. In effect, an investor is afforded the chance to get indirect exposure to Bitcoin at below-market rates, provided they are willing to take on the attendant risks of the company.
Company Strategies: Selling Bitcoin and Buying Back Shares
How a company responds to being discounted varies. If the per share value of the stock is less than the per share value of its Bitcoin, the company might sell some of the latter to repurchase its own stock, a move that reduces supply and can put upward pressure on the share price. ProCap is a case in point, having sold about 50 Bitcoins to re-acquire shares at close to 40% off net asset value. Strategy, which is the pre-eminent corporate holder of the currency, did something similar over the summer, selling 1,638 of them to cover the 12% annual yield due to preferred shareholders. It is all part of maintaining liquidity for obligations and tending to the interests of shareholders.
Preferred Shareholders and the Discount Dynamic
Preferred shareholders are a big reason for the discounts. As was made clear on Pro Blockchain Media Live, they have first claim on any disbursements, which is a risk for the common stockholder and why the market will often apply a discount to the share price. The reverse is also true: should shares be trading above the value of the Bitcoin they represent, a company can issue new ones to put more Bitcoin behind each existing share. This sort of arbitrage serves to contain any divergence in price, but then again, market sentiment and liquidity can cause a discount to persist.
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