The Bitcoin Newsletter #4 - Bitcoin stocks
The “What is Money?” Show, Nostrica, Bitcoin Jungle, Zeitsprung Podcast, Bitcoin Block München.
INTRO
Welcome to the 4th edition of The Bitcoin Newsletter
Macro conditions are not great. But they allow people to see why Bitcoin matters. While fiat currencies around the world are inflating and losing purchasing power, bitcoin is gaining purchasing power due to its excellent monetary characteristics, specifically the fixed supply cap of 21,000,000 bitcoin. The price of bitcoin has increased by over 60% in 2023. The utility behind it is becoming clearer day by day.
Owning bitcoin and keeping it in self-custody is ideal and generally preferable to most other forms of saving (investment). However, in many jurisdictions Bitcoin is not fully regulated yet. As a result, many financial companies do not allow their employees to hold bitcoin corporate or private. In addition, most traditional fiat banks do not accept bitcoin as a collateral in case someone has outstanding loans with such banks.
If you are restricted in purchasing or holding bitcoin due to the reasons mentioned or for any other reason, investing in stocks of companies which are involved with Bitcoin as part of their treasury, through mining, or by offering bitcoin-related financial services, can provide an excellent means to gain exposure to bitcoin. In this fourth edition of the newsletter, I am sharing five publicly listed companies that I am particularly interested in.
I would like to highlight that this newsletter is my platform to share my thoughts. Please note that the opinions expressed in this newsletter are my own and the content provided is purely for informational purposes. It is important to recognize that this information or any other material shared in this newsletter should not be considered as legal, tax, investment, financial or other advice. Before making any investment, it is essential to conduct your own research and be aware of your personal risk tolerance.
Best regards,
Leon
1) Bitcoin = the protocol and payment network
2) bitcoin = the currency
DEEP DIVE
Bitcoin stocks
Historically, the value of bitcoin grows exponentially after the halving of the block reward, which is awarded to a miner on average every 10 minutes for successfully adding a block of bitcoin transactions to the Bitcoin blockchain. The halving occurs every 210,000 blocks mined, which takes four years on average. Consequently, bitcoin halving usually occurs in four-year intervals. The next halving is expected to take place in late April 2024. Thereafter, historically, the shares of publicly traded companies exposed to Bitcoin rise significantly in price. This has been the case after the last three halvings since 2009.
Therefore, if you are interested in buying stocks in so-called "Bitcoin companies”, it makes sense to do so now in the depths of the bear market. The shares of Bitcoin mining companies (miners) are particularly interesting as their value has fallen sharply, which allows for considerably low share price entry points. The bear market is far enough advanced to assess which miners will survive. Crucially, in 2023/2024 miners will not have the same access to funding through the capital markets as in 2021/2022. It is essential to look for miners that can generate income independent of mining bitcoin. Notably, by selling energy to the state's power grid, miners in Texas have been able to generate millions of dollars. This alternative revenue stream has allowed these miners to weather a prolonged bear market by leveraging cheap energy sources that provide them with a competitive edge.
I have been paying attention to miners sourcing renewable energy because they tend to be cheap sources of energy. In addition, miners can also sell renewable energy to the grid as demand for it is high. Below I have highlighted the miners, which I believe have a great position in the market:
Riot Blockchain (RIOT) has established over the past five years strong mining operations in central Texas and in Denver, Colorado. Notably, Pierre Rochard, the VP of Research, possesses exceptional skills in developing competitive strategies that enable the company to thrive in the mining industry.
The company is focused on increasing its bitcoin mining hash rate and infrastructure capacity, while transitioning into a full-on energy company. As an energy producer RIOT is making money by selling energy to the grid. Bitcoin mining is an icing on the cake that promises growth for the company.
CleanSparks (CLSK) was founded in 2014 as an energy company specialising in the construction of localised power grids and microgrids for military bases, small businesses, factories, and residential properties. However, in 2022, the company pivoted to become a Bitcoin miner, leveraging the right incentives to make the transition successfully. The company's mining capacity is continuously expanding, as demonstrated by their recent construction of a new location in Washington, Georgia, which is slated to house 16,000 miners. This strategic move towards Bitcoin mining has positioned them for continued success in the future.
Bitfarms (BITF) is a company that is well-positioned for success since its founding in 2017. With access to affordable energy sources, primarily hydropower, and a capable Chief Mining Officer in Ben Gagnon, BITF is able to mine a significant amount of Bitcoin each month (424 in March 2023). This makes their current stock price appear relatively inexpensive, considering their impressive mining output.
In addition to traditional Bitcoin mining companies, I also find companies that hold bitcoin on their balance sheet or offer Bitcoin/Lightning services to be of interest. These companies stand to benefit greatly as the value of bitcoin increases over time. For those who are unfamiliar, the Lightning Network is a "Layer 2" payment protocol that is built on top of the Bitcoin blockchain. It enhances Bitcoin by enabling fast transactions and micropayments, making it an exciting technology to watch. Below I have highlighted the companies that I believe are well-positioned in the market:
MicroStrategy (MSTR) is a true pioneer among public companies, as it was one of the first to hold a significant amount of bitcoin on its balance sheet. Currently, the company holds over 140,000 bitcoin, which is equivalent to 1/150 of the total bitcoin supply. MSTR is well-positioned to weather any looming currency crisis in the fiat-based financial system.
The founder Michael Saylor is a vocal advocate of Bitcoin and his passion for the cryptocurrency is reflected in the company's strategy. They have adopted a consistent approach to buying bitcoin, which has proven to be successful. In addition to holding bitcoin, MSTR has announced its intention to offer Lighting solutions for corporations, once again showing its pioneering spirit.
Block (SQ), formerly Square, is a company that has been restructured to focus on Bitcoin by co-founder and CEO Jack Dorsey. From what I can see, Jack seems to have a good understanding of Bitcoin and maintains a corporate culture of "Bitcoin ethics". He is also a supporter of the Bitcoin ecosystem, particularly in the areas of Lightning, open-source development, Nostr and Bitcoin innovation in Africa.
While the current restructuring plans may create some challenges for Block in the next few months, I believe that it will likely pay off in the long term.
Have we bottomed?
Historically, markets had never bottomed before interest rates were cut. However, it looks like we are over the worst part. Furthermore, companies that have exposure to Bitcoin are not primarily dependent on the FED's interest rate policy like the rest of the market, but rather on bitcoin's supply/demand dynamics. Bitcoin seems to have bottomed out and the closer we get to the 2024 halving the better off “bitcoin stocks” are.
There were certainly better entry points into stocks with bitcoin exposure when bitcoin was trading at $16,000, but at that point there was no telling which companies would survive. Over the next few months, we will likely see bitcoin moving sideways in an uptrend, with dips providing opportunities to buy and build positions.
In summary, we have most likely weathered the worst of this bear market. I am excited about the companies that now exist in the Bitcoin ecosystem. Some of them will be among the most important companies in the world in the future. We now have the opportunity to buy shares in these companies at relatively low prices. In particular, the merger of the energy sector and Bitcoin holds great opportunities. Through Bitcoin, we can now monetize every molecule of energy (s/o to Lisa Hough).
WORTH TO KNOW
The “What is Money?” Show
Robert Breedlove, host of the “What is Money?” podcast, had invited me for a conversation on one of his latest episodes. We had the chance to discuss Bitcoin’s influence on the real estate business, how the traditional real estate business model is changing with the Bitcoin concept, the prospect of digital real estate, the consequences of bad money, and compatibility of Bitcoin with the ethical and religious beliefs of Judaism. I thoroughly enjoyed the conversation with Robert. WATCH | LISTEN
Nostrica Conference
In March, I had the opportunity to attend the first edition of the Nostrica conference in Uvita, Costa Rica. The event was intimate, with only around 230 attendees, but the content was of high quality. Through great conversations and presentations, I gained a deeper understanding of the possibilities presented by Nostr, which is a decentralised protocol designed for the transfer of information that cannot be censored. When used in conjunction with Bitcoin and the Lightning Network, it offers an ideal tech stack for market participants to work, communicate and collaborate without being subject to centralised controls. It's worth noting that Nostr isn't built on top of the Bitcoin blockchain, but it does support bitcoin payments over the Lightning Network.
In addition to the like feature that traditional social media platforms also use, a feature called "Zaps" allows users to tip other users for content they enjoy by sending satoshi (the smallest denomination of bitcoin 1/100M) over the Lightning Network. There are many possible positive implications for this. One key example is that it allows digital creators to monetize their content directly without having to rely on third parties.
Overall, Nostr helps shift the balance of power from centralised institutions to the individual. Leading to a renewed sense of autonomy and self-reliance within the market. It is through this bottom-up approach that true innovation can thrive and grow out of the free market.
I wrote a thread on how Bitcoin, Lightning & Nostr can enable innovation without the need for (institutionalised) credit, which has become a mechanism used in conjunction with fiat money to control the market. READ: NOSTR | TWITTER
Zeitsprung Bitcoin Podcast
Recently, I had the pleasure of participating in a German podcast titled "Trennung von Staat und Geld" (Separation of Money and State), hosted by Lea, Patrick and Tobi from the renowned Zeitsprung Bitcoin Podcast. Our discussion covered various topics, including the potential danger of property confiscation by totalitarian governments and the associated risks. Moreover, we delved into the benefits that Bitcoin offers, and how it can potentially enhance individual freedoms and benefit society as a whole. I found our conversation enlightening and enjoyable, and I am eager to engage in future podcasts with Lea and Patrick. Our discourse touched on critical issues, which I believe are of great significance in the current social and political climate. LISTEN
Bitcoin Block München Event
On May 5th, I will have the pleasure of joining Lea and Patrick from the popular Zeitsprung Bitcoin Podcast for a special live event. We will be celebrating the opening of "Bitcoin Block Munich," an exciting new initiative located in a high-traffic shopping centre featuring global brands. This physical space is one of the first of its kind in Germany, offering an immersive Bitcoin experience for retailers, businesses, and individuals.
As a featured speaker at the event, I look forward to sharing my expertise on how companies can effectively integrate Bitcoin into their strategies for long-term success. This is a unique opportunity to inform and inspire individuals about the potential of Bitcoin and its role in shaping the future of finance. WEBSITE | TEASER
IDEAS OF INTEREST
Robert Breedlove & Jeff Booth - Ego Death Through Bitcoin (WiM288) WATCH
Bitcoin Builders - How Bitcoin mining unlocks last mile energy with Erik Hersman of Gridless LISTEN
The Kardashev scale: Classifying alien civilizations READ
Resources
The Case for Bitcoin - Bitcoin’s returns over time
Riot Platforms Is Flush With Cash, Debt Free And Will Gain Market Share
Bitfarms Mines 424 BTC in March
MicroStrategy to launch Bitcoin Lightning Solutions
Insights From the 4th Largest Lightning Network Node
Galaxy Digital End of Year Mining Report
Disclaimer: the content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. If you like to build on my thoughts, feel free, but please cite me as the source. 2023 - Leon A. Wankum.
If you want to support me. Feel free. You can send me some satoshi/bitcoin.
My lightning address is: law@getalby.com
My bitcoin address is: bc1qyc9q89wjzmvaw729tj3wsrsfhft53mjycrjxdk