The News Block #18 (01/02/2024)
Bitcoin Dominates 2023 | How Spot ETFs Will Compete | Ross Stevens Pens Viral Letter on Bitcoin | MicroStrategy Buys More Bitcoin | JPMorgan To Participate in Spot Bitcoin ETF
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Happy New Year, Bitcoiners!
2023: A Year of Positive Momentum for Bitcoin:
Bitcoin has been in an upward trend all year — up nearly 170% over the last twelve months. But that doesn’t even tell the whole story: Bitcoin’s performance shines even brighter when looking at risk-adjusted returns.
Risk-adjusted returns address the question, “How much risk did I take with this investment to achieve these returns, and was it worth it?”
The higher the risk-adjusted return for an investment, the better, and only a handful of investments topped Bitcoin this past year.
Galaxy Digital’s Alex Thorn shared that only two tech stocks, NVIDIA and Meta, surpassed Bitcoin’s risk-adjusted return, making it the third best-performing asset in 2023.
But one of these top performers is not like the others. Only Bitcoin offers absolute scarcity and no business risk. Its price doesn’t depend on a management team making good decisions to drive revenues, and ownership in Bitcoin can’t be diluted by someone issuing more shares. Furthermore, Bitcoin’s gold-like properties and low correlation to stocks make it a hedge against monetary debasement.
This was another year where Bitcoin showed that although it has the properties of a safe haven asset, it has the growth profile of a tech stock.
MicroStrategy Stacks More Bitcoin:
This past week, MicroStrategy ended the year with a bang as it announced the purchase of an additional 14,620 BTC for $615 million. It now holds a whopping 189,150 BTC acquired for $5.9 billion at an average price of around $31,000 per bitcoin.
Today, MicroStrategy is now up more than $2.6 billion on its Bitcoin strategy.
According to BitcoinTreasuries.net, MicroStrategy has more Bitcoin than all other known corporations that hold Bitcoin combined — and it’s not even close. Check out the list of top holders in the chart below.
Since MicroStrategy announced its first Bitcoin purchase, the company has seen its stock price soar more than 400%. This past year, MicroStrategy was one of the few stocks that managed to outperform Bitcoin in total returns.
But Michael Saylor isn’t the only business leader that has seen his company thrive since adopting a Bitcoin Standard…
Ross Stevens Pens Viral Bitcoin Letter:
Ross Stevens is the Founder and CEO of Stone Ridge Asset Management and recently wrote his annual investor letter, which the investment community eagerly awaits each year. It has since gone viral for its Bitcoin section.
The letter explains why his company has chosen to save in Bitcoin, citing his “extreme aversion to risk.” He touched on all the advantages that adopting Bitcoin has brought to his company. I highly recommend reading the letter in full, but here is an important excerpt:
While all of Stone Ridge’s expenses have increased in fiat terms, they have actually decreased in Bitcoin terms.
As Stevens said, “Bitcoin is not risky. Fiat is risky.”
Right now, only a handful of corporations led by innovative thinkers like Saylor and Stevens are benefitting from the Bitcoin Standard, but it will only be a matter of time before other business leaders catch on to their successful strategy.
In the meantime, MicroStrategy and Stone Ridge will continue to have an outsized advantage as they save in better money than their competition.
ETF Issuers Announce Partnerships with JPMorgan, Jane Street, and Others
It appears regulators and potential spot Bitcoin ETF issuers have cleared their schedules over the last two months to focus on delivering Bitcoin to the masses, and this new investment product could be approved any day now.
Reuters reports that the SEC may notify the 14 asset managers vying for approval as early as this week ahead of the January 10th deadline.
Lately, the focus has been on what financial firms these issuers will name as Authorized Participants (AP) for their respective funds. An AP in an ETF is a large financial institution, like a bank or broker-dealer, that helps ensure that the ETF’s price matches the value of the underlying assets — in this case, the Bitcoin — by creating and buying back ETF shares.
The SEC requires that these issuers name their APs in their filings before they can be approved, so issuers have been scrambling to set up relationships to be considered in the first wave of ETF approval.
Over the last several days, we have seen multiple issuers announce their APs, and some of the named firms have raised some eyebrows.
Below is a list of the named APs so far:
BlackRock: Jane Street Capital and JP Morgan Securities
Fidelity: Jane Street Capital
WisdomTree: Jane Street Capital
Valkyrie: Jane Street Capital and Cantor Fitzgerald
Galaxy/Invesco: JP Morgan Securities and Virtu
To see JPMorgan listed as an AP for these Bitcoin ETFs was interesting considering Jamie Dimon publicly said he would ban Bitcoin if he were the government last month.
It goes to show that you should watch what JPMorgan does, not what Jamie Dimon says.
Competition Between ETF Issuers is Heating Up
Another element of these amended filings is we are beginning to get a glimpse of the fierce competition that will take place in the Bitcoin ETF arena.
First off, we have seen multiple Bitcoin ETF advertisements already from issuers getting ahead of the marketing blitz that is sure to come once these ETFs are approved.
Here is Bitwise’s recent ad:
And here is Hashdex’s newest ad:
On top of the marketing campaigns, we are now getting more information about the sponsor fees that will be associated with these ETFs.
Below are the annual sponsor fees we know of up to this point:
Valkyrie: 0.80%
Ark Invest: 0.80%
Invesco/Galaxy: 0.59%
Fidelity: 0.39%
Invesco/Galaxy’s updated filing was especially interesting because it included an added comment that it will be waiving its fee entirely for the first six months and for the first $5 billion in assets in an attempt to attract capital right out of the gate.
This shows how these ETF issuers will be competing for capital with marketing, fees, and other features. It also highlights why owning spot Bitcoin over an ETF has its advantages, like no fees or counterparty risk.
River recently published an article on the tradeoffs between owning spot Bitcoin ETF versus spot Bitcoin that I recommend checking out. The flow chart below summarizes the article well.
Bitcoin will now have some of the largest financial firms in the world trying to push people into their Bitcoin ETF products. All of this will result in more people hearing the word “Bitcoin” than ever before and will drive demand for the underlying asset.
VanEck advisor Gabor Gurbacs recently tweeted about the potential impacts of spot Bitcoin ETFs on Bitcoin, writing, “In my view, people tend to overestimate the initial impact of U.S. Bitcoin ETFs. I think maybe a few $100 million in flows — mostly recycled money. Long term, people tend to underestimate the impact of spot Bitcoin ETFs.”
I tend to agree.
2023 was a big year for Bitcoin, but 2024 is shaping up to be an even bigger one.
Until next week, keep stacking.
- N₿
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