The Breakdown - Saylor Buys $600M More BTC as Proshares BITO Hits ATH in AUM

Episode Date: December 1, 2023

The tide has most definitely turned. NLW looks at a slew of institutional and investor news showing excitement is returning to crypto markets, and even examines how despite the Treasury's recent bluster, there appears to be more room to compromise than there was before. Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

For all the bluster and frustration of this new Treasury proposal that we covered yesterday, it still, even here, feels like we are sort of turning a corner towards real action. It's messy and gross because that's the nature of Washington, D.C., but it's just hard not to look at everything happening, from markets to legislation and beyond and not feel like we're headed into a very, very different 2024 than the year we just experienced. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Friday, December 1st. Happy December, everyone.

And today we are talking about, of course, Michael Saylor and new all-time highs for the pro-share's Bitcoin futures ETF. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Well, friends, the sun goes up, the sun goes down, and Michael Sailor buys more Bitcoin. On Thursday, Micro Strategy disclosed that they had purchased an additional 16,130

Bitcoin throughout November, worth around $608 million at current prices. Their average purchase price was around 36,785, so this tranche of Bitcoin is already slightly in profit. Overall, Micro Strategy's massive war chest of 174,530 Bitcoin, now has a cost basis of $30,252 dollars, a total of $5.28 billion spent on Bitcoin acquisition since Micro Strategy began buying all the way back in August 2020. Indeed, it looks to most observers, like Micro Strategy has now made it through the most difficult part of their Bitcoin Treasury plan. They've survived the crypto winter without running into problems with debt servicing, and Bitcoin is 25% above their basis, giving them a comfortable buffer of safety.

Now, Micro Strategy has been consistently buying small amounts of Bitcoin throughout the bare market, but what makes this purchase significant enough to cover is its size. Over the previous four months, Micro Strategy has added 6,607 Bitcoin, a little more than a 4% addition to their portfolio. This month's buying has massively ramped up, adding more than 10% to their holdings in a single month. In addition to the outsized Bitcoin purchase, Micro Strategy announced another round of share sales. The company will offer up to $750 million in Class A common stock in order to fund.

According to the filings, Micro Strategy will use the proceeds of stock sales to fund general corporate expenses, including the acquisition of Bitcoin. The company also flagged the potential to repurchase or repay outstanding debt using the cash raised. There are issues of convertible notes coming to maturity in December 2025 and February 27, which carry interest rates of 0.75% and 0% respectively, so it could make sense to plan to eliminate this debt rather than roll it over at much higher interest rates. Now, the responses from the community are pretty much exactly what you'd expect. ShapeShift founder Eric Voorhees writes, within a couple of years, micro strategy will hold more Bitcoin than most sovereign nations can afford. What a Chad. Dr. Jeff Ross of

Vailshire Capital said in a recent interview, I think Michael Saylor is the Warren Buffett of Bitcoin. I'm talking about old school Warren Buffett back in the 60s, 70s and 80s when he was a stud hedge fund manager. He knew when to sell shares. He knew when to buy things cheap. He knew how to get 50% CAGR returns in the old fiat market. I think that's how Sailor is. Dan held simply some things up saying, save some for the rest of us. Now others looked at this in terms of ETF competition. Assassin writes, The Micros Strategy and Sailor's Playbook. Do whatever it takes to get more BTC before the ETF.

Master is basically an ETF with no fees, but nothing beats your own Bitcoins with your own private keys. Adam Cochran writes, this is probably Sailor's last chance at a raise to up the Bitcoin holding, right? After this, the ETF exposure is going to be safer than his offerings. Even if he offers bonds at this point, who wants a low fixed return with the risk of Bitcoin when they can get the upside of the same risk profile more easily.

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Disclaimer, not investment advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, DBA, CRACN. Now, speaking of people positioning in advance of the ETF, ProShare's Bitcoin Strategy ETF, BITO, which was, of course, the original US-based Bitcoin Futures ETF, has hit an all-time high in assets under management this week. The fund's AUM rose to $1.47 billion, exceeding its previous high recorded in December 2021. BITO was launched in October 2021,

and was one of the most successful ETF debuts in history. The fund accrued $1 billion in assets under management in just over two days, beating the old GLD Gold ETF, which took three days to gather $1 billion in assets following its 2004 launch. Pro shares were able to launch their fund with a few days' head start on competition, establishing it as the dominant Bitcoin ETF in the US with no major rivals. Since then, many have questioned how suitable the futures-based ETF structure is for the average investor. The cost of rolling futures contracts means that price tracking decays over time, making the instrument much more suitable for shorter-term trades. Regardless of shortcomings with the product structure, BITO has remained popular since its launch,

indicating that it clearly fills a niche for market participants. Simeon, global investment strategist at ProShare, said in a statement, investor demand for BITO remains strong, as shown by the ETF reaching a new high in assets under management. We believe this speaks to the demand for a familiar, accessible, and regulated way to target the returns of Bitcoin. Heimann also noted that the unique product has performed well within the vast array of ETF options in U.S. markets, stating,

BITO's daily trading volume of 160 million since inception puts it in the top 5% of all U.S. ETFs. Meanwhile, the spot Bitcoin ETF applications continue to show promising signs. This week, Grayscale and BlackRock have attended meetings with the SEC to hammer out the fine details of their applications. BlackRock has now been to the SEC offices multiple times to discuss their preferred mechanism to create and redeem shares in the ETF. They appear to be insisting that they should be allowed to receive and distribute Bitcoin directly, rather than the mechanism deal exclusively in cash. Now on Tuesday, the SEC delayed their decision on applications from Hashkey and Franklin Templeton. These delays were announced well ahead of the deadline,

which is a change in behavior from the regulator. There are now no further decisions to be made by the SEC until the final deadline for the arc slash 21 shares ETF on January 10th. Analysts note that these early delays mean that public comment periods for the entire batch of ETFs will be closed by early January. The SEC has never approved an ETF while the public comment period is open, so this would present the regulator with an opportunity to approve all of the funds at once ahead of the Arc 21 shares deadline. Now, this approval timeline only applies to 19B4 rule change filings, so the SEC could continue dragging their feet on finalizing S1 prospectus filings. That means that even if the ETFs are all approved in early January, there could

still be significant delays before trading commences. It's also by no means a guarantee that the SEC will approve spot Bitcoin ETFs. However, the amount of work being done by the agency to engage with asset managers this time around, is completely different to previous attempts to get a spot Bitcoin ETF off the ground. James Safart tweeted this morning, Windows is officially Jan 5th to Jan 10th. Really, this means that any potential approval orders are going to come on either Monday, January 8th, Tuesday, January 9th, or Wednesday, January 10th. Mark your calendars, people. Now, of course, there is a lot of sentiment swirling like this from Space Pixel who writes, you are not prepared for how insane next year is going

to be for crypto. Fed Pivot, Bitcoin halving, ETF approval. The super cycle is still here. What's more, it's not just the PLEB's chattering. Standard Chartered is the latest traditional financial institution to publish a bullish Bitcoin report. Bank analysts doubled down on their earlier call from April standing firm to their price target of 100,000 Bitcoin by the end of 2024. The report noted that Bitcoin Velocity has fallen to historic lows as Hodlers continue

to stack. Analysts wrote, Historically low Bitcoin velocity indicates a significant change in sentiment compared to the last bare market cycle. The cited catalyst was the same as every other. bullish report over recent months, the launch of Bitcoin ETFs in the U.S., which the report said are, quote, likely to come sooner than expected. The report stated, we think a number of spot ETFs will now be approved in Q1, 2024, for both Bitcoin and ETH, paving the way for

institutional investment. Put simply, everything is working as expected. Bitcoin's dominance remains intact, its share of overall digital assets market cap has increased to 50% from 45% in April. Now, similar to recent Bitcoin reports from J.P. Morgan, this report isn't important because it's says anything particularly novel, especially for people already heavily involved in the industry. Instead, it's worth noting because it's designed to communicate to the customers of a gigantic international bank, many of whom will be considering a Bitcoin investment for the first time. For example, while it might seem obvious to people who follow crypto news that spot Bitcoin ETFs are likely to launch next quarter, the results of Bitwise's recent survey showed that

the majority of investment advisors still don't expect them until 2025 or later. British Hoddle did an interesting summary of the situation. He wrote, Standard Chartered, almost a $1 trillion asset manager, putting out a note to its clients, saying they think a Bitcoin ETF will be approved in Q1 of 2024, is what you would call institutional prep work. They're now talking to their clients like this is a done deal. It means they want their clients to be completely accepting of it when they get on the phone and pitch an allocation to it.

In Bitcoin Twitter, we like things to move in a fast and abrasive way. That's not how institutions work. This note is the institutional equivalent of telling someone, you better have your money ready when I come asking for it in Q1 of 2024, but in an institutionally forceful way. They're all doing it. What do you think happens to a client when they've been prepared to allocate for months through reports? And the client's internal mantra is, okay, Bitcoin ETF is coming in Q1 of 2024. And then two months go by, ring, ring, Hy, it's X from SC or BlackRock or Fidelity, Bitcoin ETF is ready, want me to allocate for you

1% of the fund. The response is, sure, because they've been prepped. They didn't give a damn what Bitcoin was six months ago, and now they've just allocated $4.000. 400 million to it. It's all marketing and it's forceful and it's happening right under your nose if you can understand the language. Every institutional note you see about Bitcoin ETF coming in 2024 is prepwork. Now, to the extent that there is any drag remaining on the industry, it's obviously what we've talked about over the past couple days, the continued antipathy from parts of the Biden administration, which remain relentless when it comes to this space. Now, following the Treasury's bombshell crypto-elicit finance proposal, which we covered extensively

in yesterday's show, pro-crypto-counterman Tom Emmer had some stern words about the policy. Appearing at the Blockchain Association Policy Summit yesterday, he said, I've always had this attitude. Beware of the self-proclaimed savior that rides in on a white horse and tells you, I'm here to protect you. Now, of course, key to the Treasury's proposal was a massive expansion of extra jurisdictional enforcement power over internationally issued U.S. dollar stable coins. The Treasury had justified this power grab by vaguely referring to the proliferation of terrorist financing in crypto. Emmer noted that the Treasury had failed to provide a timely response to a request to quantify

the amount of terrorist financing that flows through crypto networks and said, tell us what the issue is first. They want to swallow this all up into the surveillance security state that they've created. We just can't let it happen. This is Congress's purview, not theirs. Senator Lummis said her negotiations with the Treasury will be much more limited in scope than the expansive proposal, focused on the smaller area where there is general agreement. She said,

I'm going to be looking specifically about what they recommend with regard to mixers and tumblers to see if that's an area where we can sit down with the Treasury. You'll remember yesterday I said that there are plenty of people who think that there are holes and gaps in the regulation that need to be filled, but that that's not a justification for a massive expansion of power. Indeed, one of the key takeaways from Wednesday's proposal was that it was specifically asking for new legislation to explicitly grant additional powers, which does mean that the proposal's success will hinge on the Treasury making their case to lawmakers and finding

some middle ground. However, overall, senior Republicans appear to have given up on advancing crypto legislation this year. This is really to the surprise of no one who's paying any sort of attention. Both a standalone stable coin bill and broader market structure regulatory legislation passed the committee stage in July, and is eligible currently to be introduced for a vote on the House floor. Since then, however, an endless string of dumb and dumber crises, including a pair of government shutdown debates and the replacement of the House Speaker have kept lawmakers away from the job of, you know, making laws. House Digital Assets Subcommittee Chairman French Hill said at a blockchain association event on Thursday that voting on the bills are now likely to be delayed

until early 2024. Appearing at the same event, Senator Cynthia Lummis spoke to leadership squabbles within the GOP, stating, that, I think, sent us back a little bit. Democrat Representative Jim Heim said he saw the Stablecoin bill as particularly likely to see progress early next year. Heim's has taken the lead in negotiations on that bill after senior Democrat Maxine Waters withdrew her support. Heim said that getting waters back on side and presenting the bill with strong bipartisan support could be critical. If this happens, he said, a Democratic Senate sits up and takes notice. Now, Hemes was not positive that crypto legislation could pass in the Senate without this kind of demonstration. He said, on the other side of the Capitol, the weather is uglier.

You could see a path, but I think it probably starts with a strong bipartisan vote in the House. Now, previous whispers indicated that a deal might be open with Senate Banking Committee Chairman Sherrod Brown. The contours of the deal were that Brown might consider supporting crypto legislation, in exchange for House Republican support for his marijuana banking reform bill. Lummis said that Brown's committee, quote, has been a tough nut to crack. She noted that Wednesday's crypto-illicit finance proposals from the Treasury could be an indication that the administration is now open for negotiation on crypto policy, adding that the White House could influence the Senate.

Speaking to the recent finance settlement, French Hill said that these kind of examples of bad behavior in the industry, quote, only reinforces that we need to do this and do it the right way. He said that the absence of regulations, quote, is what's going to advantage illicit finance. Kristen Gillibrand, a pro-Crypto Democrat senator, warned that the process of getting crypto legislation on the books will likely drag out a while longer. Passing laws, she said, takes time. Not that many people care about cryptocurrency. The rest of the country doesn't know what you're doing. Indeed, one of the most promising pathways

to a vote on crypto legislation would be attaching it to another must-pass bill. That's the strategy that House Financial Services Committee Chairman Patrick McHenry is employing in an attempt to get the legislation passed early next year. McHenry is currently trying to, to attach the crypto market structure bill to the Goliath Annual National Defense Authorization Act. That massive omnibus bill has over time become the de facto funding mechanism for the entire government. He routinely features hundreds of proposed amendments and is frequently used as a consolidated mechanism to force through a legislative agenda that would struggle to pass a standalone vote. Senator Brown, however, reinforced his chamber's anti-cryptoposition in comments on Thursday

stating, there's no way we're going to pass any industry written crypto bill. It's never going to pass. Probably the House, it certainly won't pass the Senate. This is of course. course, part of the reason that McHenry is trying to pass the bill as an NDAA amendment. As a committee chairman, McHenry has veto power over amendments dealing with financial issues. McHenry is currently threatening to veto four amendments proposed by Democrats and appears to be using this leverage in an attempt to finalize a deal. And so I think you can see here, for all the bluster and frustration of this new Treasury proposal that we covered yesterday, it's still, even here, feels like we are sort of turning a corner towards real action. It's messy and gross because that's the nature of

Washington, D.C., but it's just hard not to look at everything happening, from markets to legislation and beyond, and not feel like we're headed into a very, very different 2024 than the year we just experienced. However, that is going to do it for today's episode. I hope you are heading into a wonderful early holiday weekend. Until next time, be safe and take care of each other. Peace.