Thursday links: Treasury companies and dinner without Trump
Crypto continues to do its thing: incentivizing behavior
Artwork by Crystal Le
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“A chain is no stronger than its weakest link, and life is after all a chain.”
— William James
VanEck explains Strategy
The investment case for bitcoin treasury companies can be confusing, so VanEck has done us a service by writing the definitive explainer on the various ways to invest in Strategy (MSTR, STRF, converts).
The main vehicle, MSTR, is generally viewed as a leveraged bet on bitcoin, but VanEck details why that’s not exactly correct.
Instead, MSTR is a “convexity” bet on the price of bitcoin — because investors are not just exposed to BTC, but to an “increasing BTC position as the price of BTC increases.”
I wonder how many MSTR holders realize that’s the bet they’re making.
VanEck is unusually brave about putting price targets on crypto assets, but it declined to do so here and it’s easy to see why: MSTR’s value is driven by the “circular relationship between Strategy’s Premium and its ability to finance more BTC purchases.”
Circular logic doesn’t work well in valuation models, so that should be a red flag to anyone who thinks valuation matters.
MSTR’s raison d’être is to increase its “bitcoin per share” and the primary way it does that is to sell shares above NAV.
So MSTR’s value is ultimately a function of the valuation that investors assign it.
The result is that MSTR investors are “buying an option on the continued existence of The Premium.”
VanEck’s capitalization of “The Premium” seems to reflect how central it is to the Strategy investment case, which Michael Saylor acknowledges.
But Saylor believes The Premium can persist — Strategy, he says, is a “crypto reactor that can run for a long, long period of time.”
But you can’t model a crypto reactor in a spreadsheet, so how long it might run is anyone’s guess.
Trump Media & Technology Group to buy bitcoin
President Trump’s exchange-listed media group announced plans this week to raise $2.5 billion from investors to buy bitcoin.
This prompted the Wall Street Journal to warn that “Trump’s policies toward bitcoin…could potentially affect the value of Trump Media’s bitcoin stash.”
But I’d like to add that Trump’s policies toward the dollar could potentially affect the value of his bitcoin stash.
After the capital raise, I’m guessing the president will end up with roughly a 25% stake in Trump Media’s $2.5 billion worth of bitcoin.
This creates a bizarre situation in which the president would personally profit by debauching the currency that his government issues.
I’m not cynical enough to think he’d deliberately do that — but could it make him a little less concerned about running giant deficits?
Show me the incentives and I’ll show you the outcome.
The MicroStrategy of Solana
When Jack Kubinec asked DeFi Development Corp’s Dan Kang what problem his Solana treasury company is solving, Kang said it’s that investors “can’t accumulate SOL fast enough.”
I’m not convinced how pressing a problem that really is, but like Strategy, DeFi Development Corp offers to solve it for you by selling you stock above NAV and investing the proceeds into SOL on your behalf.
The higher you pay above NAV, the faster they will be able to accumulate SOL.
Depending on how willing subsequent investors are to pay above NAV, this might work out as a faster way to get exposure to SOL.
But either way, the investing logic illustrates the circular conundrum of crypto treasury companies.
As with any asset, you don’t want to pay too high of a valuation multiple for treasury companies — surely 100x NAV, for example, would be too much.
But unlike any other asset, you don’t want to pay too low of one, either.
A Treasury company trading at or below 1x NAV won’t be able to grow its crypto holdings on a per share basis at all.
So, for the investment case to make sense, you have to believe there’s some Goldilocks multiple of NAV — not too hot and not too cold, but just right.
Sounds like a fairy tale to me.
Pakistan to mine bitcoin with surplus energy
Pakistan announced this week that it plans to mine as many as 17,000 bitcoin per year using surplus energy from underused coal-powered plants.
I imagine many in Pakistan would be surprised to hear that there’s all this extra energy going unused because the country’s electrical grid is notoriously unreliable.
But I guess it’s possible because the thing about electricity is that it’s not generated on demand.
When you flick a light switch on at home, the reason the room is immediately filled with light is that the electricity had already been generated and was in the grid waiting for you (metaphorically speaking).
Utilities are always guessing how much power they need to generate, so it’s helpful for them to deliver some of it to bitcoin miners that can be turned off when they’ve generated too little.
This is the core argument for why bitcoin mining isn’t as environmentally damaging as it seems.
But that’s probably not what’s happening here — the reference to “underused” power plants suggests that Pakistan will be burning more coal than it otherwise would have.
This makes the term “surplus” a bit misleading; it’s probably not surplus energy that’s being used to mine bitcoin, but surplus capacity to generate energy.
Either way, Pakistan says the bitcoin will be kept in a strategic reserve, which is also kind of weird because the Pakistani government runs persistent budget deficits.
So, the country will effectively be borrowing money to buy the coal required to use its spare power plant capacity to mine bitcoin, which it will HODL.
Just like Strategy!
I imagine Michael Saylor would advise Pakistan that the real play here is to rebrand its Strategic Bitcoin Reserve as a bitcoin Treasury company and list it on the stock exchange where its bitcoin will magically be worth twice as much.
New York Magazine on the Trump dinner
Matt Steib reported that last weekend’s “‘Dinner With President Trump’ didn’t even include a dinner with President Trump.”
Instead, the famously loquacious president reportedly spoke for an uncharacteristically efficient 15 to 20 minutes before departing.
“As diners tucked into their meals,” Steib wrote, “they heard the helicopter taking off back to the White House.”
I doubt anyone was too disappointed, as a 220-person dinner hardly promises to be an intimate affair.
Also, it was pretty cheap.
One attendee told Steib that the cost to attend was only about $1,200 — the fees they paid to buy TRUMP tokens in a digital wallet and short a matching number of tokens on an exchange.
“Most people I spoke to had hedge positions,” the attendee added.
No wonder the president didn’t hang around to chat.
Time magazine on OpenAI and the Orb
Sam Altman’s blockchain-based project to save the internet from AI bots (a problem largely of his own making) is even more ambitious than I thought.
Altman is the chair of Tools for Humanity, which is developing the World project, which aims to “verify” the humanity of every person on Earth.
For Time, Billy Perrigo reported that Tools for Humanity also hopes World will become “the world’s largest financial network, through which it believes ‘double-digit percentages of the global economy’ will eventually flow.”
“If this really works,” Altman said, “it’s like a fundamental piece of infrastructure for the world.”
I’m sold on the need for such infrastructure: “In a best-case scenario,” Perrigo writes, “World ID could be a privacy-preserving way to fortify the internet against an AI-driven deluge of fake or deceptive content.”
Perrigo explains how in helpfully accessible terms: “If I were to use my World ID to access a website, that site would learn nothing about me except that I’m human.”
The way to prove you’re human is to prove you have eyeballs, as an Orb attendant explains: “We need a way to verify that we’re human and not AI. So how do we do that? Well, humans have irises, but AI doesn’t.”
(Irises are not the only thing that separates us from AIs, but they’re the only thing that’s provably unique.)
World has signed up about 12 million users so far, which is probably not fast enough.
“The internet will change very drastically sometime in the next 12 to 24 months,” Tools for Humanity CEO Alex Blania told Time. “So we have to succeed, or I’m not sure what else would happen.”
What would probably happen first is that the internet will be overrun by AIs.
But Altman now says that’s not his focus: “It’s not like, ‘Oh, we’ve got to avoid the bot overrun’ or whatever. It’s just that we can do a lot of special things for humans.”
Perrigo suspects that Altman is changing the narrative on World to better fit the narrative on OpenAI: “Tools for Humanity’s mission may be shifting beyond simply proving humanity, and toward becoming the infrastructure that enables AI agents to proliferate with human authorization.”
Lots of those AI agents will be created by Sam Altman’s OpenAI.
I find that a little disappointing because it muddies the narrative, but World still seems like a worthy cause to me, because what’s the alternative?
One way to contribute to the cause is to buy the World token, which has to have value so that Tools for Humanity can incentivize sign-ups, attract investors and motivate employees.
Time quotes Tools for Humanity CEO Blania as saying that he’s “really excited to make a lot of money.”
That strikes a discordant note for an ostensibly mission-driven company, but if World works, he’ll have earned it.
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