Microstrategy laid the foundation.
Michael Saylor was ahead of the curve in raising money via the capital markets to purchase Bitcoin. Today, Microstrategy is one of the larger holders of Bitcoin in the world.
This model was duplicated by a number of companies. The idea of a "Bitcoin Treasury" is not so foreign. Even the United States government is starting to amass Bitcoin that was acquired through seizure. There is also speculation that purchases are occurring in a budget neutral manner.
My point is the demand for Bitcoin exploded over the past 2 years. Not only do we see direct Bitcoin accumulation by corporate treasuries but many are gaining exposure through the Bitcoin Spot ETFs. This is fueling even more demand.
The net result is some placing huge numbers relating to forecasts of the future Bitcoin price. Saylor even came out with a $21 million price tag in 2046 (21 years).
Are we about to see something similar with Ethereum? It appears this might be the case.
Ethereum: The Next To See The Microstrategy Model
Tom Lee is a well known fund manager who regularly appears on CNBC. He is a long time crypto bull, often commenting on the Bitcoin market.
He is now taking things to another level with his most recent position.
According to filings, he is now chairman of BitMine Immersion Technologies, a publicly traded company. There was a private placement of $250 million on June 30th. This money is going to be used to purchase Ethereum.
Hence, we have the Microstrategy of Ethereum forming.
We do hot have word as of yet how this will unfold. Saylor's model is to keep issuing zero coupon debt which raises money to buy Bitcoin. Over time, the value of the treasury grows, in both BTC and its USD valuation.
Investors are not concerned about yield. This is purely a speculation play, aka green candles. The hope is that the price of BTC will be significantly higher in the coming years.
So far, Saylor's plan has held firm. A major pullback could cause issues for these publicly traded companies though, something that many are forewarning.
BitMIne is constructing something a bit different.
Ethereum: Yield Plus Speculation
Bitcoin operates on the proof-of-work (PoW) protocol. Ethereum made the switch to proof of stake (PoS) a few years ago.
This means that the network is secured, in part, by coin holders staking it. This is a security feature that also have financial ramifications.
To incentivize this, the holders are paid, in ETH, a return for their staking. It is money that comes from the inflation of the network. Bitcoin does not operate using this metric, hence not providing it inherently to Microstrategy.
Of course. that company could opt to stake the Bitcoin with a 3rd part, which invites another level of risk. Thus far, there is no indication that MSTR will go in this direction.
BitMine is adding yield to the equation. By opting to employ Ethereum, the company is able to stake the coin, providing a revenue stream. This is lacking with Saylor's approach. Ultimately, a treasury could be built which is a buffer against a downturn.
For example, the payouts in ETH could be sold and used to purchase another asset, such as US Treasuries. This will provide a buffer in case of a massive drop in ETH price, affect the debt ratio (if the company does employ a debt base strategy).
Copycat World
It is likely that Ethereum becomes the next asset that we see people diving into.
We live in a copycat world. Much in the same way as Saylor established the Bitcoin treasury model, Lee could be doing the same with Ethereum. BitMine is the biggest that I know about in terms of dollars to go in this direction.
It is probable this will be usurped at some point.
Ethereum is still listed as an inflationary asset. Actually, the same is true for Bitcoin at this time. The difference is there is a hard cap on BTC in the future, something that does not exist with ETH.
That said, there are burn mechanisms in place that has turned ETH deflationary for periods of time. Even if it remains inflationary, a widespread adoption of Lee's model could alter the supply available on markets. Here is where staking larger amounts reduces the float available for trading.
Lee's reasoning behind turning to Ethereum is based upon stablecoins.
Stablecoins, which is the ChatGPT of crypto, because it’s viral adoption by consumers, businesses, banks and now even Visa,” he said, underscoring why a treasury heavy in ETH could become strategically indispensable. Ethereum’s proof-of-stake design means that large holders who validate blocks “secure the fidelity of stablecoins,” Lee continued. “When Goldman issues a stablecoin and JP Morgan [issues] it on Ethereum as a layer-one blockchain, they’re going to want to secure it by staking Ethereum.”
On this point, he is not wrong. If we see a significant portion of the stablecoin market on Ethereum, something which occurred so far, major institutions will have incentive to secure those assets.
With the developers working hard to scale the network while also reducing the fees, this could end up being the default stablecoin chain.
If this happens, Lee could end up being ahead of the curve.