[News] Slowly at first, then all at once

plus precious things that don't exist and Keith still likes the stock

In this issue:

  • Corporations start nervously herding towards the exit

  • The market can’t get enough things that don’t exist

Slowly at first, then all at once

Gartner released a survey on Tuesday of corporate finance executives asking about their company’s approach to Bitcoin. The story is framed very negatively ("Most executives still balk at Bitcoin") but to me the most interesting piece was this:

“By 2024 or later, 16% of polled executives said they expect their corporations to be investing in the crypto. Just 5% said the same for this year.”

As my father would say you can put the word "just" in front of anything. If "just" 5% of public companies moved part of their treasuries into Bitcoin it would be a huge deal. Here’s a bit of back-of-the-envelope estimation to give a sense of scale:

We are starting to see a trickle of companies following in Tesla’s footsteps. On Tuesday European cannabis company Synbiotic announced its plans to hedge against the Euro by buying Bitcoin. On Wednesday financial advice company The Motley Fool announced plans to invest $5M from its treasury into Bitcoin - they must have evolved their thinking since 2013:

Whether it is corporations or not, a collective ~$0.5B worth of Bitcoin is being withdrawn from Coinbase’s supply every week - presumably leaving the exchange because the owners have no short term plans to sell.

On Wednesday Michael Saylor, CEO of MicroStrategy and bitcoin mentor to the world’s richest man, announced that his company was once again raising several hundred million dollars in debt in the form of convertible notes. They were pretty straightforward about what they intended to do with the money:

“MicroStrategy intends to use the net proceeds from the sale of the notes to acquire additional bitcoin.”

Convertible notes are a kind of debt where the lender can take their payment in either cash or stock in the company. If the company is successful and grows the lender will get stock in the (now larger) company at more-or-less today’s price. If the company shrinks the lender can choose to take the cash payment instead and simply have a lower than hoped for return on investment. In other words, the folks who are buying all this debt from MicroStrategy are effectively betting on MicroStrategy, which as we’ve observed before is effectively a watered down bet on Bitcoin itself.

By issuing convertible notes and using them to buy Bitcoin MicroStrategy is essentially positioning themselves as a bridge between Bitcoin and the trillion dollar bond market. There is enough interest in that kind of bridge that MicroStrategy has been able to issue two rounds of convertible debt in three months - the first in December raised $650M at 0.75% interest. This time around they announced that they were seeking $600M but were so oversubscribed they raised $900M at 0% interest. It would seem there is a lot of appetite for bitcoin-wrapped-in-a-bond.

If you believe in Bitcoin then what MicroStrategy is doing makes sense - they are using debt in a weak currency (USD) to buy a strong currency (Bitcoin). If they are right about Bitcoin their assets will get more valuable and their debt will get cheaper and they will likely be able to go back to the bond markets and issue more debt to do the same trade again. The technical term for this kind of feedback loop is a speculative currency attack.

Precious things that don’t exist

When we talked a bit about non-fungible tokens (or NFTs) a few weeks ago I likened them to certificates of authenticity. Hypothetically NFTs can be used to represent official ownership of basically anything - physical, digital or conceptual.

Right now though NFTs are mostly used to represent digital art. CryptoPunks for example were one of the very first digital collectibles - only 10,000 were ever produced and they could originally be claimed for free.

This alien CryptoPunk sold recently for 605 ETH (~$750k at the time).

Anyone can look at this image or can download a copy and save it for themselves. But only one person can own the image, and that person thought it was worth three-quarters of a million dollars for the privilege. It can be hard to wrap your head around the idea of paying so much for something so abstract - but whether it makes sense or not the market for it is shockingly large and growing fast. CryptoPunks alone cleared ~$4.6M worth of sales volume in the last 24 hours alone.

At time of writing there is 3,197.52 ETH (~$6M) locked in bids in the CryptoPunk smart contract trying to buy various punks. The NBA TopShots site has crashed with almost every new pack launch as they struggle to withstand the enormous demand they have created. HashMasks may look relatively modest in comparison but the project is only three weeks old.

The traditional art world is starting to engage more seriously with the space, too. Christie’s auctioned a piece in October by Robert Alice that included an NFT and just announced its first purely digital auction, a work by Beeple:

To be clear, there is also a lot of pandering and greed in the NFT space - thirst traps repackaged as NFTs, or cryptocurrency logos co-opted as 'art', or complex financial instruments embedding or embedded into NFTs to encourage investors to use subjective rather than rigorous analysis. Caveat emptor.

But those who equate the entire space with the most frivolous elements in it are making the same mistake critics of cryptocurrencies often make. Important innovations sometimes start out looking like toys.

Other things happening right now:

  • The "Bitcoin is a waste of energy" argument is mostly a waste of energy. When you carefully unpack people’s perspective it’s usually clear that what they mean isn’t "Bitcoin is inefficient" what they mean is "Bitcoin is bad." Arguments tend to glide right past each other without ever making contact. But if you are curious yourself or want to wade into the fray, here is a great roll-up of all the major pieces defending Bitcoin’s energy use:

  • Keith Gill (aka RoaringKitty or u/DeepFuckingValue) the r/wallstreetbets mastermind originally behind the GameStop trade testified before Congress on Wednesday - you can read his written testimony here. It doesn’t have anything super revelatory if you’ve already been following the story but you can’t help but respect how he closes:

    “As for what I expect moving forward: GameStop’s stock price may have gotten a bit ahead of itself last month, but I’m as bullish as I’ve ever been on a potential turnaround. In short, I like the stock.”

  • Andrew Ross-Sorkin of CNBC looks so dejected in this clip as he asks "What’s the number where Bitcoin is out of control?" Cheer up, bud! Never own more fiat than you can afford to lose.