Saylor is a heck of a salesman, and he seems to have sold the market on the idea that resigning as CEO so he can spend even more time buying, evangelizing and loving Bitcoin is somehow worth another $350 million of MSTR market cap.
“Technology is only truly adopted when it becomes invisible.”
— David Banister
Thursday Disappearing Mailbag
Q: Should I buy MSTR or BTC?
In the earnings call yesterday, Michael Saylor called MicroStrategy a “proxy ETF” for bitcoin. And I guess that’s why people buy it: because there isn’t a real ETF to buy.
But “ETF” is underselling the risk: Because MSTR has bought bitcoin with borrowed money, it’s really more like a call option.
Leverage has value, so that, too, can be a reason to buy it.
Unfortunately, it’s a wildly expensive one.
Chris Bloomstran estimates that MSTR trades on 2.9x NAV, so buying MSTR is effectively like buying bitcoin at $41,000.
Which is kind of a weird thing to do when it’s selling on Coinbase for $23,000.
It’s weirder still when you consider that exchange-listed GBTC trades at a 33% discount to NAV, which is like buying bitcoin at $15,400.
Why one of the exchange-listed ways to buy bitcoin would trade at a big premium while the other trades at a big discount is a mystery to me.
Maybe just because Saylor is such an effective advocate for bitcoin?
When you hear Saylor say, “Bitcoin is a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth,” it’s hard not to be inspired and rush out to buy MSTR.
But you can get the same exposure to cyber hornets on Coinbase for a much, much cheaper price. So, I suggest you do that, instead.
Q: Why was MSTR up yesterday?
Saylor is a heck of a salesman, and he seems to have sold the market on the idea that resigning as CEO so he can spend even more time buying, evangelizing and loving bitcoin is somehow worth another $350 million of MSTR market cap.
Those headlines obscured what looked like a pretty negative earnings report with sales declining to the extent that the software business may soon be cash flow negative.
The software business is meant to finance the Bitcoin strategy, but it’s looking more like a liability at the moment.
Could bitcoin sales be needed to finance the software business at some point? You wouldn’t think so, judging from the stock price.
The stock may also just have been up on a short squeeze: Borrow is now something like 40% of free float.
Squeezes tend not to last, however: In my experience, short interest is always stickier than people expect it to be.
That’s partly because every short creates a new long. So, if the shorts are 40% of free float, that means the longs are 140% of free float.
I suspect the extra 40% of longs will capituate before the 40% of shorts.
Q: What do you think of the ETH rally?
Color me skeptical.
Especially now that ETH is looking less likely to be deflationary, I’m struggling with the idea that the Merge is not priced in after the long, long wait for proof-of-stake. If anything, I keep forgetting it hasn’t happened yet — ETH is still proof-of-work???
But that’s exactly what Vitalik said in a Bankless interview at ETH Paris: The “narrative” is not yet priced in, but increasingly will be as "the Merge is looking more and more in the front-view mirror."
I'm not sure what a front-view mirror is, but it appears to predict crypto prices, so I want one.
On the other hand, Vitalik said in the same interview that socks are better conference merch than t-shirts, which really makes me wonder if he knows what he's talking about.
Q: I meant the other ETH.
As good as the Merge narrative has been for ETH, it’s been even better for ETH Classic (ETC).
ETC has doubled over the past month on the idea that miners are driving the price higher so they’ll be able to profitably mine ETC with all the spare GPUs they will have laying around after the Merge.
Pump-and-dump is a time-honored strategy in financial markets, but this one’s not going to work: the timeline is too long and the market cap is too big.
The miners probably know that, so I doubt they’re even going to try, but the fact that it’s a good enough story to add $2 billion of market cap to a dead chain is noteworthy.
It’s silly season again in crypto. Already.
Q: How are you feeling about altcoins today?
Better than yesterday!
In yesterday's note, I was pretty dismissive of the current altcoin rally on the basis that it’s all based on narratives.
After reading the final installment of the Q2 report from Blockworks Research, however, I realized the narratives are more substantive than I had thought.
You should read the whole report, but, to give you an idea, here are a few of the protocols where the research team sees recent developments leading to that rarest of things in crypto: real revenue.
AAVE: The stablecoin will allow Aave users to mint GHO against their supplied collateral that continues to earn interest. This could prove to be a massive revenue opportunity for the Aave DAO, with 100% of borrowing revenue accruing to the Aave treasury.
DyDx: The DYDX token will have a new mechanism for value accrual as a PoS token with trading fees distributed to stakers.
Synthetix: 1inch will soon be adding the final step to their router, which means we can expect that even more volume to route through synths and therefore more revenue will be earned by SNX stakers.
Frax: Frax’s treasury contains $36.3 millionin accrued profits. Fraxlend and Fraxswap open the possibility for the protocol to bring in even more revenue
It’s easy to get cynical about crypto tokens with all of the ponzinomics and rug pulls and things.
Reading this report was an antidote to that for me: Revenues! Profits! Value accrual!
For maybe the first time, I felt like I was reading about real businesses.
Now, if we could just figure out some valuation metrics, we’d really be getting somewhere.
Q: Yeah, but all that stuff is still just more ways to trade one crypto for another crypto, no?
Sure. But Rome wasn't built in a day.
The history of every emergent economy — Venice, the Dutch Republic, the United States — always starts with a long period where pretty much the only investable entities are banks, because none of the other stuff can happen until the financial rails are built.
That’s where we are now in the crypto economy, building the financial rails, and there’s still a lot of work to be done: Decentralized finance is not ready for mainstream adoption, as evidenced yet again this week the Solana wallet hack.
DeFi will only be truly adopted when we can stop worrying about things that may or may not have been “an upstream dependency supply chain attack.”
If I’m going to lose money, I’d like the explanation of how I lost it to at least be comprehensible to me.
Every time someone on Twitter says “move your crypto to a cold wallet,” the DeFi cause is set back by some increment of time.
Which is fine. That’s more time for the builders to make DeFi invisible.
Which they are doing, per the Blockworks Research report.
Thanks for reading. See you tomorrow from some not-invisible charts.