Bitcoin-Backed Lending in Crypto Treasuries: NAKA's Refinancing and Its Implications for NAV Stability and Leverage Risk

The rise of Bitcoin-backed lending has become a defining trend in crypto treasuries, with companies like NAKA leveraging digital assets to secure liquidity while maintaining exposure to Bitcoin's price appreciation. NAKA's recent refinancing activities, including a $250 million secured convertible debt facility with Antalpha, underscore the growing sophistication of these strategies. However, the interplay between collateral volatility, leverage metrics, and net asset value (NAV) stability remains a critical area of scrutiny for investors and regulators alike.

NAKA's Refinancing Strategy: Balancing Growth and Risk

NAKA's refinancing efforts in 2025 reflect a strategic pivot to optimize its Bitcoin collateral. By refinancing a $203 million credit line from Two Prime Lending with a larger facility from Antalpha, the company aims to expand its Bitcoin holdings without liquidating its treasury. This approach aligns with broader trends in the crypto-backed lending market, where firms increasingly use Bitcoin as collateral to access liquidity while avoiding the dilution of equity. For instance, lenders like Milo and Strike offer competitive terms, including 50% loan-to-value (LTV) ratios and interest-only payments, which NAKA's structure mirrors according to a recent report.

The refinancing also highlights the importance of collateral management. NAKA's Bitcoin collateral-valued at 2,903 BTC-faces a put option liability of $5.469 million, a risk factor tied to potential declines in Bitcoin's price. This liability amplifies the leverage embedded in NAKA's balance sheet, particularly as Bitcoin's annualized volatility remains elevated at 51.98%, far exceeding traditional markets like the NIFTY 50 (12.78%) according to market analysis. Such volatility necessitates robust stress-testing and dynamic collateral adjustments to prevent margin calls during sharp price corrections.

NAV Stability: A Delicate Equation

NAKA's NAV stability is inextricably linked to Bitcoin's price trajectory and the firm's ability to manage leverage. As of Q2 2025, NAKA's parent company, Strategy, held 597,325 BTC, valued at $63 billion, with projections to reach 850,000 BTC by 2027. This aggressive accumulation, funded through equity sales and leveraged offerings, has driven a 63% premium to NAV. However, the same leverage that amplifies returns also heightens downside risk.

The October 2025 flash crash, which triggered the largest single-day liquidation event in crypto history, exemplifies the fragility of leveraged positions. For NAKA, a significant drop in Bitcoin's price could erode collateral value, forcing deleveraging or refinancing at less favorable terms. This dynamic is compounded by the weakening volume-volatility relationship observed post-September 2023, which complicates predictive modeling.

Leverage Risk and Regulatory Scrutiny

Leverage in crypto treasuries has drawn increasing regulatory attention, particularly as firms like NAKA employ "leverage on leverage" strategies. NAV refinancing, which allows funds to replace asset-level debt with cross-collateralized facilities, has been criticized for obscuring true leverage levels. While conservative LTV ratios (10–30%) are typical for diversified assets, NAKA's reliance on a single collateral type-Bitcoin-introduces concentration risk.

The U.S. middle market's average leverage of 4.5x debt to EBITDA provides a benchmark, but crypto treasuries operate in a different risk environment. NAKA's put option liability and the asymmetric Laplace distribution modeling Bitcoin's volatility suggest that traditional leverage metrics may underestimate tail risks. Regulatory bodies, including the Bank of England, have flagged NAV facilities as potential systemic risks, emphasizing the need for transparent covenants and stress-testing.

Mitigating Risks: Hedging and Governance

To counteract Bitcoin's volatility, NAKA and similar entities must adopt advanced risk management strategies. Portfolio insurance, stablecoin hedging, and scenario analysis are critical tools. For example, allocating a portion of the portfolio to stablecoins can reduce volatility via the formula $ \sigma_h = (1 - w_s) \sigma_p $, where $ w_s $ is the stablecoin allocation according to research. Additionally, stress-testing under extreme price scenarios-such as a 50% drop in Bitcoin-can help firms prepare for margin calls and liquidity crunches.

Governance structures also play a pivotal role. Limited partners (LPs) must engage actively with general partners (GPs) to ensure transparency in NAV refinancing. The Institutional Limited Partners Association (ILPA) advocates for clear documentation and LPAC involvement in key decisions, particularly when funds use leverage for "money-out" transactions according to ILPA guidelines. NAKA's refinancing, which appears focused on growth rather than distributions, aligns with ILPA's preferred use cases but still requires rigorous oversight.

Conclusion: Navigating the Future of Crypto Treasuries

NAKA's Bitcoin-backed lending strategies exemplify the opportunities and challenges in crypto treasuries. While refinancing offers liquidity and growth potential, it also exposes firms to volatility-driven risks and regulatory scrutiny. Investors must weigh these factors against the broader macroeconomic landscape, including high interest rates and fiscal uncertainty. As the NAV finance market expands-projected to reach $225 billion by 2025-best practices in leverage limits, governance, and risk mitigation will be essential for sustaining NAV stability.

For NAKA and its peers, the path forward hinges on balancing innovation with prudence. In a market where Bitcoin's price swings can redefine balance sheets overnight, the ability to adapt to volatility while maintaining investor confidence will determine long-term success.