Six months after the 3rd Bitcoin halving we are seeing signs that the real growth is about to start.
Hodlers expect a 10x growth on the value of their Bitcoin. For most of us this just means a large return on investment.
But there is more to that for publicly traded companies with Bitcoin as a reserve asset...
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Return on hodling
According to Bitcoin Treasuries there are 15 publicly traded companies which have chosen to use Bitcoin as a reserve asset.
When you look at the detail of these companies they can be separated into two groups:
The companies whose main purpose is to hold Bitcoin be it through their mining, digital assets holding or blockchain technology activities.
The companies who are using Bitcoin as a reserve asset separately from their main business activities.
As far as I’m aware there are currently only two companies that fit in the second category. They are MicroStrategy and Square …and both of them started buying Bitcoin this year so this is all pretty fresh.
Fine, that means we do not have many data points to work with. Still we can make a few observations.
Those 15 publicly traded companies are disclosing a good amount of financial information. So it is often possible to evaluate their average BTC purchase price and we can get an estimate on how much their asset has grown until now.
Using the data from Bitcoin Treasuries paints a pretty picture:
Companies who bought between the second half of the 2nd halving and now are already enjoying a 1x to 4x return on investment.
Coin Citadel bought before the exponential growth phase of the 2nd halving and is up 43x.
With a long enough time horizon nobody lost money on those deals. And the one who made it through a full halving cycle generated massive returns!
I don’t know about you, but if I had to pitch Bitcoin as a reserve asset to the board of my company these would be my two main arguments:
By design Bitcoin is a hedge against inflation. If we want to at least preserve the purchasing power of cash reserves over the long run we need to convert it to BTC.
And by the way, if we do that at the beginning of this halving cycle we might also get a 10x growth on the deal.
You’d certainly be asked to backup those claims. But there is a lot of research out there. And hey, we’ve got some charts to help...
Interestingly if a significant amount of companies are convinced by those arguments they will want to do a substantial amount of buying while we are still in the first phase of the halving cycle to get in on the potential upside.
But that itself could be another catalyst to push Bitcoin higher…
This might actually be the dynamic at play right now.
The data seems to indicate that the current price move is driven by investors buying Bitcoin on the spot market and moving them to their own wallets.
How many of these are companies putting Bitcoin in their treasury?
Who knows. But I wouldn’t be surprised if we see more announcements regarding public companies using Bitcoin as a reserve asset in the months to come.
Now a big question for these publicly traded companies is:
What does using Bitcoin as a reserve asset mean for my share price?
We don’t have enough data yet to answer that question.
But as a fun exercise we can calculate for each of these companies how much should one Bitcoin be worth for the total value of their Bitcoin hodling to be equal to their current market cap.
Ok, what does that mean?
Take MicroStrategy. It has a market cap of $1.2 billion and is currently hodling 38,250 BTC. That means as soon as BTC hits $30k their Bitcoin treasury will be worth as much as their market cap!
Square on the other side is a $8.2 billion market cap company with only 4,709 BTC. That means Bitcoin would need to hit $18 million per coin to see their treasury reach the level of their market cap.
With that in mind you'd expect that a rise in the value of Bitcoin will have a bigger impact on MicroStrategy than it has on Square.
But we'll see how that plays out.
What’s the conclusion?
Buy Bitcoin.
I mean really. That’s a no brainer.
If you are an individual investor you don’t need to jump through hoops, convince the board of your company that it’s a good idea and then go through the compliance process…
Nope. You can front-run institutional investors and participate in the Bitcoin asymmetric bet right now.
So what are you waiting for?
CME Bitcoin Derivatives
This week’s overview of the CME Bitcoin derivatives market will be quick.
Nothing is happening.
This BTC push above $15k is largely disconnected from the futures market and totally disconnected from the cash settled futures.
Contrary to what I would have expected the open interest did not reach all time high when Bitcoin clearly moved above $14k.
And again contrary to my expectations the traded volume did not go through the roof on the breakout.
Investors simply didn’t trade around that move on the cash settled futures (or even on the physically settled Bakkt futures actually).
The jump above $14k happened on November 04.
That means we are out of luck. The Commitment of Traders report only covers up to November 03… so we’ll have to wait for next week to take a deeper dive into this.
All we can see for now is that one day before the move:
There was no big change in the positions of the retail traders.
There was some deleveraging on both long and short positions for the smart money. But nothing out of the ordinary.
See for yourself.
The CME Bitcoin options market is equally dead even as BTC is getting closer and closer to what is currently the hottest strike at $20,000.
On the November contract there are over 1,000 BTC worth of calls at that strike. Getting there is only a 33% climb within 20 days.
That looks totally doable in this market, so keep an eye on it.
I’ve received many messages asking me to give more detailed explanations when it comes to the Bitcoin futures and options markets.
I’ll be aiming to do that in upcoming editions of the newsletter most likely by creating some infographics. If there is any specific topic or question you want me to explore please let me know here or on Twitter!
That’s it for today. If you have learned something please subscribe and share to help the newsletter grow.
Cheers,
Nick
The Ecoinometrics newsletter decrypts Bitcoin’s place in the global financial system. If you want to get an edge in understanding the future of finance you only have to do two things:
Click on the subscribe button right below.
Follow Ecoinometrics on Twitter at https://twitter.com/ecoinometrics.
Done? That’s great! Thank you and enjoy.