Are equities the new way to play Crypto: The rise of Microstrategy and other access products
(TheNewswire)January 7th, 2025 – TheNewswire – Burlington,Ontario In the Californian Gold Rush of 1848, Samuel Brannanowned the only store between San Francisco and the major golddeposits. According to legend, he bought up all the shovels, picks and pans he could findand ran through the streets of San Francisco shouting "Gold!Gold! Gold on the American River!"Brannan reportedlybought the pans for ¢20 and resold them for $15 each, making $36,000in nine weeks.In today's digital crypto "gold rush", newinvestment platforms are working on a similar strategy: to provideprospectors easier access to the cryptocurrencies at their fingertipsthrough traditional stocks acting as cryptocurrency proxies.And many of these "traditional" stocks areoutperforming their respective crypto coins.Click Image To View Full SizeBitcoin depositsFirstly, why the "digital gold rush" tocryptocurrencies in 2024. The reasons include:total global cryptocurrency marketcap as of December 30, 2024 is US$3.38 trillion, with the value of Bitcoin hittingUS$100,000 for the first time on December 4,2024 On March 26, 2024, the Commodity Futures TradingCommission (CFTC) declared Bitcoin, Ethereum, and Litecoin ascommodities in a complaint against the cryptocurrency exchangeKuCoin in his re-election bid, Donald Trump pledged toestablish a national strategic crypto stockpile and proposed creatinga Bitcoin and Crypto Presidential Advisory Council; he appointed ScottBessent, a prominent cryptosupporter, as US Treasury Secretary; andTrump's supporters include crypto supporters such as Elon Musk, Robert F. Kennedy Jr, as well as MarcAndreessen Ark Invest CEO, Cathie Wood, forecasts theprice of Bitcoin could reach US$1.5 million by 2030 Bitcoin proxy stocksMicroStrategy's cryptostrategyTraditional companies are now positioning themselves asproxies for investors to gain exposure to cryptocurrencies."We're a BitCoin treasurycompany, so we're securitizing Bitcoin"— Michael Saylor, Chairman,MicroStrategyMost notable is the headline strategy deployed byMicroStrategy, an unremarkable software company until it startedoffering investors exposure to Bitcoin through the company's stock,with astonishing results.The company uses shares, convertible bonds and leverageto buy more Bitcoin, which has led to the company's stock evenoutpacing the value of Bitcoin.MicroStrategy's shares 3,200%since adopting Bitcoin as its treasury asset in 2020 to December 2024,by which time MicroStrategy had a market value of approx US$80billion, while owning US$41 billion ofBitcoin. In particular, the company's stocksurged 477%in 2024 as it more than doubled itsBitcoin holding and joined theNasdaq 100.MicroStrategy is now the second-largest corporateholder of Bitcoin after it purchasedBitcoin x45 since 2020 for a total of 444,262 Bitcoin, more than 2%of the total 21 million Bitcoin.Click Image To View Full SizeThe benefits of investing in traditional stockcompanies as crypto proxies, instead of directly in cryptocurrencies,include:familiarity:the New York Stock Exchange opened in 1792, a long history of hundreds of years, giving conventionalinvestors a sense of ease and stability regulation:publicly traded companies are subject to established regulations,providing a sense of confidence in institutional governance access: usingaccess products, such as MicroStrategy, investors can gain exposure tocryptocurrencies through their existing brokerage accounts, includingthe use of options, and so avoid the need for crypto exchanges ordigital wallets convertible bonds: one of the main strategies deployed by MicroStrategy to raisemoney, to buy more Bitcoin, is to use convertible bonds, allowinginvestors to benefit from the equity’s upside, while also providing a perceivedprotection against any downside through the use of bonds leverage: perhaps best explained directly by Michael Saylor, theExecutive Chairman of MicroStrategy, to CNBC"We sold US$1.5 billionof stock, backed by US$500 million worth of Bitcoin, and bought backUS$1.5 billion worth of Bitcoin. We captured almost US$1 billion gainin the arbitrage. That we can do with equity, day by day. When we doit with debt, we issue US$3 billion of debt, that's backed by US$600million of Bitcoin, it comes due in 5 years, and we pay 0% interest.We buy US$3 billion of Bitcoin and capture the US$2.4 billion in thearbitrage gain upfront. Then, over the course of the next 5 years wedouble or quadruple the investment because we're buying an assetthat's appreciating faster." Click Image To View Full Sizetax efficiency:in some jurisdictions, holding equities of crypto may offer taxadvantages (eg TFSAs) security: therisk of losing private keys to crypto and your account issignificantly reduced Not just MicroStrategy, not justBitcoinMicroStrategy is not the only company offering such aproxy strategy. As of December 2024, publicly traded companiesheld 587,470 Bitcoin, representing2.8% of the total supply.BlockMint (TSX.V: BKMT)BlockMint.ai (TSX.V: BKMT) is oneemerging company that, not only already holds Bitcoin from priormining operations, but is actively evaluatingthe expansion of its cryptocurrency holdings to create an accessproduct for investors — and, unlike MicroStrategy, holding not justBitcoin, but other currencies as well.BlockMint Technologies Inc. integrates distributedledger technologies across a range of innovative applications tosupport decentralization, with a particular focus on carbon creditsand cryptocurrency mining. For example, their Minter Browser allows users to minecryptocurrency to earn carbon credits and offset greenhouse emissionsas they browse the internet.Click Image To View Full SizeThe global value of tokenized illiquid assets isforecast toincrease in value from a base of US$0.3 trillion in 2022, toapproximately US$16 trillion by 2030. “In ourview, the incoming U.S. administration and their positive stance oncrypto has created a backdrop that we believe is incredibly bullishfor our sector. It will accelerate the institutional acceptance ofcrypto currencies as a legitimate and desirable asset class.We have begun to explore thepossibility of adopting a business model similar to MicroStrategy’sBitcoin investment model but for other blockchain currencies. We areexploring acquiring tokens for platforms such as Dogecoin, Avax andSonic (formerly Fantom). We believe that the potential for thecreation of an access product for these or other emerging protocolscan serve as a means of valuecreation for our shareholders— Dan Beck, CEO, BlockMintNot just BitcoinAs BlockMint's strategy highlights, a key considerationwhen investing in cryptocurrency proxies is to check whichcryptocurrencies the stock offers exposure to; for example,MicroStrategy focuses on Bitcoin, BlockMint is considering Dogecoin,Avax and Sonic (formerly Fantom)Each cryptocurrency will have its own uniquecharacteristics, but some of the main factors to consider are:scarcity: towhat degree does the cryptocurrency offer an attractive store ofvalue institutional adoption: how significant are the holdings of the cryptocurrency byinstitutions, and so offering a level of ease and legitimacy forconventional investors ecosystem: howlarge and engaged is the community surrounding the cryptocurrency,including investors, applications, and other use-cases and financialproducts technology: isthe tech behind the currency secure and scalable, as well as providingadditional functions, for example, Ethereum's modular and programmableblockchain allowing smart contracts Some of the other major and emerging playersinclude:Marathon DigitalMarathon Digital isthe largest, publicly listed Bitcoinminer on the NASDAQ with more than 245,000 active miningmachines. In 2024, announced was(re-)adopting a strategy of buying and holding Bitcoin in open marketpurchases — and, by December 10, 2024, owned 40,435Bitcoin.For example, on December 4, 2024, the company announced thecompletion of US$850 million offering of zero-coupon convertiblesenior notes due 2031, to be used primarily to acquire Bitcoin.Due to its mining operations and direct investment inBitcoin, the company can act as a crypto proxy. However, crypto miningis a highly capital and energy intensive investment, and the stock hasnot performed, relatively-speaking, as well as MicroStrategy, withless overheads, in 2024.Spirit BlockchainSpirit Blockchain Capital Inc., a Canadian digital asset management and blockchaintechnology company, announced thepurchase of Dogecoin Holdings in November 2024 as part of a strategyto develop and expand the ecosystem — to become the MicroStrategy ofDogecoin, but with an alternative range ofdigital assets.“We are going to hold a significant balance sheet ofDogecoin over the coming months and coming years,” Lewis Bateman,Spirit Blockchain CEO, told Decryptin an interview.In early 2025, the company announced anew strategic initiative to leverage yield on its Dogecoin holdings,and serve as a model for future cryptocurrency yield strategies,including Bitcoin, Ethereum, Tether, and Solana, etc. CoinbaseCoinbase Global, Inc. is one of the largestcryptocurrency exchanges in the world, offering investors access tocryptocurrency trading and adoption, making it a proxy for exposure tothe wider crypto market, without necessarily having to directly holdcrypocurrencies.Riot PlatformsRiot Platforms, Inc. , formerly known as Riot Blockchain, is a Bitcoin miningcompany that operates the largest-scale mining facility inNorth America, and also holds (as of December 13, 2024) an estimated 16,728 Bitcoins. Thisstrategy allows the company, similar to Marathon Digital, to provideinvestors with exposure to both Bitcoin mining and ownership.On December 9, 2024, Riot announced theclosing of US$594.4 million, with much of the proceeds alreadydeployed to acquire additional Bitcoin.VolatilityAs with investing in any equity or commodity, there arerisks, and — especially due to market volatility over regulations,technological risks, commodity concentration, crypto valuations, etc— this is particularly the case with stocks so closely linked to thecorresponding value of cryptocurrencies.There are concerns thefactors driving up the leveraged stock prices, could just as easily gointo reverse if the value of the corresponding cryptocurrency fallssharply.For example, on December 26, MicroStrategy's stockprice were down nearly 45% from its peak since the announcement of the inclusion on theNasdaq 100.However, this volatility is something that MichaelSaylor highlights isessential to Bitcoin's success:"It [Bitcoin] will remain volatile because itremains a 24/7, 365 global asset. You can panic sell it on Saturdaynight, you can enthusiastically buy it on Sunday morning. That's afeature, not a bug."Welcome to MicroStrategy 2.0In the Gold Rush of 1848, it was not necessarily thepeople who found the gold that made the real riches, but the peoplewho sold the shovels.Companies like MicroStrategy and Spirit Blockchain, aswell as emerging players such as BlockMint.Ai, are offering theprospectors of the new gold rush digital pickaxes.DisclaimerThe Oregon Group maintains full editorial control over all contentpublished on this website. While sponsored and advertised placementsmay be featured, the content remains the sole opinion of The OregonGroup. The author may receive compensation or remuneration forproviding content, but all statements and expressions are madeindependently and are not influenced by sponsors or advertisers. 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