Chinese Miner FUD vs. Crypto Fund Accumulation
Hartmann Capital Newsletter, Friday 25th June, 2021
In this issue
China BTC mining “fear, uncertainty and doubt” weighs on markets as BTC temporarily dips below $30,000.
a16z announces “largest crypto fund ever raised”.
Michael Saylor and MicroStrategy load up on more BTC.
Will Paraguay follow El Salvador with BTC?
This week’s blog: “Crypto Activist Investing: The Power of Partnership”
Hartmann Capital partners with Kingdom Trust to bring DeFi to your IRA
Market by numbers
The Chinese news (see below) weighed heavily on Bitcoin, which dragged all crypto markets lower. As in most drawdowns, BTC was one of the best performers. Decentralized exchanges, DeFi and Web3 sectors all were down at least 20%, according to Messari.io.
China BTC mining “fear, uncertainty and doubt”. But could this news actually be bullish?
Though the news that Xinjiang had shut down coal-based Bitcoin miners had been long expected, the crackdown on hydro-powered miners in Sichuan came as more of a surprise. The fear, uncertainty and doubt surrounding China’s heavy-handed approach to crypto does not need repeating here. We prefer to view the falling hashrate as a temporary inconvenience that has two positive long-term consequences: Further decentralization of mining power away from an autocratic regime, and a move away from an over-reliance on the very-dirty coal powered electrical sources. Indeed, thermal electricity (e.g. from volcanoes in El Salvador), wind and additional hydro-electric production (e.g. Paraguay) all are making the news as options.
a16z announces “largest crypto fund ever raised”
The recent bull market has attracted the interest of retail and institutional investors alike. This past week saw two significant fund raises for VC, with Blockchain Capital announcing $300 million in investments for its Fund V. The big news of the week, however, was the revelation that a16z, led by veterans Marc Andreesen and Ben Horowitz, raised a record $2.2 billion for its third crypto venture fund. The Block reports that Crypto venture has hit the big time, with $8.8 billion raised so far in 2021, more than the last two full years combined.
Michael Saylor buys the dip
On June 21, Michael Saylor’s Microstrategy (MSTR - NASDAQ) purchased another 13,005 BTC at an average price of $37,617, costing just under the half billion raised in the high yield market earlier in the month.
This last buy takes MSTR’s total holdings to 105,085 tokens, with an average entry price of $26,080. Saylor’s Bitcoin strategy has energized MSTR’s stock price. Since it started buying BTC in August 2020, MSTR has risen 3x.
MSTR has issued two convertibles and one senior secured high yield offering, totalling $2.2 billion, providing significant leverage to its $3 billion BTC position, With so much of their Bitcoin holdings financed with borrowed money, there has been some FUD surrounding the strength of Saylor’s resolve, should BTC correct further to the downside. There are several excellent reasons why MSTR will continue to hold BTC “with diamond hands”:
The notes are not due until 2028 (high-yield) and 2025 and 2026 (convertible bonds). There is no liquidity risk for at least the next 4 years.
Saylor controls 70% of the voting shares. The board cannot, therefore, easily force him to act.
After El Salvador, Paraguay?
Dollarizing an economy stabilizes prices and economies damaged by excessive domestic money-printing, yet severely impacts political sovereignty. Economies dependent on the USD can quickly become the targets of monetary imperialism in the form of sanctions, should the US wish to exercise its power as the global financial hegemon.
It is therefore no surprise that El Salvador, often-threatened by the US, has declared that Bitcoin will join the USD as legal tender, and that tokenized stablecoins will become an additional alternative to BTC for any transaction. With a parliamentary majority, the passage of the bitcoin bill was certain.
Paraguay is neither dollarized, nor is the new bitcoin bill being introduced by the ruling party. It is therefore too early to say if Paraguay will become the second country to declare BTC legal tender. Still, the fact that the bill is even being considered is positive for Bitcoin adoption.
Certainly, cheap and green electricity may be attractive for miners: Paraguay is the world’s largest exporter of electricity, all of it from hydroelectric sources.
This week’s blog: “Crypto Activist Investing: The Power of Partnership”
Last week’s blog illustrated our use of near-term catalysts to effect value-driven positions, both short and long. This week, we highlight examples of our crypto activist strategy.
The recent correction underscores founders’ needs for partnerships with investors, who not only are committed to the long term success of the project, but also can provide advice, human capital, resources and even protocol liquidity. By providing these for our investments, Hartmann Capital increases the likelihood that our investments will persevere through challenging market environments and perform.
Announcement - Hartmann Capital partners with Kingdom Trust to bring DeFi Exposure to your IRA
We are excited to have completed on-boarding with Kingdom Trust, a custody and administration platform consisting of $18 billion comprising more than 20,000 assets. Kingdom’s platform was the first to facilitate investments in digital currency in US self-directed retirement accounts. From now on Hartmann Capital is able to accept investments from tax advantaged accounts such as Roth IRAs.
Hartmann Capital Weekly written by Head of Communications, Rasheed Saleuddin, PhD, CFA
Disclaimers:
This is not an offering. This is not financial advice. Always do your own research.
Our discussion may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.