Summary Empery Digital Inc. now trades near NAV with markets accounting correctly for Bitcoin-driven asset declines and poorly timed leveraged share repurchases. Bitcoin’s negative futures curve and risk-off macro environment risk further downside, undermining EMPD’s investment case. I see no discount or compelling reason to own EMPD, given capital impairment risks and lack of management credibility. Empery Digital Inc. ( EMPD ) has taken a hit because of the declines in Bitcoin USD ( BTC-USD ). Based on the share repurchase that they've done since the close of books, they trade pretty close to NAV. The signals for Bitcoin in the futures market are simply bad. The futures curve shows an apprehensive market, and one must always remember that the dynamics of Bitcoin are that they only perform in risk-on environments. The economic setup means downside risk. We will not touch EMPD, and we want to remind you that a stock like this uses leverage to engage in crypto markets and carries serious capital impairment risks that any intelligent investor must take seriously. Latest Data and Results Let's start with a balance sheet snapshot to run through our logic. Balance Sheet (SEC.gov) As of September 30th, the net value on the balance sheet was around $440 million. Since then, the digital assets, which make up almost the entire assets of the company other than $19 million in cash, have gone down by around 25%. That means around $110 million in declines of the assets. On top of that, the company did a buyback at the unfortunate price of $6.99 , where the shares now trade at $4.8. This was for around $100 million of shares repurchased coming from a revolving credit facility. That means $100 million increase in debt. That repurchase has already lost 30% of its value with the decline to $4.8 from almost $7, so around another negative $30 million to the assets. With $100 million increase in liabilities since the end of the last quarter and around $140 million decline in assets, the net asset value declined by around $240 million. That puts it at around $200 million in NAV. The stock trades at around $213 million in market cap, which means EMPD trades at just about NAV. No discount to speak of as a newly formed Bitcoin treasury business. As a reminder from our previous coverage , this company used to be called Volcon, and they were trying to launch some powersports bikes that were pretty appealing, but they never got that business off the ground. They "pivoted" into being a Bitcoin treasury business with no prior interest, connection or exposure to Bitcoin. The fortunes of this stock are linked to Bitcoin from here on out, assuming the management doesn't poorly time leveraged share repurchases, amounting effectively to leveraged purchases of Bitcoin in a falling knife environment. Having done this the decline in Empery's stock since the close of books has been more severe than that of Bitcoin. Data by YCharts Bitcoin has performed poorly due to a general concern about tech valuations related to the AI bubble and an evident exodus of cash from the crypto world. Bitcoin futures expiring in 3 months' time are at a smaller premium to spot prices since at least a year signaling the bearish market outlook and lack of bottom-buying demand. Bitcoin is a terrible allocation in a risk-off environment and everyone who follows the market knows it. In the current environment characterised by a lower rate outlook associated with genuine growth concerns, enough apparently for markets to believe the current inflation would be derailed, constitutes an environment ripe for risk-off sentiment. Bottom Line We are not impressed by Bitcoin. The reason has always been related to pool mining administration defeating the appeal of decentralisation, and also the ongoing regulatory barriers and overall immorality associated with Bitcoin's illicit uses which lead to serious risks from a regulatory perspective in the long term. Some other cryptos have addressed these decentralisation concerns in different ways but Bitcoin being the crypto progenitor doesn't have these innovations and cannot later have them due to the nature of Blockchain design. With market indicators pointing negatively for Bitcoin in our view, and then the added layer that there is no reason to trust in EMPD management of a Bitcoin treasury business, we will likely never hazard money in this stock.
