VanEck Raises Concerns Over Bitcoin Treasury Strategy
VanEck, a prominent digital assets research firm, has raised concerns about the Bitcoin treasury strategy adopted by several public companies. The firm’s head of digital assets research, Matthew Sigel, warned that the strategy may be on shaky ground, as rising risks threaten to erode shareholder value rather than enhance it.
In a recent post on X, Sigel highlighted the growing risk posed by at-the-market (ATM) share issuance programs used by these firms to fund Bitcoin purchases. He pointed out that some companies are approaching a critical threshold where continued Bitcoin accumulation may end up eroding shareholder value rather than creating it.
When stocks trade well above their Bitcoin net asset value (NAV), issuing new equity brings in a premium. However, once the stock price nears parity with the value of its Bitcoin holdings, dilution sets in. Sigel emphasized that this is not capital formation but erosion. He recommended that companies using Bitcoin as a treasury asset should adopt guardrails while premiums still exist.
Among the measures suggested by Sigel are pausing ATM programs if the stock trades below 0.95 times NAV for 10 or more trading days and launching strategic reviews if the discount continues. He also advised prioritizing buybacks when Bitcoin rises but the stock price does not reflect that gain.
Sigel also emphasized the importance of tying executive compensation to NAV per share growth and not to the size of a firm’s Bitcoin holdings or the total number of shares issued. He warned against a familiar pattern seen in the crypto mining sector, where relentless share issuance and inflated pay packages led to long-term shareholder losses.
While no public company has consistently traded below its Bitcoin NAV, Sigel noted that Semler Scientific, a California-based medical technology firm, is now close. Despite accumulating 3,808 BTC worth roughly $405 million since entering the crypto market in May 2024, Semler’s stock has dropped more than 45% year to date, dragging its market capitalization to about $435 million.
The gap between Semler’s multiple of NAV (mNAV) landing near 0.82x highlights that investor confidence in Bitcoin does not always lead to equity gains, especially when companies rely on aggressive capital raises to fund their crypto purchases.
In conclusion, companies pursuing a Bitcoin treasury strategy must exercise structural discipline to avoid eroding value as fast as they aim to create it. VanEck’s warning serves as a timely reminder for firms to reassess their approach and safeguard shareholder value in the face of evolving risks in the crypto market.