Ethereum-focused treasury company ETHZilla said it has sold approximately $40 million worth of ether to fund an ongoing share buyback, a maneuver aimed at closing what it calls a “significant discount to NAV.” In a press release on Monday, the company announced that since Friday, October 24, it had purchased approximately 600,000 common shares for approximately $12 million as part of a broader authorization of up to $250 million and intends to continue purchases until the discount is maintained.

ETHZilla Abandons ETH for Redemption

The company characterized the buyouts as on-balance sheet arbitrage rather than a strategic exit from its underlying exposure to Ethereum. “We are leveraging the strength of our balance sheet, including reducing our ETH holdings, to make share repurchases,” said president and CEO McAndrew Rudisill, adding that the ETH sale is being used as “cash” while the common stock is trading below net asset value. He argued that the transactions would immediately benefit other shareholders.

ETHZilla strengthened news about X saying it will “use its strong balance sheet to support shareholders through buybacks, reduce the number of shares available for short lending, [and] increase NAV per share” and reiterating that it still has “approximately $400 million ETH” on its balance sheet and “has no net debt.” The company also cited “recent, concentrated miniature selling” as a factor keeping pressure on the stock.

The logic of the market structure is basic: when digital assets are trading below the value of their coin and cash holdings, repurchasing shares for “coin-cash” can theoretically break down the discount and raise the NAV per share. However, the optics within cryptocurrencies are controversial because the mechanism requires selling the underlying asset – in this case ETH – to purchase equity capital, potentially undermining the very treasury support that investors were originally looking for.

Is there a death spiral coming?

Popular cryptocurrency trader SalsaTekila (@SalsaTekila) commented on X: “This is extremely bearish, especially if it encourages similar behavior. ETH treasuries are not Saylor; they have not shown the will to have a diamond hand. If treasuries start dumping coin to buy shares, it will be a death spiral.”

Skeptics also focused on funding choices. “I’m particularly curious why the company decided to sell ETH and not use the $569 million in cash it had on its balance sheet last month,” fellow analyst Dan Smith he wrotenoting that ETHZilla just said it still holds about $400 million in ETH and therefore has not used it for fresh ETH accumulation. “Why not just use cash?” The question goes to the heart of treasury signaling: using ETH as a liquidity reservoir to defend discounted equity capital can be read as a rational allocation of capital or as a capitulation that undermines the narrative of ETH as a reserve.

In addition to share buybacks, a retail-based storyline quickly formed around the stock. Business Insider reported that Dimitri Semenikhin – who recently became the face of Beyond Meat’s explosive growth – targeted ETHZilla, claiming he bought about 2% of the company at what he believed was a 50% discount to modified NAV. He argued that the market is misreading ETHZilla’s balance sheet because it still reflects the biotech’s past performance and not the current digital asset treasury model.

The same one report cites liquid holdings of 102,300 ETH and approximately $560 million in cash, which translates to approximately $62 per share in liquid assets, and calls for a 1-for-10 reverse split on October 15, which he says has clouded the retail landscape. Semenikhin pointed to November 13 as a potential catalyst if results show a shift towards ETH generating profits.

The company’s own messaging emphasizes the prospect of a discount to NAV rather than a change in strategy. ETHZilla told investors it will continue buying while share prices fall below asset value, and stressed that the goal is to reduce the supply of credit to ease short-selling pressure.

In the case of Ethereum markets, the instantaneous flow effect is constrained – $40 million is marginal in daily ETH liquidity – but the second-order risk cited by traders is behavioral contagion. If other ETH-rich treasuries follow this pattern and sell the underlying to buy their own shares, the flow could become procyclical: coins are sold to close stock discounts that arise at times of selling pressure, and wider discounts re-emerge when stock screens fall to weaker levels again – repeat.

This is the “death spiral” scenario that skeptics warn against, when treasury assets also become a signal of a company’s conviction.

At the time of publication, the price of ETH was $4,156.

Featured image created with DALL.E, chart from TradingView.com