2/22/24 Roundup: Bitcoin Development, Network Effects & ETF Flow Update

Onramp Weekly Roundup
Written By Zack Morris

Before we get started…if you want to learn more about multi-institution custody and its benefits for securing bitcoin for generations – connect with the Onramp team.

And now, for the weekly roundup…

  • MicroStrategy rebrands itself as world’s first Bitcoin Development Company
  • Bitcoin has spawned multiple industries as each a commodity, an asset class, and a technology platform
  • Bitcoin ETF flows update

MicroStrategy: “We’re a Bitcoin Development Company”

MicroStrategy is widely known for their adoption of a “bitcoin strategy” in 2020, when they began to convert their corporate treasury into bitcoin.

But a funny thing happens when you buy bitcoin — once you have a stake in the network, you become motivated to contribute to the growth, resilience, and success of the network in other ways.

And so it is with MicroStrategy and the present evolution of their bitcoin strategy, with the following proclamation last week from CEO Phong Le during their Q423 earnings call:

“We consider MicroStrategy to be the world’s first bitcoin development company.

Let me explain what we mean. We are a publicly traded operating company committed to the continued development of the bitcoin network through activities in the financial markets, advocacy and technology innovation. As an operating business, we’re able to use cash flows as well as proceeds from equity and debt financings to accumulate bitcoin, which serve as our primary treasury reserve asset.

We also develop and provide industry-leading AI-powered enterprise analytics software that promotes our vision of intelligence everywhere and are also using our software development capabilities to develop bitcoin applications.”

One such bitcoin application is MicroStrategy’s Lightning Rewards, a product that integrates a bitcoin wallet and lightning address into corporate email accounts. Through integration with lightning, companies can reward employees with satoshis for completing surveys, meeting health and wellness goals, or simply showing up to meetings on time.

In addition to software development, MicroStrategy has open-sourced their corporate bitcoin adoption playbook in order to help other companies implement their own bitcoin strategy if they so choose. Considerations include custody and trading solutions, accounting treatment and tax implications, employee trading policy, and shareholder communications strategy.

Source: MicroStrategy

Since implementing their corporate bitcoin strategy on 8/10/2020, MicroStrategy has gone from an initial purchase of 21,454 BTC for $250 million to today owning 190,000 BTC, worth $9.7 billion at the current price of $51k/BTC.

On their last quarterly filing pre-bitcoin, they reported $531 million in cash, $833 million in total assets, and $458 million of stockholder equity on the balance sheet.

As of 12/31/2023, they report $47 million in cash, $4.76 billion in total assets and $2.16 billion in stockholder equity, having grown assets by 8.8x and stockholder equity by 4.7x in 3.5 years. And that’s using the current cost-less-impairment standard for accounting for balance sheet digital assets — MSTR’s current average carrying cost of the bitcoin on their balance sheet is $19,170, reflective of $2.3 billion of cumulative impairment losses resulting from bitcoin price fluctuations.

Effective 12/15/24, FASB is implementing a new accounting standard for digital assets, requiring them to be valued at fair market value. This change will significantly boost MSTR’s balance sheet debt ratios, affording them more financial flexibility, and makes it much less onerous from an accounting perspective for businesses to buy and hold bitcoin, paving the way for more adoption as a treasury asset.

Whether or not MicroStrategy is truly the world’s “first” bitcoin development company is not really important. The broader point is that their announcement further demonstrates that bitcoin can be thought of as a new technology which is many things in one and is spawning entire industries to support it, develop it, and defend it.

Like stocks and bonds, bitcoin is an asset class that has spawned a whole host of exchanges, custodians, payment providers, and lenders.

Like the internet, bitcoin is a technology platform that has spawned a range of software development and social media companies.

Like gold, bitcoin is a commodity that has spawned an entire mining industry.

Bitcoin miners are businesses, run by business people, on behalf of shareholders. Bitcoin is their raison d’etre. Do you think any of them would conspire to attack the network?

Quite the opposite. They are literally in the business of defending it.

And now MicroStrategy is in the business of developing it.

Bitcoin ETF Flows Update

More than one full month in and ETF flows are going strong, logging 17 consecutive days of net inflows as of 2/20.

As seen in the charts below, through 2/20 GBTC has seen outflows every day since ETF conversion, but the pace of outflows has abated since the first two weeks of trading, now down to around $100 million per day. GBTC has now experienced $7.1 billion in cumulative outflows.

Meanwhile, the new entrants are more than picking up the slack, having experienced inflows every single day and now sitting with $12.3 billion in cumulative inflows.

On net, the entire complex has taken in $5.2 billion since launch.

Source: Bloomberg, Farside Investors, Onramp

BlackRock’s IBIT has led all new entrants having taken in $5.5 billion. Fidelity’s FBTC has taken in $3.8 billion, and Ark’s ARKB and Bitwise’s BITB round out the billion dollar club at $1.3 and $1 billion, respectively.

IBIT and FBTC have gathered more assets after one month (20 trading days) than any other ETF in history. ARKB and BITB also make the top 25:

Eric Balchunas, Bloomberg Intelligence. Data as of 2/8/2024.

Chart of the Week

source: Ropirito

A little outdated as we’re now into 2024 and above $50k, but you get the point.

Quote of the Week

“He will talk to you, but he wants $1,000,000. $1,000,000 in either US dollars, gold, or bitcoin.”

— Tucker Carlson, on what Boris Johnson’s advisor told him in response to a request to interview the former British Prime Minister.

Market Update

as of 2/21/2024:

Source: Onramp, Koyfin. 3-, 5-year figures annualized.

Risk assets took a breather as the market awaited Nvidia’s earnings report on Wednesday afternoon for an update on the AI bull case. Bitcoin fell 1.3% despite continued strong ETF inflows. Gold rose 1.6% back above the $2k level. Oil continued its YTD rally up 1.9%. Bonds showed continued weakness after last week’s higher than expected inflation data, losing 0.3%.

Podcasts of the Week

The Last Trade E038: Dubai Debrief with Jackson Mikalic & Brian Cubellis

In this episode of The Last Trade, Jackson Mikalic & Brian Cubellis join the pod to discuss Onramp’s recent trip to Dubai, the Bitcoin Oasis conference hosted by the Bitcoin Association UAE, growing adoption in the region, bitcoin ETF volumes, the halving, market sentiment, & more.

Scarce Assets E004: Wealth Management in the Bitcoin Era with Morgen & Pierre Rochard

In this episode of Scarce Assets, Morgen & Pierre Rochard join hosts Andy Edstrom & Jesse Myers to discuss wealth management in the bitcoin era, long-term financial planning, the mining landscape, adoption tailwinds & more.

Closing Note

Onramp provides bitcoin investment solutions built on top of multi-institution custody. To learn more about our products for individuals and institutions, schedule a consultation to chat with us about your situation and needs.

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Until next week,
Zack Morris