VanEck, a major crypto asset manager, is warning companies holding Bitcoin as a treasury asset about a potential problem: their stock price might be getting too close to the value of their Bitcoin holdings.
The Problem: Stock Price vs. Bitcoin Value
Matthew Sigel, VanEck’s head of digital assets research, points out that while no public Bitcoin treasury companies have traded consistently below the net asset value (NAV) of their Bitcoin, one company, Semler Scientific, is getting dangerously close. The issue? These companies often raise capital by issuing more shares to buy more Bitcoin. If the stock price is already near the Bitcoin’s value, issuing more shares dilutes the value for existing shareholders – it’s capital erosion, not growth.
Solutions to Prevent Value Erosion
Sigel suggests several strategies to avoid this problem:
- Pause share issuance: If the stock price drops below 95% of the Bitcoin NAV for an extended period (e.g., 10 trading days), temporarily stop issuing new shares.
- Buy back shares: When Bitcoin’s price rises but the company’s stock doesn’t reflect that increase, buy back shares to boost the value for remaining shareholders.
- Strategic review: If the stock consistently trades below its NAV, consider major changes like a merger, spin-off, or even abandoning the Bitcoin treasury strategy altogether.
Executive Compensation and Shareholder Value
Sigel also emphasizes that executive compensation should be tied to the growth of the NAV per share, not just the total number of shares or the size of the Bitcoin holdings. He warns against repeating past mistakes seen with cryptocurrency miners, where excessive share issuance and high executive pay hurt shareholders.
A Warning from a Top Trader
Adding to the concern, a well-known cryptocurrency trader, DonAlt, recently predicted that Bitcoin treasury companies will be a major source of selling pressure during the next bear market. He believes they’ll be a significant factor in the market’s downturn.
Disclaimer: This information is for general knowledge and shouldn’t be considered investment advice. Always do your own research before investing in cryptocurrencies./p>
