🇺🇸 Frontrunning Uncle Sam

If the US government really intends to create a strategic bitcoin reserve, it will need to compete with MicroStrategy.

As it stands, the velocity of MicroStrategy’s bitcoin buying has exploded, to the point that it now holds 331,200 BTC ($30.9 billion), or 1.7% of the circulating supply.

For scale, Sen. Lummis has pitched a 1 million BTC target for the government reserve, worth $93.2 billion at current prices. In July, the latest figures showed the US holding over $608 billion in gold certificates in its strategic reserve.

To be clear, there’s no official indication that the US will actually make bitcoin its fifth reserve asset (Polymarket puts the current chance at 36%). And as Blockworks’ Byron Gilliam pointed out in his newsletter yesterday, it could even be a really bad idea. 

Let’s say it does happen. That would mean MicroStrategy is frontrunning the US government at size, potentially driving up prices before the reserve buys its first, very hypothetical, coins.

Mapping exactly when MSTR buys its bitcoin — to perhaps find positive correlation between the price of BTC and the firm’s trades — is unfortunately impossible with the publicly-available data.

MicroStrategy does disclose the number of bitcoins it buys alongside its total dollar spend. But it generally only offers a range of dates on which those trades were made.

Still, averaging those figures out shows that over most of the past three years, MicroStrategy would’ve spent up to several millions of dollars on BTC per day during its buying sprees. Those sprees often last for over a month, according to its filings.

By March of this year, when bitcoin was setting all-time highs around $74,000, that number had jumped to $80 million per buying day. 

Come early November, it was $190 million, before ramping up to over $657 million last week — $4.6 billion on 51,780 BTC between Nov. 11 and Nov. 17, at an average price of $88,627. 

The price of bitcoin climbed up to 14% across that period, from $80,000 to more than $91,000. 

Saylor has previously said that MSTR has bought bitcoin on spot markets, but that was early on. 

It could be that the firm these days acquires bitcoin over the counter, which would dampen direct impact. The sheer size of the buys, however, would probably still influence prices somewhere down the line.

Linking MicroStrategy’s bitcoin buys and its share price is far more straight-forward.

There was a time when MicroStrategy stock (in blue) was weighed down by its bitcoin (the orange area in the background) — leading the two assets to closely track each other in the bear market.

All that changed in late February, when Saylor announced his company had added 3,000 BTC ($155 million then, $280 million now). MSTR stock then jumped 27% in two days, and bitcoin went on to set an all-time high three weeks later.

MSTR has been tightly correlated with the dollar value of its bitcoin treasury ever since — not the price of bitcoin — swelling its market cap from $10 billion to nearly $100 billion.

If that persists, MSTR’s share price might be resistant to bitcoin downturns as long as it buys the dip, which it probably will, considering the debt raises keep coming. In the meantime, shareholders are no doubt enjoying the show. 

As would MicroStrategy execs and insiders, who’ve now offloaded almost $559 million in company shares so far this year, per OpenInsider data, which compiles SEC filings (almost three-quarters going to Saylor, who’s said that he intends to buy bitcoin himself).

And they say the key to building generational wealth is diversification.

— David Canellis

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• BTC is still hovering around Tuesday’s price record of $94,040.99. (Current price: $93,700.)

• The ETH/BTC ratio has fallen to 0.033, its lowest point since March 2021. (ETH: $3,090 and 36% below all-time high.)

• OM, HBAR, XLM and XRP lead the front-page for weekly gains with 170%, 120%, 98% and 68%, respectively.

• Solana stablecoin supplies are up 15% in the past week, rising by around $900 million to $4.51 billion. 

• Raydium is by far the most popular DEX right now, handling $5.08 billion weekly volume to Uniswap’s $3.45 billion. Raydium exists only on Solana while Uniswap has deployed on 23 different networks.

🛜 Signal boosters

Venture capital is heating up — though we’re still a ways away from 2022 levels — and that’s evident by one recent announcement. 

ICYMI: I wrote up my interview with Portal Ventures’ Fisher and Wang in our funding roundup this past Sunday, but given their ability to sniff out the projects to watch, I figured we should chitchat about it here. 

Portal is an early-stage VC firm run by Evan Fisher and Catrina Wang. And when I say early, I mean early. 

65% of the deals that Portal makes are proprietary, meaning that they're the only investor at the get-go. 

“We try to really generate signal for the industry,” Fisher said. The strategy is high-risk but has also proven to be high reward — given that their second fund is oversubscribed and could be closer to $90 million than the $75 million. 

“We’re reasonably confident we’re going to hit $100 million,” Wang told me. The final close will take place in December.

VC funding is sometimes tricky, Wang said. It can be tough to ferret out where the “highest alpha” is, but the Portal team has worked out a niche where they’re only focused on one project per category. It allows them to avoid any “spray and pray” approaches, Wang added.

“This is the way we can avoid all the conflict and really go all in with portfolio support,” she said.

The goal for Fisher and Wang is to find projects and founders before they have a product and, sometimes, before they even have a deck or a company set up.

And here’s a bit of alpha for you all: Fisher and Wang told me that they have three key ingredients to uncovering a project worth investing in: 

1. The founder

2. Whether the project itself is leading the pack versus chasing momentum

3. The right network

Take from that what you will.

— Katherine Ross

• Galaxy’s Alex Thorn thinks we could see lower bitcoin volatility now that bitcoin options have been approved.

• Shaquille O’Neal agreed to pay $11 million to settle a class action lawsuit over NFT promotion. 

• wBTC will be delisted on Coinbase on Dec. 19 following a review, Coinbase said in a post.

• Ethena saw $1 billion of inflows following the crypto rally. 

• Sky, formerly Maker, has deployed USDS, formerly DAI, to Solana.

Q: Could MicroStrategy be bad for bitcoin?

Hmm. It honestly depends on your thesis or beliefs. Personally, I’m not necessarily a fan of a company owning so much bitcoin. 

I also think they have enough of a stash to make themselves a pretty profit, and could therefore benefit shareholders. 

Don’t get me wrong. The interest is great for bitcoin, but I’ll be curious to see when people think that they’ve bought enough. After all, MSTR is now going up against the bitcoin ETFs to gobble up more and more bitcoin.

The jury’s out, I guess. 

— Katherine Ross

I’ll defer to Byron one more time for a proper exploration of some of the bear cases.

What I’ll say is that rising or falling prices doesn’t really do anything for Bitcoin itself, as in the underlying network. 

Of course, bitcoin miners would have an easier time making profit, for a time, before the protocol jacks up the difficulty to match all the fresh hash rate that would inevitably be directed at the chain to capitalize on sky-high prices.

This scenario would look different if Bitcoin only had a small fraction of its current hash rate. But in any case, bitcoin, both the currency and the blockchain, would be fine over the long run. 

And besides, bitcoin’s trademark volatility has to come from somewhere — why not from the alpha bulls?

— David Canellis