Bitcoin Treasuries: Inflation Hedge or Hype-Driven Bubble?
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to Merrin Talks Your Money, the personal finance edition of Merrin Talks Money. In these bonus podcasts, we talk about the best strategies for making the most of your money. I'm Merrin Thumset-Webb, and with me, senior reporter and money distilled author John Stepek. Hi, John. Hi, Merrin.

Okay, so in this episode, we are going to talk about something actually we have never talked about before. We've talked about Bitcoin a lot, but we haven't talked about this new thing. Bitcoin Treasury is actually not that new, but relatively new to the UK. So we think this deserves a conversation, maybe a little scrutiny. I think possibly UK investors are beginning to be aware of what's happening. So we've got London listed companies.

mainly smaller companies, some actual companies that were originally miners, we're going to talk about in a minute, who have started stockpiling Bitcoin in order to get their share price up. So we're going to talk about why they're doing this, why it might be a concerning trend to investors, maybe there are better ways to get access to cryptocurrencies.

So to help us dig into all this, we have invited our old friend Dominic Frisby to join us. Now, Dominic, many of you will know he's the author of the investment newsletter, The Flying Frisbee. He's written a lot of very good books. He sings some great songs. And loyal listeners might know him as a recurring guest on the Adam Smith panel show that we do at the French Festival every year. Dominic, welcome. Thank you so much for joining us today.

It's a pleasure to be here. Good. Now, I've probably said everything wrong in my introduction. So let's start like this. Will you tell us what we're talking about? What is a Bitcoin treasury? Why have they come to the UK? Well, it's funny enough, actually, in your introduction, I think you said absolutely everything right. And not for the first time, Maren. Thank you, Dominic. But in your sort of intro to your intro, you said about how this is a show for people

People who are thinking about what to do with their money. And this whole thing began with an American CEO called Michael Saylor, who in 2020 was looking around at what was going on during COVID. And he was wondering what to do with his corporate treasury to protect it from getting eroded by inflation.

And so he knew he couldn't hold US dollars because effectively he was going to lose 10 or 15 percent to money printing every year, probably more during COVID. I think at the moment, money printing or, you know, money supply growth, whatever you want to call it, is at 7 or 8 percent globally. So you have to make 7 or 8 percent just to stand still.

If you're a corporation running a business, you have to grow at 7% or 8% just to stand still. And I think that's quite an interesting way of framing the gradual erosion of everything that's taking place. And so Saylor was looking around at, you know, do I put my corporate treasury in real estate? Do I put it in gold? Do I put it in S&P tracker funds? What do I do? And he eventually arrived at the conclusion of Bitcoin.

And then in quite an astounding way, he took, as we call it, the orange pill. He was orange pilled in a way that I've never seen anyone orange pill before and has transformed himself into the most articulate proponent of Bitcoin that there is. Yeah. And so just be clear, anyone who held MicroStrategy shares then when he made this decision has made an absolute fortune because he's ridden the whole Bitcoin wave.

So MicroStrategy was what you would call a zombie company. It had a sort of bit of a boom during dot-com. And then basically after dot-com, for the next 20 years, it just range-traded between $10 and $20. It just went absolutely nowhere. And it had quite a good software business, but it wasn't changing the world and it wasn't making fortunes for its investors and so on. But then since transforming it,

since transforming his company, he basically initially just held his corporate treasury in Bitcoin. But this model worked so well that he just kept raising more and more money and just simply buying Bitcoin with it. He was doing... Issuing shares, using the cash to buy Bitcoin. And issuing debt as well. Okay, issuing debt, stockpiling more and more Bitcoin and effectively becoming a play on the Bitcoin price for shareholders. A levered play on the Bitcoin price.

And I think he's going to end up the richest man in the world as a result of all of this. And I think MicroStrategy is already now in the S&P 500 in terms of market cap. And I think it'll be one of the top 10 companies in the world by market cap by the end of this decade. If you're in the US and you want to hold back Bitcoin or have a leverage play on Bitcoin, MicroStrategy is an obvious place to go, although not everyone is happy with the share price that was leaked.

Well, funnily enough, a lot of his buyers came from the UK because the FCA and its wisdom made it impossible for UK investors to invest in Bitcoin when it was $5,000. The only way you could get exposure was to buy stock in MicroStrategy. And so I remember writing articles in MoneyWeek and on the Flying Frisbee saying to people, look, if you want exposure to Bitcoin in the UK, just buy MicroStrategy. But to be fair, you can also just open a Coinbase account and hold Bitcoin. You couldn't.

You have been able to for some years now. It's a nightmare, Mary. If I can do it, anyone can do it. I hold my Bitcoin on Coinbase. Dominic, you've known me decades now. You know I can't do admin. I've got a Coinbase account. What can it be? Most banks would not allow you to send money to crypto exchanges. What about my credit card?

OK, well, maybe First Direct was one of the most modern, groovy ones, but most banks, people found it impossible to send money. And Coinbase is one of the more regular ones, Gemini too. It's a real headache. And especially you can't buy it in your sip in your eyes, sir.

And whereas you can buy MicroStrategy, it was just much, much easier to buy MicroStrategy stock than it was to buy Bitcoin. And in fact, the situation we have now is directly a cause of the FCA making it so impossible to buy Bitcoin. I mean, it's direct. So the FCA has made it hard to buy Bitcoin in general, but also in particular, and this possibly is the key point here, is that you cannot buy cryptocurrency in any way inside one of the tax wrappers available in the UK. So you can't buy...

The thing is an ISA account on Coinbase. You can't buy Bitcoin or any cryptocurrency or an NFT or anything like that and shovel it into your SIP or your ISA. So what we're talking about here is the market going, well, OK, let's give you another way to do that.

Yeah, so this is very recent in the UK, right? Yes. So SmarterWeb, they announced that this is what they were going to do only towards the end of April. Correct. And if you look at the share price at its peak, it was up over 6,000% from the date of that announcement. All these...

Bitcoin treasury companies have now come off in the UK. So it's only up 4,000% at the moment. I think it's 250p or something. So that's still, I mean, that is extraordinary shift, which, by the way, surely doesn't reflect the actual value of the Bitcoin that they hold. Well, this is the next, this is the big argument. Yeah.

Yeah. So actually, before we get onto that, let's just talk about the other companies, what kind of companies have done that? Because I mean, I've got a list of them here and there's what, there's 10, 11 companies that have done this maiden announcement that they're going to adopt a Bitcoin treasury strategy. I mean, they're, they're all companies that I have never heard of before. Bluebird mining ventures, vault ventures, true spine technologies, Panther metals, et cetera. So, uh, companies that were dabbling in other things, a couple of helium explorers, right? Um,

Yeah, there's a couple of helium exposures that have pivoted. Yeah, I mean, that's one hell of a pivot. Although I suppose it's all hot air. It is indeed.

What you always see when you see these incredible bubbles is loads of people jump on the bandwagon. I remember Uranium in 2006. I was planning to set up a Uranium Explorer based on Wandsworth Common because there was just, you know, everyone was just getting in. So there are lots of opportunities. We're getting there again. You can have a go. I mean, if you look at this list, there are a couple of, you know, Uranium on Wandsworth Common type companies in there. I'll say, absolutely. Yeah.

I mean, there's one, and I don't mean to libel you, Amazing AI, because I'm sure you're doing something good, but the company is called Amazing AI. And they only announced their strategy on the 24th of June, so not very long ago. And sadly for them, they have not gone up 6,000%. They're actually down 12% since.

Yeah, they rose a bit and then fell back a bit. But they've only got, they raised, it's a bit naughty in a way that they raised 120 grand and the share price was trading at 4p. And I think all the directors got the shares at half a p. Right, moving on. We have these Bitcoin treasury companies now and we're effectively putting them into their own sector, aren't we? Bitcoin treasuries. And we're forgetting anything else they ever did. Should retail investors be buying these things, Dominic?

Well, you know, Merrin, what is a bubble? Tell me what a bubble is and I'll tell you what a bubble is. You tell me what a bubble is first. A bubble is a bull market in which you don't have a position. It's very easy. You know, everyone has been saying Bitcoin is a bubble. Bitcoin is a bubble for 15 years now. And it's always people that don't have a position.

And it's a psychological way of coping with the fact that you didn't invest and are now worried about investing too late. You dismiss it as a bubble. I think I have to interrupt you right now just to ask John a question. John, is Bitcoin a bubble?

Oh, Bitcoin itself, as opposed to these things. I'm asking him that first, Dominic, because he's the only one of us on this podcast who doesn't have any Bitcoin. Look, I resent it furiously, but I think it's a bubble. No, I don't. It's been around for two. And actually, if you look at the chart, it isn't very bubbly. Okay, well, you haven't. You haven't got a Coinbase account. You haven't got any Bitcoin. You haven't got any other crypto.

So let's talk about John. Let's pretend that he's too admin useless to open a Coinbase account. He's even worse than I am. Surely... So just one thing. Yes, John. The reason I don't own Bitcoin is because my bank, which was nationwide, stopped me from transferring 100 quid to my Coinbase account in 2015. Please do not tell me how much that 100 quid would be worth now because I may throw myself out the window. Move to First Direct and just start using your credit cards. That's all I'm saying.

But which one of these Bitcoin treasury companies does John buy? I would like him to buy Panther Metals because, you know, they've been looking for zinc deposits in Canada. Maybe they'll find some of those too. So you're hedging, John, you're hedging.

Well, yes. That's a diversified portfolio. Sure is. Dominic, sorry. We're gossiping over you. Dominic, tell us what to do. I think Panther Metals might even be funding their exploration of said zinc deposits with their Bitcoin treasury. I think that's the purpose of it. You know they only have one Bitcoin, right? Yeah, exactly. So if we go back to the original bubble, if you like, which was Tulip's,

There was obviously a tulip bubble in 1638, but that tulip bubble built an industry that has brought prosperity to Holland for 400 years, and it remains at the centre of the flower industry today. You could say the same about dot-com. Dot-com was obviously stupid, but the internet...

It's bigger than it ever was. And so we're seeing that same pattern. So if you ask me, where are these stocks going next? I will say higher and lower and lower and higher. I mean, it's a speculative bubble and there's obviously a lot of opportunists. But some of these companies and the smarter web company being one of them and Coinsilium being another are legitimate, you know, if you like.

Bitcoin believers and they are following the Saylor crypto model and they're not just sort of fly-by-nights. And if Bitcoin goes from $110 to say $150 or wherever it's going next, then these companies will double and triple and more. So if Bitcoin goes back to $70 or $50 or whatever, these companies will lose similar amounts. The only reason I'd sort of struggle with it is because

with this specifically, so let's say I'm agnostic on Bitcoin. I don't have a strong view either way. But

Why? I don't quite get why I would buy Watermounts to an investment trust trading a massive premium to its NAV, which is like, you know, investing in Bitcoins. And I suppose at least Saylor was the first in the space. But as far as I'm aware, it's like trading a big premium to the Bitcoin holdings. I haven't double checked that. Maybe I'm wrong. No, twice. Yeah, aye.

And I mean, you've got all these new ones and clearly some of them are like junior uranium miners or explorers that haven't got anything. It was a bit like whenever the gold ETFs got launched and the gold miners, they didn't end up losing a lot of flows because people could just access gold directly, except even more so because at least the gold miners, you are actually digging some gold out of the ground at a cost and then selling it. Whereas with Bitcoin,

They're just buying Bitcoin and then holding it. So this is what I don't understand the rationale for these being good ways to play Bitcoin, I guess. I shall attempt to explain the rationale. I hope I'm being clear that my overall position is that there is a lot of hot air and, you know, Rolex in this story, but there is also an underlying truth to it as well.

Now, it's clear to me that you are saying that there's a lot of SPIVy companies in the space. I'm kind of wondering, like, why does the space exist at all beyond the regulatory arbitrage element, which I think is completely... That makes sense, but it makes sense in as much as until there's a Bitcoin ETF that everyone can easily get hold of, which presumably isn't that far away. I think the FCA is...

looking at something on those lines. The traditional way of valuing an investment trust is you go, yeah, this investment trust has got a million pounds worth of assets. It's only trading at half a million quid. I'm going to buy it because it's worth twice its assets. Bizarrely, in the Bitcoin treasury space, it's almost like the reverse applies.

Now, MicroStrategy is trading at a value of roughly twice the value of its Bitcoin. So the expression is MNAV, its market cap to NAV ratio. So Strategy has an MNAV of two. And I think that price is deserved because of what I call the Saylor premium. The guy's just so charismatic and such an articulate proponent of Bitcoin. You just get a premium because it's Michael Saylor and he's the visionary and he's the leader and so on.

But some of these other companies, there's another company called Semla Scientific, which is trading on the NASDAQ.

And I think it has 5,000 Bitcoin, something like that. And its market cap is half a billion. So it's trading at an MNAV of one. And the CEO of the company, Eric Semler, is a very nice man, but he doesn't have the charisma that Michael Saylor has. And so you get no premium for the management. But if you look at a company like MetaPlanet, I don't even know what its MNAV is at the moment, but it's many multiples of

of what its actual Bitcoin holdings are. And in the case of Coinsilium, for example, at one point last week, Coinsilium had a market cap of maybe 120 million quid and the value of its Bitcoin holdings was less than 5 million quid.

And similarly, at one extreme point, smarter web company at a valuation above a billion. And I think it's Bitcoin holdings were worth maybe 50 million or something like that. So, you know, there was a huge premium to MNAV. So there's this new thing which people talk about called time to MNAV.

So if a company has an MNAV of one, it can only issue more shares and more debt to the value of its Bitcoins. Whereas if it has an MNAV of 10, it's able to issue paper at 10 times its value and buy Bitcoins with this overvalued paper. And then the idea is that the company, the value of the Bitcoin holdings eventually catches up with the value of the company. So you have this thing called time to MNAV, which is a sort of measure that's been devised.

And if you can pick up a company with a greater time to MNAV, the potential of that company to grow its Bitcoin holdings to reach its MNAV grows greater.

But there are also at the same time loads and loads of parallels, if you like, to the old fashioned pyramid scheme. And the earlier you get in the pyramid scheme, the more money you make. And because this is just suddenly happened in the last month, everyone's really trying to get in early to be the guy who makes all the money. I was lucky enough to buy Coinsilium at 6p.

10 days later, it was 90p. 10 day. That includes a Saturday and a Sunday. Dominic, Dominic, Dominic, did you keep it? Did you sell it? I took my initial stake off the table, Merrin, and I took a little bit more off the table. Very wise, very wise. And looking back as this stock is now 25p, I should have taken more off the table. But my attitude was, I'll just let the run. I'll enjoy. I'll get the rest of the ride for free and see what happens.

There are some people who are using this measure with great success. So we can mock and scorn and all the rest of it, but they are making a great deal more money. They're making money and we're not. I get that. I mean, I suppose the positive side to this, John, and the thing that we should bring out before we finish is that

It is, however it's happening. It is great to see retail investors engaged with the listed stock market. I know this is not the way you want it to happen, but I still look at it and I think the more people are engaged with the stock market, the better.

And what the stock market is doing here is saying there's something you guys want and that's what the market is supposed to do. So we should approve of that mechanism and we should approve of people using that mechanism to get what they want, even if you don't approve of the thing they're buying. Am I right, Dominic? Work with me here. Yes. The thing is, there's so much pent up demand over many years and demand

You know, that sort of tap has suddenly been opened. And that's what's created this wild helter skelter ride. You have to think psychologically, where are we in the bubble? Where are we in the hype cycle? Rather than in terms of, you know, traditional investment metrics. Dominic, thank you so much for joining us today. And John, thank you as ever.

Thanks for listening to this week's Merrin Talks Your Money. If you like our show, rate, review and subscribe wherever you listen to podcasts. Also, be sure to follow me and John on X or Twitter and Dominic, of course. What are you on Twitter, Dominic? I'm at Dominic Frisbee and the website is theflyingfrisbee.com.

Thank you. I'm at Merrin SW and John is John underscore Steppe. This episode was produced by Sam Asadi, production support and sound design by Moses Andam. Questions and comments on this show and all our shows are always welcome. Our show email is merrinmoney at bloomberg.net. So have you heard the story about the prescription plan with savings automatically built in? It's where a family of any size can feel confident the cost of their medication won't hold them back.

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