Bitcoin ETFs Miss The Point – Financial Times

Unlock Editor's Digest for free

The author is a former investment banker and author of “Power Failure: The Rise and Fall of an American Icon.”

There has been a lot of excitement in the crypto world in recent weeks about the likelihood that the Securities and Exchange Commission will soon green light a Bitcoin exchange-traded fund.

The idea that such an ETF could soon be offered to hungry, if misguided, U.S. investors has helped provide a year-end kick to Bitcoin's remarkable rally from the depths of its recent “winter” in late 2022, making it one of the best-performing investments in 2023, which increased by around 160 percent last year to almost $44,000.

That's quite a turnaround considering the crypto world's reputation has often faltered over the past year. Not only was there the bankruptcy of crypto exchange FTX and the criminal conviction of its founder Sam Bankman-Fried, but also the agreement of its main competitor Binance to pay $4.3 billion in penalties related to money laundering and violations international sanctions. This was one of the largest corporate penalties in US history. Binance founder Changpeng Zhao also pleaded guilty to failing to protect himself from money laundering and resigned from his position.

But if you think about it, there's been a way for investors to play the Bitcoin roller coaster for years: by buying or selling the shares of the enterprise software company MicroStrategy, which has its assets tied to Bitcoin and that's how it handles its enterprise software sales for the Stock market valuation is somewhat irrelevant.

MicroStrategy has been buying Bitcoin since 2000 as part of a strategy driven by the company's 58-year-old, MIT-educated CEO, Michael Saylor. “Due to its limited supply, Bitcoin offers the opportunity to increase in value as its adoption increases and has the potential to serve as a hedge against inflation in the long term,” it said at the time. MicroStrategy is considered the largest publicly traded Bitcoin holder in the world. The company owns 189,150 Bitcoins, purchased over the years at a total cost of around $5.9 billion (as of the end of December).

MicroStrategy's software activities have put Saylor in the regulatory spotlight. In 2000, he agreed to pay $8.3 million plus a $350,000 penalty to settle SEC charges of significantly inflating software sales and profits. But when Bitcoin spiked, around November 2021, when its price hit $69,000, it attracted a lot of attention. He even amazed Tucker Carlson about the wisdom of cryptocurrency for more than an hour before the Fox TV host was fired.

Saylor is a true believer, and an articulate one at that. His interviews about Bitcoin are lengthy and captivating. He speaks in complete paragraphs. Listening to him, you are convinced that Bitcoin is the next big innovation in the world of finance. And then you step back, think about it a time or two, and remember that JPMorgan CEO Jamie Dimon said about cryptocurrency, “If I were the government, I would shut it down.”

Saylor left the role of CEO of MicroStrategy in August 2022 to take over as chairman following another Bitcoin crash. At the time, the company had reported nearly $2 billion in cumulative impairment losses on its digital assets since the acquisition.

But thanks to the rise in the price of Bitcoin in 2023, MicroStrategy's treasure is now worth more than $8 billion, giving the company a profit of about $2 billion on its investment. Not surprisingly, MicroStrategy's share price continued to outperform in 2023, rising more than 330 percent for the year. Its market value of around $8.8 billion means investors value the software business at around $800 million. (That's still high considering MicroStrategy made a small pre-tax profit of around £13m on revenue of $371m in the nine months to September 30, after accounting for but excluding share-based compensation the impairment of its digital holdings.)

So MicroStrategy is essentially a play on Bitcoin and has been for years. In other words, in my opinion, there was no need to wait for the SEC to approve a Bitcoin ETF. Saylor himself told CNBC: “We’re kind of like your non-existent spot ETF.”

The problem with Bitcoin is not that there is no way to speculate on it. The problem with Bitcoin is that it is all about speculation. We don't need new ways to speculate on cryptocurrency. What we need if Bitcoin is to be the savior that its proponents want us to see is a use for Bitcoin.

If it can be used to buy and sell the things we want as seamlessly as fiat currency, that will make all the difference. The real excitement for Bitcoin will come not from the SEC approving new methods of speculation, but when there is more to it than just speculation.