Original title: The Demise of Decentralization and the Consolidation of Power: U.S. Capital Poised to Complete the Transfer of Authority in the Crypto Utopia

Author: YBB Capital Researcher Ac-Core

Key Points< p>In the long run, investing in Bitcoin through ETFs may not be beneficial. Bitcoin ETF trading volume in Hong Kong is much lower than in the United States. There is no doubt that American capital is gradually taking control of the crypto market. The Bitcoin ETF will divide the market into two parts: the "white market" that operates under centralized financial supervision and is limited to speculative trading, and the "black market" that retains native blockchain activities and trading opportunities but faces regulatory pressure for being "illegal" ".

MicroStrategy enables efficient arbitrage between stocks, bonds and Bitcoin through its capital structure design. It closely correlates stock and Bitcoin price movements for long-term low-risk returns. However, MicroStrategy uses unlimited debt issuance to drive up its own value, which would require a long-term Bitcoin bull run to sustain. Citron Research's short position on MicroStrategy therefore has a higher success rate than its direct short position on Bitcoin, even though MicroStrategy is betting that the price of Bitcoin will grow slowly and steadily without large swings.

Trump’s cryptocurrency friendliness will not only maintain the U.S. dollar’s ​​status as the global reserve currency, but also strengthen the U.S. dollar’s ​​dominance in cryptocurrency pricing. Trump holds the hegemony of the US dollar in one hand and Bitcoin in the other - the most powerful weapon against the loss of trust in fiat currencies. He has strengthened both at the same time and hedged the risks.

1. U.S. capital gradually enters the cryptocurrency market 1.1 Hong Kong and U.S. ETF data

According to Glassnode According to data on December 3, 2024, the holdings of the U.S. Bitcoin Spot ETF are only 13,000 BTC away from surpassing Satoshi Nakamoto’s holdings, which are 1.083 million BTC and 1.096 million BTC respectively. The holdings of the U.S. Bitcoin Spot ETF are The total net asset value reached US$103.91 billion, accounting for 5.49% of the total market value of Bitcoin. At the same time, according to Aastocks’ report on December 3, the total trading volume of the three Bitcoin spot ETFs in Hong Kong in November was approximately HK$1.2 billion.

Source: Glassnode

American capital is deeply involved and influential It dominates the global encryption market and even dominates its development. Bitcoin ETF turned Bitcoin from an alternative asset into a mainstream asset, but it also weakened the decentralized nature of Bitcoin. ETFs promote the influx of traditional capital, allowing Wall Street to firmly control the pricing power of Bitcoin.

1.2 Bitcoin ETF: Black and White

Classifying Bitcoin as a commodity means it must follow the same tax rules as stocks, bonds, and other commodities. However, the impact of Bitcoin ETFs is not exactly the same as other commodity ETFs such as gold, silver and oil. Currently approved or proposed Bitcoin ETFs have different recognitions of Bitcoin:

1. The commodity ETF path involves holding physical assets (for example, copper warehouses or gold bank vaults), which are processed by authorized institutions Transfers and recordings, investors purchase shares (e.g., Fund shares) for purchase or redemption on a Fund basis.

But in the case of Bitcoin ETFs, the process of buying and redeeming shares is through cash settlement, which is a point of contention for people like Cathie Wood who want physical settlement. However, this is virtually impossible because custodians in the United States are centralized financial institutions that handle cash transactions. This made the early stages of Bitcoin ETFs completely centralized.

2. The final process of Bitcoin ETF is difficult to verify under the centralized regulatory framework. If Bitcoin wants to be recognized as a commodity under a centralized regulatory framework, it must give up its decentralized characteristics, such as being able to replace legal currency and being non-traceable. Therefore, Bitcoin can only become part of financial products such as futures, options, and ETFs if it meets regulatory standards.

The emergence of Bitcoin ETF marks the complete failure of Bitcoin ETF against legal currency. The decentralization of Bitcoin ETF has become meaningless. The front-end completely relies on the legality and custody of platforms such as Coinbase. Ensure that the entire buying and selling transaction chain is legal, transparent, and traceable.

Due to ETFs, the "black" part and the "white" part of Bitcoin are split:

White part: Under a centralized regulatory framework, through the extensive creation of financial products, the market's Price volatility is reduced, and as the number of legitimate participants increases, the speculative volatility of Bitcoin commodities will gradually decrease. After Bitcoin became an ETF, the white part of the market supply and demand relationship lost the key demand factors (Bitcoin's decentralization and anonymity), leaving only speculative trading financial attributes. At the same time, under the legalized regulatory framework, this also means that more taxes need to be paid, which eliminates the original asset transfer and tax avoidance functions of Bitcoin. Essentially, endorsements are moved from the decentralized chain to the centralized one.

Black section: The main reason for the extreme volatility of the cryptocurrency market is that its opacity and anonymity make it highly susceptible to manipulation. At the same time, the market in the black part still maintains a high degree of openness, retains the original value vitality of the blockchain, and has more trading opportunities. But with the emergence of white segment markets, those unwilling toThose who intend to transition to the white market will be permanently excluded from the centralized regulatory framework and lose pricing power, just like paying a fine to the SEC.

2. Trump’s Cryptocurrency-Friendly Cabinet Nominees 2.1 Cabinet Nominees

Trump’s victory in the 2024 U.S. presidential election will be compared to the SEC, Federal Reserve, FDIC and other regulatory agencies during the Biden period. Restrictive, indicating that the United States may take a more aggressive stance on cryptocurrencies. Here are Trump's key new Cabinet nominations, according to Chaos Labs:

Source: @chaos_labs

Howard Lutnick (Nominee for Secretary of Commerce and Head of the Transition Team): Cantor Fitzgerald CEO Howard Lutnick is an outspoken supporter of cryptocurrencies. His company is actively exploring the blockchain and digital asset space, including a strategic investment in Tether.

Scott Bessent (Treasury Secretary nominee): Bessent is a veteran hedge fund manager who supports cryptocurrencies, believing that cryptocurrencies represent freedom and will exist in the long term. He is more supportive of cryptocurrencies than former Treasury Secretary nominee Paulson.

Tulsi Gabbard (Intelligence Director nominee): Gabbard advocates privacy and decentralization, supports Bitcoin, and invested in Ethereum and Litecoin in 2017.

Robert F. Kennedy Jr. (nominee for Secretary of the U.S. Department of Health and Human Services): Kennedy is a public advocate of Bitcoin and sees Bitcoin as a countermeasure against the devaluation of fiat currencies. tool and potentially become an ally to the cryptocurrency industry.

Pam Bondi (Attorney General nominee): Bondi has not yet made a clear statement on cryptocurrencies, and her position remains unclear.

Michael Waltz (Security Consultant Nominee): Waltz is a strong supporter of cryptocurrency, emphasizing the role of encryption in enhancing economic competitiveness and technological independence.

Brendan Carr (FCC Chairman Candidate): Carr is known for opposing censorship and supporting technological innovation, and may provide infrastructure support for the encryption industry.

Hester Peirce and Mark Uyeda (potential candidate for U.S. SEC Chairman): Peirce is a strong supporter of cryptocurrency. She advocates the establishment of clearercorrect regulations. Uyeda criticized the U.S. SEC’s tough stance on cryptocurrencies and called for clear regulatory rules.

2.2 Cryptocurrency-friendliness can prevent the decline of the U.S. dollar’s ​​global reserve status

Will the White House’s promotion of Bitcoin shake people’s confidence in the U.S. dollar as the global reserve currency, thus weakening the U.S. dollar’s ​​status? American scholar Vitaliy Katsenelson believes that given that the market sentiment surrounding the US dollar has been disturbed, the White House's promotion of Bitcoin may indeed weaken people's confidence in the status of the US dollar as the global reserve currency, thus weakening the influence of the US dollar. Regarding the current fiscal challenges, Carson Nielsen believes that "what really keeps the United States strong is not Bitcoin, but controlling debt and deficits."

Perhaps, Trump's move can be a hedge against the loss of the U.S. dollar. means of dominance risk. In the context of economic globalization, all countries are striving to realize the international circulation, reserves and settlement of their own currencies. However, the dilemma on this issue lies in the impossible triangle of monetary sovereignty, free capital flow and fixed exchange rates. The important value of Bitcoin is that in the context of economic globalization, it provides new solutions to institutional contradictions and economic sanctions.

Source: @realDonaldTrump

December 1, 2024 On the same day, Trump posted on the social media platform tariffs and lose access to the U.S. market.

Trump now seems to hold the hegemony of the US dollar in one hand and Bitcoin in the other - the most powerful tool to combat the decline in trust in legal currencies. In doing so, he simultaneously consolidated the U.S. dollar’s ​​global settlement power and pricing power in the cryptocurrency market.

3. The tug-of-war between MicroStrategy and Citron Research

During the US stock market on November 21, Citron Research, a well-known short-selling institution, announced on the social media platform . The news caused MicroStrategy's stock price to fall sharply, falling more than 21% from its intraday high.

The next day, MicroStrategy Executive Chairman Michael Thaler responded in an interview with CNBC that the company not only profits from the fluctuations of Bitcoin, but also uses the ATM (At The Market) mechanism to invest in Bitcoin. Therefore, as long as the price of Bitcoin continues to rise, the company can remain profitable.

Source: @CitronResearch

In summary, MicroStrategy’s stock premium, leveraged Bitcoin investment through ATM mechanism The strategy and the views of short-sellers can be summarized as follows:

1. Source of stock premium: A large part of MSTR’s premium comes from the ATM mechanism. Citron Research believes that MSTR. The stock has become an alternative investment to Bitcoin, and its stock price shows an unreasonable premium relative to Bitcoin, which is why they decided to short MSTR. However, Michael Saylor refutes this view, saying that short sellers ignore the importance of MSTR. Profit model.

2. MicroStrategy’s leverage operation: Leverage and Bitcoin investment: Saylor pointed out that MSTR It uses debt issuance financing to leverage its Bitcoin investment and relies on the volatility of Bitcoin to make profits. The company flexibly raises funds through the ATM mechanism, avoiding the discount issuance of traditional financing methods, while using high trading volumes to execute large-scale stock sell-offs. Obtain arbitrage opportunities from stock premiums

3. Advantages of ATM mechanism: ATM mode allows MSTR. Flexibly raising capital transfers the volatility, risk and performance of debt to common equity. By doing this, companies can earn returns that far exceed borrowing costs and Bitcoin price increases, Saylor noted, for example, by financing investments at 6% interest rates. Bitcoin, if Bitcoin rises by 30%, the company will actually receive an 80% return

4. Specific profit example: By issuing $3 billion in convertible bonds, the company expects to earn $3 billion per year in the next 10 years. The profit per share will reach 125 USD. If Bitcoin prices continue to rise, Saylor expects the company to make substantial long-term profits. For example, two weeks ago, MSTR raised $4.6 billion through the ATM mechanism, trading at a 70% premium and earning a value of $30 in five days. billion in Bitcoin, equivalent to about $12.5 per share. Long-term earnings are expected to reach $33.6 billion. 5. Risk of Bitcoin price decline: Saylor believes that buying MSTR Stocks mean that investors accept the risk of falling Bitcoin prices. To achieve high returns, they must bear corresponding risks. He expects Bitcoin to rise by 29% per year, and MSTR's stock price will rise by 60% per year.

6. MSTR’s market performance: Since this year, MSTR’s stock price has soared 516%, far exceeding Bitcoin’s 132% increase in the same period, and even exceeding the 195% increase of Nvidia, the leader in artificial intelligence, Saylor believes. MSTR has become the fastest growing and most profitable company in the United StatesOne of the strongest companies.

In response to Citron’s short-selling behavior, MSTR CEO Michael Saylor said that Citron did not understand where MSTR’s premium relative to Bitcoin came from, and explained:

“If we start with 6% interest rate funds Bitcoin investment, and Bitcoin rises by 30%, then what we actually earn is 80% Bitcoin spread (a function of stock premium, conversion premium, and Bitcoin premium)”

“MicroStrategy issued $3 billion of convertible bonds, which is based on an 80% Bitcoin spread. A $3 billion investment will generate $125 per share over 10 years USD gains."

This means that as long as the price of Bitcoin continues to rise, MicroStrategy can remain profitable:

"Two weeks ago, we completed $4.6 billion in ATM transactions. , a 70% premium. That means we made $3 billion worth of Bitcoin in five days, which is about $12.5 per share if we forecast earnings of $33.6 billion in 10 years, or about $150 per share. U.S. dollars.”

In summary, MicroStrategy’s operating model is to efficiently build capital, arbitrage between stocks, bonds, and Bitcoin, and closely link its stock price to Bitcoin’s price fluctuations. Ensure long-term low-risk profits. However, the essence of MicroStrategy is its ability to issue unlimited debt and use unlimited leverage to drive up its value. This requires a long-term Bitcoin bull run to maintain its value. Still, Citron's short position on MicroStrategy has a much higher return than shorting Bitcoin, and MicroStrategy remains confident that Bitcoin's price will continue to grow steadily and slowly without major swings.

4. Conclusion

Source: Tradesanta

The United States continues to strengthen With regard to the control of the cryptocurrency industry, market opportunities are gradually shifting towards centralization. The decentralized crypto-utopia is slowly being compromised, and power is "transferred" to the central government. Any drug has side effects, and the money pouring into ETFs provides only temporary relief, just as painkillers cannot cure the underlying disease.

In the long term, the promotion of Bitcoin through ETF is not necessarily a good thing. The trading volume of Bitcoin ETF in Hong Kong is significantly lower than that in the United States. Judging from the flow of funds, American capital is gradually taking control of the encryption market. At present, although it is leading in Bitcoin mining, it is still at a disadvantage in terms of capital market and guidance. Perhaps in the future, the long-term impact of Bitcoin ETFs will accelerate the normalization of crypto asset trading.But this is both the beginning and the end.