Urgent Warning: Bitcoin Buying Firms Face Risk as Stock Values Dip Below BTC Holdings, VanEck Says

Public companies holding significant amounts of Bitcoin (BTC) have enjoyed a boost from the cryptocurrency’s rise. However, a critical warning from VanEck suggests that the tactic of being a “Bitcoin buying firm” could turn risky if stock prices don’t keep pace with their digital asset holdings. This presents a new challenge for public companies who have embraced Bitcoin as a treasury asset.

VanEck’s Warning to Bitcoin Buying Firms

Matthew Sigel, VanEck’s head of digital assets research, recently highlighted an emerging risk for Bitcoin buying firms. These companies often raise capital through equity offerings to acquire more BTC. Sigel warns that if a company’s stock price trades at or near its Net Asset Value (NAV) – essentially the value of its Bitcoin stack divided by its market cap – continued stock issuance can dilute existing shareholders rather than create value.

Historically, public companies holding Bitcoin have traded at a premium to their NAV. However, this premium is shrinking for some. Sigel pointed out that no public company has traded below the NAV of its Bitcoin for a sustained period, but one firm is getting close.

The Semler Scientific Example

Semler Scientific, Inc. (SMLR), a medical technology company, serves as a recent example of this emerging risk. Semler Scientific began buying Bitcoin in May 2024 and quickly became a significant holder with 3,808 BTC, valued at over $400 million. Despite Bitcoin’s strong performance, Semler’s share price has dropped by over 45% this year, returning to levels seen before its initial BTC purchase. This drop has pulled its market capitalization down to around $434.7 million.

According to data, Semler’s multiple of NAV (mNAV), which compares its market cap to its Bitcoin value, has fallen below 1x, reaching approximately 0.821x. This means the market values the company at less than the current value of its Bitcoin holdings alone, not even accounting for its core business.

Why Public Companies Buying Bitcoin Need Safeguards

Many public companies that buy Bitcoin have relied on the crypto’s price appreciation to boost their stock value. However, this isn’t guaranteed. Matthew Sigel urges these firms to implement safeguards while their stock still trades at a premium to NAV. Once trading at or below NAV, issuing stock to buy more Bitcoin becomes “extractive” rather than strategic, diluting shareholder value.

Sigel proposed several safeguards for firms heavily invested in Bitcoin:

• **Pause Equity Offerings:** Stop at-the-market (ATM) offerings if the stock trades below a NAV multiple of 0.95x for at least 10 days.
• **Prioritize Buybacks:** Use company funds to buy back shares when Bitcoin appreciates, but the stock price doesn’t reflect that gain.
• **Launch Strategic Review:** Initiate a review process if the NAV discount persists. This review could explore options like a merger, spinning off the Bitcoin holdings, or even sunsetting the Bitcoin strategy altogether.

Aligning Executive Compensation

Beyond safeguards, Sigel also recommended aligning executive compensation with the growth of net asset value per share, not just the size of the Bitcoin position or total share count. This encourages management to focus on overall shareholder value rather than simply accumulating more BTC, a key point for companies like Semler Scientific and others pursuing similar strategies.

Matthew Sigel’s advice is clear: act with discipline now while there’s still flexibility. Trading at NAV eliminates the strategic benefit of using equity to acquire Bitcoin, making it a detrimental move for existing shareholders.

Conclusion: Navigating the Risks

While adding Bitcoin to a corporate treasury can be a powerful strategy, VanEck’s warning highlights the critical need for discipline and risk management. As companies like Semler Scientific approach the point where their stock value dips below their Bitcoin holdings, the focus shifts from accumulation to preservation of shareholder value. Implementing clear safeguards and aligning incentives are crucial steps for Bitcoin buying firms to navigate the potential pitfalls of this strategy and ensure it remains beneficial in the long term.