Author: YBB Capital | Bai Hua Blockchain
TL; DR
In the long run, the listing of a Bitcoin ETF is not a positive development. The trading volume of the Hong Kong Bitcoin ETF is significantly lower than that of the US Bitcoin ETF, and it is undoubtedly that US capital is gradually taking over the crypto market. The Bitcoin ETF will divide the market into black and white parts: the white part, under the framework of centralized financial regulation, will only have the single financial attribute of speculative trading, while the black part will have more native blockchain vitality and trading opportunities, but will face regulatory pressure due to "illegality";
Microstrategy, through its capital structure design, has achieved efficient arbitrage between stocks, bonds, and Bitcoin, closely linking the fluctuations of its stock and Bitcoin prices, thereby achieving relatively low-risk returns in the long run. However, Microstrategy is issuing debt infinitely and using infinite leverage to boost itself, which requires a long-term Bitcoin bull market to sustain its own value. Therefore, Hindenburg's short position on Microstrategy has a higher payoff than directly shorting Bitcoin, but Microstrategy is confident that the future price of Bitcoin will be a slow and steady rise without significant volatility;
Trump's crypto-friendly policy will not only not lose the status of the US dollar as the global reserve currency, but will also strengthen the US dollar pricing power of the crypto market. Trump is firmly grasping the hegemonic position of the US dollar with his left hand, and firmly grasping Bitcoin, the strongest weapon against the lack of trust in national fiat currencies, with his right hand, consolidating in both directions and hedging risks.
01
US capital is gradually taking over the crypto market
1) Hong Kong and US ETF data
According to Glassnode data on December 3, 2024, the holdings of the US Bitcoin spot ETF are only 13,000 BTC away from surpassing Satoshi Nakamoto, with holdings of 1,083,000 BTC and 1,096,000 BTC respectively. The total net asset value of the US Bitcoin spot ETF has reached $103.91 billion, accounting for 5.49% of Bitcoin's total market capitalization. At the same time, according to the December 3 Aastocks report, the Hong Kong Stock Exchange data shows that the total trading volume of the three Bitcoin spot ETFs in Hong Kong was about HK$1.2 billion in November.
Data source: Glassnode
US capital is deeply involved in and influencing the global crypto market, even dominating the development of the crypto industry. The ETF has transformed Bitcoin from an alternative asset to a mainstream asset, but it has also weakened Bitcoin's decentralized characteristics. The influx of traditional capital brought by the ETF has also given Wall Street firm control over Bitcoin's pricing power.
2) The "black and white division" of Bitcoin ETF
Defining Bitcoin as a commodity means that it needs to follow the rules applicable to other commodity-like assets such as stocks and bonds for tax purposes. But the impact of the launch of Bitcoin ETFs is not entirely equivalent to the launch of other commodity ETFs such as gold ETFs, silver ETFs, and crude oil ETFs. The currently approved or approved Bitcoin ETFs are different from the market's recognition of Bitcoin itself:
The path of commodity ETFization is like this: the holder of the physical asset or commodity (the trustee) needs to be custodied by an intermediary (like a copper warehouse or a gold bank vault), and an authorized institution is required to complete the transfer and recording. The right hand will buy and sell the issued shares (such as fund shares) with capital.
But in the above process, the front end (design, development, sales, and after-sales service, etc.) will involve physical delivery, spot delivery, and cash settlement. However, the Bitcoin ETFs approved by the US SEC currently use cash settlement for the subscription and redemption of shares, which is the point that Cathie Wood has been arguing about and hoping to achieve physical delivery, but this is impossible to achieve in practice.
Because the US cash custodians are all institutions within the traditional centralized finance framework to conduct cash subscription and redemption transactions, which also means that the front part of the Bitcoin ETF is completely centralized.
At the back end of the Bitcoin ETF, the centralized regulatory framework is difficult to confirm. The reason is that if Bitcoin is recognized, it needs to become a commodity within the existing centralized financial framework, and it will never recognize Bitcoin's decentralized properties such as being irreplaceable and untraceable. So Bitcoin can only undergo various financial derivatives such as futures, options, and ETFs if it fully meets the regulatory conditions.
Therefore, the emergence of the Bitcoin ETF means that the part of Bitcoin that opposes fiat currency has completely failed, and the decentralization of the Bitcoin ETF part is meaningless. The front end needs to rely on the legality of custodians like Coinbase, and the entire trading chain needs to be legal, public, and traceable.
The black and white of Bitcoin will be completely divided due to the ETF:
The current white part: Under the centralized regulatory framework, through the extensive financial product derivatives, the price volatility of the market is reduced, and as the legal participants become more and more extensive, the speculative volatility of Bitcoin commodities will gradually decrease. After Bitcoin goes through the ETF, the white part in the market supply and demand relationship has lost its important demand (the decentralization and anonymity of Bitcoin), leaving only the single financial attribute of speculative trading. At the same time, under the legal regulatory framework, it also means that more taxes need to be paid, so the original function of Bitcoin to transfer assets and evade taxes no longer exists. The endorsement has shifted from the decentralized chain to the centralized government.
The former black part: The main reason for the crypto market's sharp rise and fall is its opaque and anonymous characteristics, which make it easy to be manipulated. At the same time, the black part of the market will be more open and have more native blockchain vitality and trading opportunities. But with the emergence of the white part, those who are unwilling to turn white will be forever excluded from the centralized regulatory framework and lose their pricing power, just like paying fines to the SEC.
02
Trump's All-Star Crypto Cabinet Picks
1) Cabinet Picks
In the 2024 US presidential election, compared to the restrictive policies of the SEC, the Federal Reserve, and the FDIC under the Biden administration, the new Trump administration is likely to take a more open attitude towards crypto. According to Chaos Labs data, the cabinet nominations of the new Trump administration are as follows:
Source: @chaos_labs
Howard Lutnick (Transition Team Leader and Commerce Secretary Nominee): Lutnick, as the CEO of Cantor Fitzgerald, publicly supports cryptocurrencies. His company is actively exploring the blockchain and digital asset space, including strategic investments in Tether.
Scott Bessent (Treasury Secretary Nominee): Bessent, a veteran hedge fund manager, supports cryptocurrencies and believes they represent freedom and will exist in the long term. He is more crypto-friendly than the previous Treasury Secretary candidate Paulson.
Tulsi Gabbard (Director of National Intelligence Nominee): Gabbard, with privacy and decentralization as her core principles, supports Bitcoin and has invested in Ethereum and Litecoin since 2017.
Robert F. Kennedy Jr. (Health and Human Services Secretary Nominee): Kennedy publicly supports Bitcoin, seeing it as a tool to combat the devaluation of fiat currencies, and may become an ally of the crypto industry.
Pam Bondi (Attorney General Nominee): Bondi has not yet clearly expressed her position on cryptocurrencies, and her policy direction is still unclear.
Michael Waltz (Nominee for National Security Advisor): Waltz actively supports cryptocurrencies, emphasizing their role in enhancing economic competitiveness and technological independence.
Brendan Carr (Nominee for FCC Chairman): Carr is known for his anti-censorship stance and support for technological innovation, which may provide technical infrastructure support for the crypto industry.
Hester Peirce & Mark Uyeda (Potential SEC Chair Candidates): Peirce is a staunch supporter of cryptocurrencies, advocating for regulatory clarity. Uyeda is critical of the SEC's tough stance on cryptocurrencies, calling for clear regulatory rules.
2) Crypto-friendly policies are a financial tool to hedge against the lack of trust in the US dollar as a global reserve currency
Will the White House's promotion of Bitcoin undermine people's trust in the US dollar as the global reserve currency, thereby weakening the dollar's status in the future? American scholar Vitaliy Katsenelson argues that as the market's sentiment towards the US dollar has already been disrupted, the White House's promotion of Bitcoin may shake people's trust in the US dollar as the global reserve currency, thereby weakening the dollar's status. As for the current fiscal challenges, "what will truly enable the US to continue to be great is not Bitcoin, but controlling debt and deficits."
Perhaps Trump's actions could become a risk hedge for the US government's future loss of the US dollar's dominant position. In the context of economic globalization, all countries hope to achieve the internationalization of their national currencies in terms of circulation, reserves, and settlement. However, in this issue, there is a trilemma among monetary sovereignty, free capital flow, and fixed exchange rates. The important value of Bitcoin is that: in the context of economic globalization, it provides a completely new solution to the contradictions between national systems and economic sanctions.
Source: @CitronResearch
Overall, the stock premium of MicroStrategy (MSTR) and its strategy of using the ATM (At The Market) mechanism to achieve profitability, its leveraged operations in Bitcoin investment, and the views of short-selling institutions on this, can be summarized as follows:
1) Source of stock premium:
MSTR's premium is largely due to the ATM mechanism. Citron Research believes that MSTR's stock has become an alternative investment to Bitcoin, and the stock price has an unreasonable premium compared to Bitcoin, so it has decided to short MSTR. However, Michael Saylor refuted this view, arguing that the shorts have overlooked MSTR's important profit model.
2) MicroStrategy's leveraged operations:
Leverage and Bitcoin investment: Saylor points out that MSTR invests in Bitcoin through debt issuance and financing with leverage, relying on the volatility of Bitcoin to generate profits. The company uses the ATM mechanism to raise funds flexibly, avoiding the discount issuance in traditional financing, and at the same time utilizes the high trading volume to achieve large-scale stock sales and seize the arbitrage opportunity of stock premium.
3) Advantages of the ATM mechanism:
The ATM model allows MSTR to raise funds flexibly and transfer the volatility, risk, and performance of debt to common stock. Through this operation, the company can obtain a return that is far higher than the borrowing cost and the rise in Bitcoin. For example, Saylor points out that by financing at an interest rate of 6% to invest in Bitcoin, if Bitcoin rises 30%, the company's actual return is about 80%.
4) Specific profit case:
By issuing $3 billion in convertible bonds, the company expects to achieve earnings per share of $125 within 10 years. If Bitcoin prices continue to rise, Saylor predicts the company's long-term returns will be very impressive. For example, two weeks ago, MSTR raised $4.6 billion through the ATM mechanism, trading at a 70% premium, and made $3 billion in Bitcoin in five days, equivalent to $12.5 per share, with long-term earnings expected to reach $33.6 billion.
5) Risks of Bitcoin's decline:
Saylor believes that buying MSTR's stock means investors have already accepted the risk of Bitcoin price declines. To achieve high returns, one must bear the corresponding risks. He expects Bitcoin to appreciate 29% annually, while MSTR's stock price will appreciate 60% annually.
6) MSTR's market performance:
So far this year, MSTR's stock price has risen 516%, far exceeding Bitcoin's 132% increase and even surpassing the 195% increase of AI leader Nvidia. Saylor believes MSTR has become one of the fastest-growing and most profitable companies in the US.
Regarding Citron's short-selling, MSTR's CEO stated that Citron does not understand where MSTR's premium over Bitcoin comes from and explained:
"If we invest Bitcoin with financing at an interest rate of 6%, when the Bitcoin price rises 30%, we actually get an 80% Bitcoin spread (a function of stock premium, conversion premium, and Bitcoin premium)."
"The company issued $3 billion in convertible bonds, and based on an 80% Bitcoin spread, this $3 billion investment can bring $125 in earnings per share within 10 years."
This means that as long as Bitcoin prices continue to rise, the company can continue to profit: "Two weeks ago, we did a $4.6 billion ATM and traded at a 70% spread, which means we made $3 billion in Bitcoin in five days. That's about $12.5 per share. If calculated over 10 years, the earnings will reach $33.6 billion, or about $150 per share."
In summary, MicroStrategy's operating model is to achieve efficient arbitrage between stocks, bonds, and cryptocurrencies through the design of its capital structure, and to tightly bind its stock price to the rise and fall of Bitcoin prices to ensure low-risk profitability for the company in the long run. However, the essence of MicroStrategy is to issue debt endlessly and use unlimited leverage to inflate its own value, which requires a long-term Bitcoin bull market to sustain its value. Undoubtedly, Citron's short-selling of MicroStrategy has a much higher payoff than shorting Bitcoin, so MicroStrategy is also confident that the future price trend of Bitcoin will be a slow and steady rise without major fluctuations.
03
Summary
Source: Tradesanta
The US is constantly strengthening its control over the crypto industry, and the market opportunities are also shifting towards centralization. The decentralized crypto utopia is gradually compromising and "handing over" its power to centralization.It's a double-edged sword, and the influx of ETF capital is just a pain reliever that cannot cure the underlying problem.
In the long run, Bitcoin's entry into ETFs may not be a positive development. The trading volume of Bitcoin ETFs in Hong Kong is significantly lower than that in the US, and from the perspective of capital flow, US capital is gradually enveloping the crypto market. Although China is currently the absolute leader in mining, it is still at a disadvantage in the capital market and policy orientation.Perhaps the long-term impact of Bitcoin ETFs will accelerate the normalization of crypto asset trading, which is both a beginning and an end.
Original Title: The Demise of Decentralization and the Consolidation of Power: U.S. Capital Poised to Complete the Transfer of Authority in the Crypto Utopia
Original Author: YBB Capital
Original Link: https://medium.com/ybbcapital/the-demise-of-decentralization-and-the-consolidation-of-power-u-s-b5086ec57be4
This article link: https://www.hellobtc.com/kp/du/12/5587.html
Source: https://mp.weixin.qq.com/s/71VGpU-JjVqHcRwYBWfqXg
