Bitcoin Investments Drag Semler Scientific's Stock Down 45%

Public companies that have invested heavily in Bitcoin are facing increasing risks as their market valuations approach or fall below the net asset value (NAV) of their crypto holdings. This situation signals potential dilution and strategic challenges for these firms. Semler Scientific, a medical technology company, serves as a prime example of this risk. Despite Bitcoin's strong performance in 2024, Semler's share price has plummeted by over 45%, erasing gains and reducing its market capitalization to roughly $434.7 million. This decline has pushed Semler’s multiple of net asset value (mNAV) below 1x, currently around 0.821x, indicating that the market values the company at less than its Bitcoin assets alone. This situation underscores the inherent risk for companies using equity issuance to fund Bitcoin purchases, as falling stock prices can lead to shareholder dilution and diminished investor confidence.

Many firms, including Semler, have relied on at-the-market (ATM) offerings and debt issuance to finance Bitcoin acquisitions, betting on the cryptocurrency’s appreciation to boost their stock value. However, VanEck’s head of digital assets research, Matthew Sigel, warns that when a company’s stock trades near or below NAV, continued equity issuance can be counterproductive, diluting shareholder value rather than creating it. Sigel recommends that companies pause ATM programs if their stock remains below 0.95x NAV for more than 10 days, emphasizing the need for proactive risk management. This approach helps prevent value erosion and encourages firms to reassess their capital strategies amid volatile market conditions.

Sigel advocates for immediate adoption of safeguards by Bitcoin-buying companies while premiums over NAV still exist. These measures include prioritizing share buybacks when Bitcoin appreciates but the equity price does not reflect this increase, and initiating strategic reviews if NAV discounts persist. Such reviews could lead to significant corporate actions like mergers, spinoffs, or even the discontinuation of Bitcoin investment strategies. These steps are critical to maintaining investor trust and ensuring that companies do not overextend themselves in pursuit of crypto exposure at the expense of their core business fundamentals.

Another key recommendation from Sigel is the realignment of executive incentives. Rather than rewarding executives based on the size of the Bitcoin holdings or total share count, compensation should be tied to the growth of net asset value per share. This alignment encourages disciplined management decisions focused on sustainable shareholder value rather than short-term accumulation of crypto assets. Sigel stresses that acting with discipline while companies still have strategic flexibility is essential, as trading at or below NAV transforms shareholder dilution from a strategic tool into a value-extracting liability.

As Bitcoin continues to attract institutional interest, public companies must navigate the complexities of integrating crypto assets into their balance sheets responsibly. The experience of Semler Scientific serves as a cautionary tale, highlighting the importance of balancing Bitcoin exposure with prudent financial management. Firms that adopt robust governance frameworks, transparent communication with investors, and flexible capital strategies will be better positioned to capitalize on Bitcoin’s potential without compromising shareholder value.

Public companies investing in Bitcoin face a critical juncture as market valuations approach or dip below the net asset value of their crypto holdings. VanEck’s Matthew Sigel advises these firms to implement safeguards such as pausing equity issuance, prioritizing buybacks, and conducting strategic reviews to mitigate dilution risks. Aligning executive compensation with NAV growth rather than Bitcoin accumulation further promotes disciplined management. Ultimately, companies that proactively address these challenges will enhance shareholder confidence and sustain long-term value amid the evolving crypto landscape.