
Source: TradingView, CNBC, Bloomberg, Messari
The Bitcoin Strategic Reserve
President Trump
signed an executive order (EO) in the Oval Office Thursday night titled “Establishment of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile.” This
1-minute video from Crypto Czar David Sacks is probably the best explanation of why the U.S. needs an SBR. But in short:
- The U.S. Treasury Department will operate the Reserve and will be capitalized with BTC held by the U.S. government from forfeitures. It may include future purchases, but there will be no sales.
- The Stockpile is similar but includes digital assets beyond just Bitcoin. There will be no future purchases, and the Treasury has latitude to manage that portfolio.
It looks like the best possible version of what could come out of an executive order.
- Only BTC will be in the SBR, so there is no risk of other nonsense assets making their way into this reserve.
- They specifically call Bitcoin “digital gold”, and highlight its “scarcity and security”
- They can buy more BTC in the future, but not with taxpayer money
- They can no longer sell seized BTC on the open market
This is clearly and objectively bullish. Independent of any other part of this, it will remove the supply overhang that has caused numerous market selloffs in the past. According to Galaxy Digital, the U.S. owns roughly $17.8B of seized crypto assets (~200K BTC), although 112K will likely be returned to Bitfinex per recent court rulings, which leaves roughly 88K BTC ($7.56bn). So that removes a $7.5B seller from the market. Again, there are a lot of other positive aspects of this SBR, but at a minimum, less selling is good.
Of course, the market sold off anyway, as it has been doing for the past 7 weeks. While the early parts of the crypto selloff in January and early February had nothing to do with the global macro picture, the last two weeks have 100% been driven by the equity market tantrum.
The recent Nasdaq pullback from its Feb 19th high to today's low is the 3rd fastest 10% drop in history. Somehow, Trump’s Tariffs (2.0) are being viewed as scary as:
- COVID 2020 March (6 days)
- GFC 2008 October (8 days)
- Tariffs 2025 Feb (9 days)
- Tech 2000 April (13 days)
That is an overreaction. But that’s what happens occasionally with risky assets that tend to go up over time. It reverses occasionally and often very quickly. Sentiment among individual investors has turned sharply negative, as the percent of “bulls” in this week's AAII poll (19%) was lower than 98% of historical readings, while the percent of “bears” in last week's poll (61%) was the 7th highest reading in the survey's history. Fear is rampant.
Fortunately for long investors, the market is wrong every time it gets this bearish. The sentiment indicator is right now touching 1990, 2008, 2009 and 2022 readings, right before the stock market ripped higher each time.
And that makes sense. This does appear to be a tantrum based solely on fear and a dislike of Trump’s tariffs, and not at all on any substance. This likely plays out similar to what we saw in late 2018, which was nothing more than a short-term hiccup on the way to further highs.
The U.S. dollar (DXY) is sharply lower, oil is sharply lower, interest rates are going down, and
credit spreads are barely widening (not even keeping pace with the interest rate decline). The economic data has been mixed at best, and certainly not flashing warning signs of a recession (PMI strength offsetting slight jobs weakness). Germany is unleashing an "anything it takes" campaign, which is a big divergence from their historical hawkish fiscal stance. According to Deutsche Bank, Germany can spend $1.6 trillion and still have a lower debt/GDP ratio than the U.S. (and $9 trillion to catch up to Japan).
Whether you believe in the
Reagan parallels or just believe in macro tailwinds, there is nothing actually scary going on right now. But fear sells, and losses are still painful.
Hills I’ll Die On When It Comes To Crypto
Those reading my writeups this year have noticed an increase in frustration, not per se from falling prices, but from how much further we have moved away from a cohesive understanding of digital assets.
I've been writing about “common sense” topics and debating people for years, and today I'm laying them all out in one place. Below are a few crypto hills that I will die on, and I will happily debate anyone at any time to help spread the word.
1. Crypto as an investment and blockchain as a use case, is in a binary state. The "Crypto investing paradox" states that the tech works, but it works with the wrong assets. We need assets that people care about (stocks/bonds/real estate) on blockchain rails. As soon as stocks, bonds, crypto, and hard assets are allowed to trade seamlessly back and forth, blockchain usage will grow 10-50 fold.
2. Crypto is simply a wrapper that houses all asset classes (equity-like tokens, debt-like tokens, currency-like, etc). Saying we invest or don’t invest in “crypto” is akin to saying “we invest in ETFs” - which makes no sense, of course, because what’s inside the ETF matters, not the ETF itself.
3. We are on the cusp of leaving the "
dot-crypto" phase of blockchain. We are about to enter a new phase where regular, 100-year-old companies use blockchain. No company is a "dot-com" anymore, because every company is, and it would make no sense to still call a company a “dot-com”. The same will be true in crypto. All of the existing crypto use cases are from crypto-native companies, but going forward, the whole world will come up with creative ways to use tokens.
Every company, university, municipality, organization, and sports team will issue REAL tokens one day (not memecoins). The TRUMP token is a step in the right direction for issuance, even if the token itself was poorly constructed. I call on every investment banker to help construct better tokens (or since this is unrealistic, I call on every potential token issuer to call Arca). There is a better way to do this!
4: A token's value is derived from 1 of 3 places:
- Financial: Free cash flow (DCF models)
- Utility: usage (Gas fees, collateral)
- Social: "cool factor" or community
If you can't define one or more of these value drives, then the instrument does not have value. If a token doesn't have at least 2 of the 3, it becomes difficult to value and thus hard to justify owning (at least via a value lens). And if an investment only has social value (like memecoins)... well, good luck to you.
And while we’re talking about token value, let’s not forget that even financial value is somewhat subjective. All debt and equity investors who claim crypto has no “intrinsic value” are completely hypocrites. Debt and equity securities rarely, if ever, trade anywhere near their intrinsic value (as we
wrote about in 2019).
5. Fully-diluted value (FDV) and market cap are used incorrectly by everyone in crypto. This is not a hard concept, and yet CoinGecko, Messari, CoinMarketcap and every other site dedicated to listing crypto assets and prices are doing this incorrectly.
- Market cap = Total amount issued (including locked tokens sold to VCs, tokens owned by the team and employees)
- Float = the amount actually trading (which excludes locked tokens or tokens that are restricted from trading or lost)
- FDV = The total amount that COULD be issued (unissued tokens, sitting in the company or project’s Treasury). FDV is essentially infinite, just like it is for companies' stock and debt, since any company COULD, in theory, issue more debt and equity at any point. The market’s focus on FDV is just delusional, as most of these tokens will NEVER be issued to the market.
6. Fully diluted, amortizing tokens with buybacks are better investments than inflationary tokens. If you must incentivize users via inflation at first (like Layer-1 smart contract platforms), that’s fine, but it needs to lead to buybacks quickly. There is a reason BNB, LEO, and all of the DeFi exchange tokens are better tokens than most protocols — deflationary is better than inflationary.
7. Token lockups are absolutely pointless in crypto. Tokens can have instant liquidity via public markets, long before a company or project has achieved any tangible success, which means that unlike the debt and equity markets, there may not be natural buyers of the publicly listed token. Therefore, it is more important to price a token publicly at a level where there is actual demand rather than artificially and systemically restricting supply via lockups. Lockups create unnecessary overhangs and fears (like what is currently happening with Solana and its massive unlock from the FTX estate), and lockups create time-based selling pressure instead of merit-based buying pressure. Without lockups, free markets would entice early investors to sell sooner at lower prices, allowing more investors to benefit from the upside. As we’ve written about a lot in the past, the current process that exchanges like Coinbase and Binance use for token launches are a complete disaster, largely due to these unlocks and pressures from VCs and market makers, and no one should buy a new token on one of these exchanges until there is some sort of underwriting standard that prices a token based on predetermined clearing demand.
8. The Fat Protocol Thesis has done unbelievable damage to crypto investing. It is a nonsense argument (although I respect the authors because it was unique and interesting at the time it was written). This false narrative has caused every app to try to become a Layer-1 protocol; it drives all venture dollars to L1s, and it allows dead L1s to maintain $1B+ market caps. It is insane that the majority of the digital assets market is made up of Layer-1 protocols. A few L1s may win, but none will be worth more than the sum of the apps ultimately built upon them.
9. We must deprecate the term "altcoins" immediately. There are at least 10 sectors in crypto now, and hundreds of different token types (asset-backed, quasi-equity, amortizing buyback tokens, debt-like). Arca
created a taxonomy years ago, showing off the differences in token types, and just last week, a16z released their own
taxonomy. While these definitions are still a work in progress, it doesn’t change the FACT that this industry is more than just “Bitcoin and alts”.
Stop hurting our own industry by pandering to the uninformed.
Educate, don’t placate!
10. The digital assets market is more similar to fixed income than it is to equities or commodities. Bonds have different coupons, maturities, call/convert structures, covenants, security, warrants, and trade via fragmented dealers with low liquidity. This is precisely the same as crypto – every token has unique features (amortization schedules, inflation, buybacks, burns, revenue dividends, gas utility, etc), and the dealer space is fragmented with no centralized clearing house. If you don’t understand how bonds trade, you will not understand how crypto trades.
11. Strategy (MSTR) is NOT a systemic risk for Bitcoin. There is almost no scenario where MSTR becomes a forced seller of BTC unless BTC has already fallen so far (-90% or so) that MSTR selling is your least concern. We (and others) have been debunking this for 4 years, and yet it still persists. There are no covenants/maturities in the debt that force sales of Bitcoin, and the
maturity schedule of the debt is easily manageable.
As an aside, a premium to NAV makes sense for MSTR equity. In theory, MSTR can become the Berkshire Hathaway of crypto and can use BTC to acquire companies for discounts. Imagine if BTC becomes a truly scarce and valuable resource, one which most companies can never buy enough of. There may be opportunities for MSTR to pay less than another buyer by using BTC as currency because it is in such high demand. That would be a tremendous ROI for MSTR and warrants a premium.
12. THERE IS NOTHING ILLEGAL ABOUT BEING A SECURITY! Please stop worrying about whether a token is a security or not unless you are a token issuer (because it’s expensive to register) or an exchange (because it limits your ability to trade these). For everyone else, it does not matter. And it’s clear these segregation laws are going to be changed soon anyway (see Robinhood)