If you ask AI the answer is some qualified, “on the one hand, on the other hand” garbage. In other words, it is useless. The human touch is still required in this matter, especially given that way that it is humans, and especially their emotions, who have been evident in driving BTS (Bitcoin Treasury Strategy) stocks up, and then down over the recent past.
The doors were opened by Smarter Web (AQUIS: SWC) in May, and perhaps as much as anything else the FCA not so much saying yes, as not saying no, to the idea of listed companies on Aquis hoarding the digital currency. The proviso was apparently that one can raise money for BTC, but there needs to be a real ongoing business at the company in question.
Indeed, the other week we had the development that the UK’s crack financial regulatory body had, like The Man From Del Monte, lifted its ban on crypto ETNs from October. This has been described as the equivalent of Big Bang, deregulating the City of London, although given 2008 one might suggest that it was something of a mixed blessing. Indeed, cynics and shorters have suggested that the FCA lifting its ban – arguably over 5 years too late, means that the BTS brigade are no longer required. That said, there is still a lot of regulatory boot stomping, in that Aquis is now the cool, new market in this area, whereas AIM (less keen on the punters making money / more keen on nannying) is still giving companies wanting to diversify into BTS the third degree.
But going back to the raison d’etre of BTS, to suggest that there days are over, or numbered may be overly harsh. Thus far, the BTS strategy for many companies has simply meant raising cash to buy BTC. This is in the belief that rather than getting say 4% on deposit, they would have all the benefit of an appreciating asset, as well as one which they could use to finance themselves going forward.
Free Cash Flow Into BTC
The other phenomenon we are witnessing, which looks to be a maturing of just buying the as much of the stuff as possible after a fundraise, is to channel future earnings, whether from a fiat business, or through conventional mining, into Bitcoin. For instance, ECR Minerals (ECR) has just announced it will invest up to half of its free cash flow from gold production. This, despite our friends at ECR being rather late on the BTS bandwagon, actually sounds like a decent idea. But it could be something which could become a standard thing for corporates to do with free cash flow, be they Marks & Spencer (MKS) or McDonalds (MCD).
BTC: The Convertible Bond Breakthrough
A final finessing of the BTC phenomenon is the move to not raise cash via equity, and hence diluting shareholders. This week we witnessed current UK market leader SWC raise debt rather than equity, in order to buy BTC. This to me seems to be the way forward, as the more dilution there is through placings, the more BTC has to rise in order to get shareholders where they want to be. SWC has pioneered this angle with this week’s $21m from TOBAM via Bitcoin Convertible Bond Launch. The market has perhaps yet to appreciate how good this move is. But maybe the way that SWC now has over $200m in BTC versus a £631m market cap will focusing minds? The company can now ratchet up its holdings, concentrating its equity, rather than diluting it. Perhaps this in itself will be enough to get those mNAVs up, and make them stay up?
The Bitcoin Trajectory
There is little doubt that while Smarter Web (SWC) is currently the leader in the UK, with Coinsilium (AQSE:COIN) and Vaultz Capital (AQUIS:V3TC) among those vying to take its place. What was interesting for me this week was to be shown a list of all the BTS companies around the world: there are dozens of them. While we know that SWC has already bought hundreds of millions worth of BTC over the past few months, and there have been millions worth bought around the world, and presumably, many more from non-listed companies joining the gold rush.
Given that we know that there are a finite number of BTC, and there has already been a 20% jump in this market over the recent past, does this not suggest that if not a one-way bet, BTC could be a self-fulfilling prophecy on the upside? Given that this was in many ways the original premise of this market from more than a decade ago, the OG’s of the space have been proven correct. With the latest impetus provided by the BTS phenomenon, there seems to be little reason to go against the grain. This may not be the equivocation that ChatGPT et al provide when you ask them. But in some cases one needs the human touch.
Running Up An Up Escalator
Shares of MicroStrategy (MSTR) really started to take off in the second half of 2024, when BTC was in the $60k’s and went to $100k. They rocketed again this spring when BTC bounced from $80k to $120k. Currently MSTR has some $33bn worth of BTC. Just imagine if MSTR and the BTS brigade did not exist. Where would BTC be now? At a guess, which I am happy to stand corrected on, $50k. The bull argument is that BTC would go up anyway. It was designed to. With a guaranteed pool of hungry corporates, it may not be a sure fire one way bet, but the lay of the land suggests it is as close to one as it could be. When you add in a crypto friendly Trump administration in the US, and the weakness of the dollar, those investing in this market appear to be running up an up escalator.
Disclaimer & Declaration of Interest:
The information, investment views, and recommendations in this Zaks Traders Cafe interview are provided for general information purposes only. Nothing in this interview should be construed as a promotion or solicitation to buy or sell any financial product relating to any companies under discussion or referred to or to engage in or refrain from doing so or engage in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the commentator but no responsibility is accepted for actions based on such opinions or comments. The commentators may or may not hold investments in the companies under discussion.
