VanEck exposes concerns over the discounted valuation of Bitcoin reserve companies: issuing new shares will only accelerate the dilution of shareholder value.

As Bitcoin continues to reach new highs, more and more publicly listed companies are investing in this asset as a reserve strategy. However, when stock prices become depegged from asset values, risks follow. Asset management company VanEck warned that medical technology company Semler Scientific (SMLR) currently has a market capitalization close to the value of its Bitcoin holdings, and if this continues to worsen, it may lead to severe dilution of shareholder value, affecting the company's operations.

Bitcoin soars, but stock prices are cut in half: Semler's market capitalization fails to reflect asset focus.

Semler Scientific will adopt a Bitcoin reserve strategy starting in May 2024, currently holding 4,449 Bitcoins with a total value of approximately $475 million, ranking 14th among publicly listed companies worldwide. However, Semler's stock price has decreased instead of increasing, down nearly 45% since the beginning of the year, with a market capitalization of only about $401 million, nearly on par with or even slightly lower than the value of its held assets.

Bitcointreasuries data shows that the company's "NAV multiple (, which is market capitalization divided by Bitcoin asset value )," is only 0.841, indicating that the market is not giving any premium, but rather a discount. VanEck's head of digital asset research, Matthew Sigel, pointed out that the company has become the first Bitcoin-holding enterprise facing the risk of "company market capitalization being close to asset holdings."

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VanEck: When market capitalization cannot keep up with held assets, issuing new shares will no longer create value.

Sigel pointed out 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 the net asset value per share, the continuous issuance of new shares will no longer have strategic significance and will instead dilute the value of existing shareholders' stakes. He warned: "This is not capital formation, but value erosion."

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

If the NAV multiple remains below 0.95 for 10 consecutive days, capital increase actions should be suspended.

If the price of Bitcoin rises but there is no significant reaction in stock prices, priority should be given to repurchase.

If the valuation cannot reflect the asset position in the long term, a comprehensive strategic assessment should be initiated, considering the merger, split, or termination of the Bitcoin strategy.

He also specifically reminded that the compensation of corporate executives should be linked to the "growth of net asset value per share" rather than simply measured by the amount of Bitcoin held; otherwise, it will repeat the mistakes of some mining companies that had "high salaries and excessive issuance of new shares."

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Why is Semler's market capitalization low? Convertible bonds, liquidity, and business disputes are the main reasons.

Why can't Semler's valuation keep up with the rise of Bitcoin? Adam Back, CEO of VanEck and Blockstream, discussed in the comments section, and Sigel believes there are three main reasons:

Semler is a small-cap stock with lower market liquidity.

The only issued convertible bond trading price is low, with an annual yield of 11% for (, indicating insufficient investor confidence.

The original medical device business performance was not ideal, which dragged down the overall valuation of the company.

Adam Back also added that Semler was involved in a now-settled medical device-related lawsuit, but the market has limited understanding of this, and the information gap may lead to hesitation among investors. He speculated that the company may have paused its fundraising and coin purchasing plans at that time, and although it has recently resumed actions, the market has not reflected its proactive moves.

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The topic of redemptions is no longer relevant: Is the Bitcoin reserve strategy entering a testing phase?

For many companies, buying Bitcoin was originally a strategy to attract market attention and create asset leverage, but if a company's market capitalization cannot reflect its held assets, this model becomes difficult to sustain. Sigel emphasized:

When a company's market capitalization approaches the value of its held cryptocurrency assets, any further equity dilution will harm existing shareholders rather than create benefits.

Semler is just the first, and this warning will also impact other listed companies that choose to use cryptocurrency as an asset allocation. VanEck's appeal will serve as a wake-up call to the market, and companies may need to consider whether "investors will buy in" before making investments.

This article reveals concerns about the discount of Bitcoin reserve companies by VanEck: issuing new shares will only accelerate the dilution of shareholder value. It first appeared in Chain News ABMedia.