Twenty One Capital's Bitcoin Valuation Faces 43% Discount

Nearly half of the Bitcoin held by Twenty One Capital, a listed firm, is undervalued on the stock market. The company's quarterly report shows that its 43,514 Bitcoins are worth around $2.76 billion, but the share price stands at $4.53, resulting in an mNAV discount of around 43%. This disparity arises from the difference between fair value accounting and market capitalization.

The company uses a metric called mNAV (market net asset value) to measure its valuation against the value of its Bitcoin holdings. The formula is straightforward: market capitalization divided by the market value of Bitcoin. However, the result can be affected by various factors, including debt and share count. Using only A shares, the mNAV comes out at 0.57, but with both share classes included, it rises to around 0.92.

The discount is not unique to Twenty One Capital; similar companies like Strategy have faced similar issues in the past. The disparity between market capitalization and fair value accounting has been a subject of debate among investors and analysts. Fair value accounting under ASU 2023-08 measures crypto holdings at market value on every reporting date, which can result in reported losses even when no units are sold.