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Bitcoin buying companies should consider withdrawing as risks emerge: Van Eck
Matthew Siegel, a cryptocurrency researcher at VanEck, says public companies that buy Bitcoin should be prepared to cancel further purchases if the value of their holdings exceeds their market value.
Bitcoin buying companies should consider withdrawing as risks emerge: Van Eck
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An executive at VanEck said that public companies buying Bitcoin should consider scrapping this tactic entirely if their stock prices drop significantly, warning that a major company specializing in Bitcoin purchases is about to run into trouble.
"As some of these companies raise capital through substantial ATM programs to buy BTC, a risk arises: if the stock trades at or near NAV [net asset value], ongoing equity issuance can dilute value rather than create it," said Matthew Siegel, head of digital asset research at VanEck, in a post on X on Monday.
He added that no public company has traded below the net asset value of Bitcoin for a long time, but Semler Scientific, Inc. (SMLR) "is now approaching parity."
Bitcoin
$106,658
Semler's shares have halved as Bitcoin rises
Semler is a medical technology company that first bought Bitcoin in May 2024 and increased its holdings to rank 13 among public companies, with 3,808 BTC worth $404.6 million.
Bitcoin continued to hit new record levels this year, but Semler's stock price has dropped more than 45% this year through Friday's trading, returning to the same level when the company first began buying Bitcoin, resulting in its market value falling to around $434.7 million.
Semler's stock price has fallen by about half so far this year. Source: Google Finance
Semler's multiple for NAV (mNAV), which takes the market value and divides it by its Bitcoin pile, fell below 1x to about 0.821x, according to data from Coinkite.
Bitcoin buying companies need "guarantees now"
As is usually the case among other Bitcoin buying companies, Semler has gone through multiple rounds of equity and debt issuance to raise funds to buy more Bitcoin, as the company and investors bet that the cryptocurrency will raise Semler's shares.
However, since gains may not always be the case, Siegel warned Bitcoin buying companies against "relying on guarantees now while premiums still exist."
He noted that companies that invest heavily in Bitcoin should halt their market offerings if their shares trade below a net asset value of 0.95x for at least 10 days.
Related: New Bitcoin treasury bonds may crack under price pressure
These companies should also "prioritize buybacks when Bitcoin's value rises, but stocks fail to reflect that value."
Finally, Siegel said companies should "launch a strategic review if the net asset value discount persists."
"This may include merging, spinning off, or terminating the BTC strategy."
Source: Matthew Siegel
Pay executives for growth, not the size of the Bitcoin pile
Siegel said that Bitcoin buying companies should align their executive compensation with the growth of net asset value per share, "not with the size of the Bitcoin position or the total number of shares."
He again urged company leaders to "act with discipline now while they still have the benefit of optionality."
Siegel said: "Once trading at net asset value, shareholder dilution is no longer strategic but expropriatory."
