Cryptocurrency treasury management firm ETHZilla has announced the sale of approximately $40 million worth of Ethereum (ETH) to finance a share buyback program. The company stated the move was a strategic response to its common stock trading at a “significant discount to NAV” (Net Asset Value).

As part of a broader $250 million authorization, ETHZilla has already repurchased around 600,000 common shares for about $12 million since October 24. The company confirmed it intends to continue these purchases as long as the discount persists.

A Strategy of Balance Sheet Arbitrage

McAndrew Rudisill, the chairman and CEO of ETHZilla, framed the decision not as a withdrawal from its core Ethereum exposure but as a form of “balance sheet arbitrage.” He explained that the company leveraged its financial strength, including its ETH holdings, to execute the buyback. In this context, the sale of ETH was treated as a cash-equivalent transaction to acquire its own undervalued stock, a move Rudisill argued would provide an immediate benefit to the remaining shareholders.

Analysts Raise “Death Spiral” Concerns

The strategy has drawn sharp criticism from some market observers. Prominent crypto trader SalsaTekila described the action as “very bearish,” warning of a potential domino effect. “If Ethereum cash companies start selling coins to buy their own shares, it’s a death spiral setup,” he commented, highlighting the risk of sustained sell pressure on the asset if other firms adopt similar tactics.

Adding to the skepticism, analyst Dan Smith questioned ETHZilla’s choice of funding. He pointed out that the company held $569 million in cash on its balance sheet last month and wondered why it opted to sell its core digital asset instead of deploying its cash reserves. Smith also noted that ETHZilla still holds an estimated $400 million in Ethereum, which it has not used for further accumulation.

Market Reaction and Future Outlook

Despite the concerns, a counter-narrative is forming. Investor Dimitri Semenikhin, known for his involvement in the Beyond Meat surge, announced he had acquired a 2% stake in ETHZilla at a significant discount. Semenikhin argues that the market is misinterpreting the company’s balance sheet, which he believes still reflects legacy business results rather than its current digital asset model.

For its part, ETHZilla has emphasized its commitment to continue the buybacks while its stock trades below asset value. The firm also aims to reduce its borrowable supply to ease pressure from short sellers. While the immediate impact on Ethereum’s daily liquidity is limited, the move by ETHZilla highlights a growing debate over how crypto-centric firms should manage their treasuries, particularly when their own stock value diverges from their underlying assets.

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