Bitcoin ETFs miss this point

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The writer is a former investment banker and author of Energy Failure: The Rise and Fall of an American Icon.

The cryptocurrency world has been in a buzz in recent weeks over the possibility that the Securities and Exchange Commission may soon give the green light to a bitcoin exchange-traded fund.

The idea of ​​offering such an ETF soon to hungry, if misguided, US investors helped provide an end-of-year boost to Bitcoin's remarkable rise from the depths of its final “winter” in late 2022. Best-Performing Investments of 2023, Up About 160 in 100 over the past year to approximately $44,000.

This is a major shift given that the world of cryptocurrencies has been on the verge of reputation more often than not over the past year or so. Not only has the cryptocurrency exchange FTX gone bankrupt and the criminal conviction of its founder Sam Bankman-Fried, but also its main competitor Binance has agreed to pay $4.3 billion in penalties related to money laundering and breaching international sanctions. This was one of the largest sanctions imposed on companies in US history. Binance founder Changpeng Zhao also pleaded guilty to failing to protect against money laundering and resigned from his position.

But if you think about it, there has already been a way for investors to play Bitcoin's volatile game for years: by buying or selling shares of enterprise software company MicroStrategy, which has tied its fortunes to Bitcoin, driving down its enterprise software sales. To some extent it has nothing to do with stock market evaluation.

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Under a strategy led by Michael Saylor, the company's 58-year-old MIT-educated CEO, MicroStrategy has been buying bitcoin since 2000. “It has the potential to act as a hedge against inflation over the long term,” it said at the time. . MicroStrategy is believed to be Larger Listed Bitcoin holder in the world. The company owns 189,150 bitcoins, purchased over the years for a total price of about $5.9 billion, as of the end of December.

MicroStrategy's operations have thrust Saylor into the regulatory spotlight. In 2000, he Agreed To pay $8.3 million plus a $350,000 fine to settle SEC charges of materially overstating software revenues and profits. But when Bitcoin was on the rise, for example around November 2021, when its price reached $69,000, it attracted a lot of attention. He even rambled Tucker Carlson for over an hour about the wisdom of cryptocurrency before the TV anchor was removed from the Fox window.

Saylor is a true believer, and clearly so. His interviews about Bitcoin are long and fascinating. He speaks in entire paragraphs. I came away from listening to him convinced that Bitcoin is the next great innovation in the world of finance. Then step back, give it a thought or two and remember that Jamie Dimon, CEO of JPMorgan, said of cryptocurrency: “If I were the government, I would shut it down.”

MicroStrategy CEO Michael Saylor: 'We're like the ETF you don't have' © Bloomberg

Saylor relinquished the role of CEO of MicroStrategy in August 2022 to become CEO after another Bitcoin decline. At the time, the company reported cumulative impairment losses of nearly $2 billion on its digital assets since the acquisition.

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But thanks to a significant rise in Bitcoin prices in 2023, MicroStrategy's trove is now worth more than $8 billion, giving the company a profit of about $2 billion on its investment. Not surprisingly, MicroStrategy's share price will also outperform in 2023, up more than 330 percent for the year. Its market capitalization is about $8.8 billion, which means that investors value its software business at about $800 million. (This is still huge given that MicroStrategy made a small pre-tax profit of around £13m on revenue of $371m in the nine months to September 30, after taking into account share-based pay but excluding impairments in the value of its digital holdings.)

So MicroStrategy is basically a play on Bitcoin and has been for years. In other words, there is no need to wait for SEC approval for a Bitcoin ETF, it seems to me. Saylor himself Tell CNBC: “We're a bit like your nonexistent spot ETF.”

The problem with Bitcoin is not that there is no way to speculate on it. The problem with Bitcoin is that it's all about speculation. We don't need new ways to speculate on cryptocurrency. What we need, if Bitcoin is to be the savior its advocates want us to believe, is Bitcoin.

When it can be used to buy and sell the things we want, as seamlessly as fiat currency, it will be a game-changer. The real excitement for Bitcoin will not come from the SEC allowing new ways to speculate on it, but rather when there is more to it than just speculation.

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