VanEck Reveals Concerns Over Discount in Bitcoin Reserve Companies: Issuing New Shares Will Accelerate Shareholder Value Dilution

As Bitcoin Continues to Set New Highs, More Public Companies Invest in This Asset as a Reserve Strategy.

However, when stock prices decouple from asset values, risks follow. Asset management firm VanEck warns that the market capitalization of medical technology company Semler Scientific (SMLR) is currently close to the value of its Bitcoin holdings. If this situation continues to deteriorate, it may lead to severe dilution of shareholder value, impacting the company’s operations.

Bitcoin Soars, Yet Stock Prices Halve: Semler’s Market Capitalization Fails to Reflect Asset Value

Since May 2024, Semler Scientific has shifted to a Bitcoin reserve strategy, currently holding 4,449 Bitcoins, with a total value of approximately $475 million, ranking 14th among publicly listed companies globally. However, Semler’s stock price has fallen nearly 45% since the beginning of the year, with a market capitalization of only about $401 million, nearly equal to or slightly less than the value of its held assets.

According to Bitcointreasuries data, the company’s current “NAV multiple (i.e., market capitalization divided by Bitcoin asset value)” is only 0.841, indicating that the market has not granted any premium and is instead trading at a discount. VanEck’s head of digital asset research, Matthew Sigel, specifically pointed out this company, identifying it as the first Bitcoin-holding enterprise facing the risk of “company market capitalization approaching asset positions.”

VanEck: When Market Capitalization Fails to Keep Up with Asset Holdings, Issuing New Shares Will No Longer Create Value

Sigel noted that many companies are raising funds to buy Bitcoin through the “At-the-Market (ATM)” mechanism. However, if the stock price approaches or falls below book value per share, continuing to issue new shares will lose its strategic significance and will instead dilute existing shareholders’ value. He warned: “This is not capital formation; it is value erosion.”

To avoid this vicious cycle, Sigel recommends that companies establish risk control mechanisms, including:

• If the NAV multiple is below 0.95 for 10 consecutive days, the fundraising action should be suspended.
• If Bitcoin prices rise but stock prices show no significant response, share buybacks should be prioritized.
• If valuations cannot reflect asset positions for an extended period, a comprehensive strategic review should be initiated, considering mergers, splits, or the termination of Bitcoin strategies.

He also specifically reminded that executive compensation should be linked to “per-share net asset value growth” rather than simply measuring the quantity of Bitcoin held, or else the company might repeat the mistakes of some mining firms that offered “high salaries while excessively issuing new shares.”

Why is Semler’s Market Capitalization Low? Convertible Bonds, Liquidity, and Business Disputes are Major Factors

Why is Semler’s valuation unable to keep pace with the rise of Bitcoin? Sigel and Blockstream CEO Adam Back engaged in a discussion in the comments section, with Sigel identifying three main reasons:

• Semler is a small-cap stock with lower market liquidity.
• The only issued convertible bonds are trading at a low price (with an annual yield of 11%), indicating insufficient investor confidence.
• The performance of the existing medical device business is not ideal, dragging down the company’s overall valuation.

Adam Back further pointed out that Semler was previously involved in a now-settled medical device-related lawsuit, but the market has limited understanding of this, potentially causing investors to hesitate. He speculated that the company may have previously paused fundraising and Bitcoin buying plans; although recent actions have resumed, the market has not reflected its proactive stance.

Is the Bitcoin Reserve Strategy Entering a Testing Phase as the Buzz Fades?

For many companies, buying Bitcoin was originally a strategy to attract market attention and create asset leverage. However, if the company’s market capitalization consistently fails to reflect its held assets, this model becomes difficult to sustain. Sigel emphasized:

When a company’s market capitalization is close to the value of its held crypto assets, any further equity dilution will harm existing shareholders rather than create benefits.

Semler is just the first to face this warning, and it will also impact other publicly listed companies that choose to allocate assets in cryptocurrencies. VanEck’s call will serve as a wake-up call for the market; companies should consider whether “investors will buy in” before making such investments.

Risk Warning

Investing in cryptocurrencies involves high risks, and their prices can be extremely volatile. You may lose your entire principal. Please assess risks cautiously.