First Ethereum Treasury Firm Sells ETH For Buybacks: Death Spiral Incoming?

ETHZilla, an Ethereum-focused treasury company, has sold approximately $40 million worth of ether to fund share repurchases, aiming to address a significant discount to its net asset value. The company has already bought back about 600,000 common shares for $12 million and plans to continue these buybacks while the discount persists. ETHZilla views these repurchases as balance-sheet arbitrage rather than a strategic shift away from Ethereum exposure. Chairman and CEO McAndrew Rudisill stated that reducing ETH holdings provides cash to buy back shares trading below net asset value, expecting this to be immediately accretive for remaining shareholders. The company emphasized on X that it still holds around $400 million of ETH, has no net debt, and aims to reduce shares available for short borrowing. ETHZilla also cited recent concentrated short selling as a reason for its stock pressure. Critics question why the company sold ETH instead of utilizing its substantial cash reserves. This action has led to concerns about behavioral contagion if other Ethereum treasury companies adopt a similar strategy. Skeptics warn of a potential "death spiral" if treasury assets are sold to buy back equity, which could negatively impact the price of the underlying asset. A retail investor, Dimitri Semenikhin, has also targeted ETHZilla, believing the market misinterprets its balance sheet. He pointed to the company's significant liquid holdings and a recent reverse stock split. The company continues to emphasize its goal of shrinking lendable supply and closing the discount to NAV. While the immediate impact on Ethereum markets from the $40 million sale is considered marginal, the larger risk is the potential for other treasury companies to follow suit.