Author: Bankless
Compiled by: Blockchain vernacular
From Wall Street's 'forecaster' to the creator of Ethereum's micro-strategy, Tom Lee's Bitmine has, within less than a month of its establishment, held 833,000 Ethereum, accounting for nearly 1% of the total supply, becoming the world's largest publicly listed Ethereum treasury company.
Bitmine's goal is to benchmark against MicroStrategy, holding 5% of the total supply of Ethereum.
How does this Wall Street Ethereum bull view Ethereum, and why does he think Ethereum is currently replicating Bitcoin's pre-boom night in 2017?
This interview elaborates on these questions, with the following dialogue compiled by the Blockchain vernacular.
Q1: Bitmine currently holds 833,000 Ethereum, accounting for nearly 1% of the total supply, becoming the world's largest publicly listed Ethereum treasury company. How does that achievement feel?
Tom Lee: We acted very quickly; Bitmine was announced on June 30 and preparations were completed by July 8. In just 27 days, we acquired these Ethethereum at an extremely high speed.
This is very important because MicroStrategy has demonstrated the potential for 30 times returns through its strategy. In August 2020, MicroStrategy's stock price was only $13, while Bitcoin rose from $11,000 to $120,000, and its asset strategy brought another 20 times return, achieving a total of 30 times return.
I believe Ethereum is one of the biggest macro trades of the next decade. Therefore, we hope to act quickly, acquiring more Ethereum at $3,500 or lower, before it achieves a leap similar to Bitcoin's in the past five years.
Q2. After Bitmine announced its Ethereum treasury strategy, companies like ConsenSys and SharpInk Gaming followed suit within five days, announcing similar plans. Why did several Ethereum treasury companies emerge within two weeks? Is it a market trend or coincidence?
Tom Lee: Perhaps great minds think alike. For a long time, there were mainly Bitcoin asset companies and a few Solana asset companies in the market. SharpInk first announced in May to become an Ethereum asset company; we are actually latecomers.
Ethereum as an asset strategy is very attractive. If you are optimistic about Ethereum itself, the asset strategy allows you to accumulate more Ethereum, offering advantages over ETFs.
Ethereum's staking and proof-of-stake mechanism make asset companies infrastructure companies, earning income through staking and embodying true commercial entity attributes. For example, the over $3 billion in Ethereum we hold can yield over 3% through native staking, meeting GAAP net income standards.
Moreover, we pursue scarcity. Bitmine's goal is to acquire 5% of Ethereum, relying on a clean balance sheet and extremely high liquidity—daily trading volume of $1.6 billion, ranking 42nd in the U.S. stock market, comparable to Uber. Our market cap is about $4 billion, while Uber's is $184 billion.
Q3. Bitmine has held 830,000 Ethereum in four weeks, aiming to hold 5% of the total supply, which requires about $20 billion. How do you plan to achieve this goal?
Tom Lee: MicroStrategy currently holds 3.2% of the circulating supply of Bitcoin, aiming to hold at least 1 million Bitcoins, about 5%, to gain a 'sovereign call option' on the Bitcoin ecosystem. If the U.S. wants to establish a strategic Bitcoin reserve, publicly buying 1 million Bitcoins could push prices up due to reduced sellers, potentially skyrocketing to $1 million; MicroStrategy is a simpler way.
MicroStrategy took five years to reach a 3% stake by purchasing about $0.16 worth of Bitcoin daily. Bitmine, since its inception, has been adding about $0.80 to $1 of Ethereum daily, a speed 12 times that. If we maintain this speed, we could reach 5% in 1 to 2 years.
We are a fully compliant entity, 100% adhering to Ethereum's concept as a legitimate and compliant blockchain. All operations of Bitmine are within the United States, meeting the expectations of Wall Street and the U.S. government for large-scale staking Ethereum entities.
Ethereum will be the primary blockchain for Wall Street's financialization. Some on Twitter have likened staking Ethereum to gamers buying Nvidia. When Wall Street tokenizes assets, they will not only need to hold Ethereum but also hope that stakers will drive Ethereum's goals. We play a significant role through staking.
Q4. Can the Ethereum treasury company also have a similar 'sovereign call option' strategy for Bitcoin as MicroStrategy? With banks like JPMorgan and stablecoin legislation pushing the dollar on-chain, will the U.S. government contact Bitmine for over-the-counter purchases of Ethereum?
Tom Lee: Your point makes sense, but our goal is not to hold call options. Looking ahead, Wall Street aims to migrate the financial system to blockchain, with Ethereum being the largest and most compliant blockchain.
Ethereum is legally recognized under U.S. law and can be used by other countries and institutions. The U.S. clearly aims to solidify its dominance over Ethereum.
Besides financialization, Ethereum is also related to artificial intelligence. Tokenizing robots or other assets requires a secure blockchain; technology and Wall Street are converging on Ethereum.
Goldman Sachs and JPMorgan do not want Ethereum scattered among millions of wallets; they do not seek centralization but prefer compliance-driven staking. Bitmine has maintained a clean balance sheet from the beginning, without complex capital structures, ensuring transparent operations.
We have not yet announced our staking solution because the $3 billion in Ethereum needs to be handled cautiously, but we will fully comply with GAAP and U.S. staking requirements, taking a thoughtful approach.
Ethereum asset companies are key infrastructure, not just asset strategies, providing staking yields and other potential income sources, far exceeding the role of ETH ETFs and being crucial within the ecosystem.
Q5. Bitmine acquired $3 billion worth of Ethereum within a month; why has the price still not surpassed $4,000? Why hasn't the market risen due to large purchases?
Tom Lee: As one of Ethereum's largest buyers, we have learned a lot but should not disclose too many details. In the short term, price movements do not fully reflect fair value. Last week, Ethereum dropped to $3,300, possibly due to liquidation levels, paired trading, or someone thinking Ethereum is a 'dead chain', betting on other chains and attempting forced liquidation.
This is a short-term dynamic, resembling the situation when Bitcoin was at $1,000 in 2017. Ethereum is experiencing a moment similar to Bitcoin in 2017, with Wall Street beginning to support Ethereum.
At the beginning of 2017, Bitcoin was only $1,000, rising sharply only in August. Currently, Wall Street's interest in Ethereum assets and networks is unprecedented in the past four or five years.
Q6. Why choose an Ethereum treasury company instead of Bitcoin asset companies like MicroStrategy or Solana asset companies? What unique advantages does the Ethereum treasury strategy have?
Tom Lee: I am very optimistic about Bitcoin; research shows its price could reach $1.5 million. However, Bitcoin and Ethereum play different roles in financialization. Ethereum represents blockchain financialization, which is not Bitcoin's goal.
Ethereum also provides a digital native way in the field of artificial intelligence, connecting the real world with digital security, thus attracting companies holding Ethereum assets.
If investing in Bitcoin, I would choose MicroStrategy, as it continues to increase its Bitcoin holdings, outperforming Bitcoin itself. The Ethereum asset company is the only way for U.S. stock market investors to access Ethereum, unless they buy Ethereum or ETFs directly.
For institutional investors, this is a significant investment theme. They will not simply invest in JPMorgan but seek direct access to Ethereum, although ETFs may not be within their fund parameters. Therefore, Ethereum asset companies serve as macro trading gateways for professional investors in the U.S. stock market.
This explains why Cathie Wood and Bill Miller made large investments in Bitmine; they see it as the best way to gain macro exposure to Ethereum.
Q7. What tools does Ethereum's DeFi ecosystem provide Bitmine to accumulate more Ethereum? What other strategies exist besides MNAV premium?
Tom Lee: That's a good question, but some strategies are proprietary information, so I cannot disclose them yet.
Investors should not oversimplify their understanding of asset companies. We are already the third largest crypto asset company in the world, behind Mara Blockchain and MicroStrategy, with assets exceeding MetaPlanet.
For companies of our scale and liquidity, strategies are not singular but operate in multiple dimensions.
Q8. Why does the Ethereum treasury company have an MNAV premium? Why do investors believe the premium should be close to 1 or below 1 in a bear market?
Tom Lee: If someone were to acquire Bitmine, our cost structure is strict. Holding $3 billion in Ethereum, some may think we are like an ETF, valued at only 1 times net asset value. But we have a 3% native staking yield, which, if paid as net income, would be valued at 6 times net asset value based on a 20 times price-to-earnings ratio, leading to an overall valuation of 1.6 times.
Additionally, speed must be considered. When we launched our Ethereum strategy on July 8, we held $4 worth of Ethereum per share, which increased to $23 by July 27, and is currently higher. In 20 days, each share increased by $19 worth of Ethereum; this is speed.
MicroStrategy increases its Bitcoin holdings by $0.16 daily, obtaining a 0.7 premium. Our speed is 12 times that, with theoretical premiums reaching 6 or higher.
Additionally, liquidity premiums cannot be ignored. MicroStrategy has a $3 billion daily trading volume, while we rank second in liquidity among crypto asset companies with $1.6 billion, compared to MetaPlanet's only $50 million.
Therefore, Bitmine's valuation should be 1 times net asset value, plus 6 times earnings premium, plus speed and liquidity premium.
Q9. Bitmine's acquisition speed of Ethereum in the first month is 12 times that of MicroStrategy. Can this speed be sustained over the next year? How can such a high purchase speed be achieved?
Tom Lee: The speed depends on liquidity, and liquidity and speed complement each other. Our ability to maintain high speed comes from extremely high liquidity.
As of 2 PM on August 6, our trading volume reached $800 million, while MicroStrategy's was $3 billion. The third largest holder of Ethereum, Ether Machine, had only $7 million in trading volume, making us 100 times larger; the fourth largest holder, BTBT, had $49 million. The liquidity difference is huge and directly affects speed.
High speed requires extremely high liquidity support.
Q10. Where does Bitmine's liquidity come from? How do you attract such high trading volume to support Ethereum acquisitions?
Tom Lee: Liquidity comes from team collaboration. As chairman, the lead investor is the renowned macro hedge fund Mosaics, attracting support from top investors like Founders Fund, Stan Druckenmiller, ARK Invest, and Bill Miller.
We have blue-chip backing from traditional markets and venture capital, and investors trust our vision. I have long advocated for cryptocurrencies, promoting Wall Street's attention to Bitcoin in 2017, making it an institutional product, with holdings steadily increasing.
Ethereum is undergoing a '2017 moment', which makes sense to those who understand us and supports the goals of Ethereum asset companies. I support companies like SharpLink and Andrew Keys, and we work together to stake Ethereum and build a secure blockchain in the U.S.
Q11. In 2017, you promoted the 'digital gold' narrative for Bitcoin on media like CNBC. Is Ethereum now in a similar stage? What similarities do you see between Ethereum's '2017 moment' and Bitcoin's?
Tom Lee: In 2017, Fundstrat focused on macro and thematic research, discovering that millennials would become the driving force of the U.S. economy. We partnered with Snapchat to release a white paper exploring advertising to millennials and Gen Z, which was intriguing as many companies still focused on Generation X at that time.
Research on Bitcoin found that its price rose from $100 (during the JPMorgan era) to $1,000 in 2014, reaching a market cap of $100 billion, which was shocking. Fundstrat's research confirmed that 97% of the price increase came from the growth in wallet numbers and activity, reflecting network value effects.
We predict that if more people use Bitcoin, its price will rise exponentially, reaching $25,000 by 2022, capturing 5-10% of gold's value, potentially reaching $100,000, hence promoting the 'digital gold' narrative. Institutional holdings of Bitcoin are almost zero, consisting entirely of retail investors. Bitcoin becomes digital gold, a store of value, with millennials holding Bitcoin like the baby boomers held gold.
Webinars have caused us to lose institutional clients, as they view recommending 'drug dealer and dark web' assets as crazy and damaging to our reputation. But Bitcoin is now at $120,000, having risen 120 times, with 1-2% of investment clients fully invested in Bitcoin, becoming 'DeGen'.
Ethereum now resembles Bitcoin in 2017, once viewed as a dormant chain, with people seeking faster networks or new verification methods. But Ethereum has had a decade without downtime, which Wall Street values. Recently, Circle's IPO was strong, and stocks like Coinbase and Robinhood performed excellently.
Q12. Circle, Coinbase, and Robinhood are building Layer 2 solutions on Ethereum; the tokenization craze is sweeping in. Does Wall Street recognize that Ethereum is at the core of these trends? Is this why you are optimistic about the Ethereum treasury company?
Tom Lee: Your description is entirely logical. But Wall Street only makes connections when making money. For example, many listeners have held Apple, Amazon, or Nvidia for a long time. Nvidia is an exponential growth stock, but sometimes it goes quiet for a year or even several years, then suddenly jumps, and the market realizes it needs to reprice.
Ethereum is currently in a similar stage, with on-chain activity surging to historical highs, the community revitalized, and prices recovering, leading to more people using Ethereum. The Genius Act's benefits for smart contract blockchains are comparable to Bitcoin's, but Bitcoin does not carry stablecoins.
Ethereum not reaching $15,000 is not a bad thing. I have seen similar situations; recommended stocks like Tesla and Nvidia have performed steadily in the Fundstrat Capital ETF since 2019, remaining core to the research portfolio. They do not grow linearly with income but move in leaps.
I hope Ethereum's price remains stable over the next five years, allowing us to acquire at lower prices. If the price reaches $17,000, acquisition costs will rise, but stock prices will benefit. The current price is favorable for us.
Q13. In 2017, you predicted Bitcoin would rise from $2,000-$3,000 to $25,000-$40,000, which Wall Street thought was crazy but turned out to be correct. Ethereum's current price is similar; do you think it will replicate Bitcoin's growth path? What is your price prediction for Ethereum?
Tom Lee: Ethereum's upside potential is greater than Bitcoin's because there is more initial skepticism. In 2017, predicting Bitcoin would reach $100,000 seemed crazy, yet it achieved 100 times growth. Ethereum now resembles Bitcoin in 2017; Wall Street does not fully believe in its survival due to proof-of-stake and supply issues, but these are being resolved.
Many believe that Layer 2 stories do not benefit Layer 1, but this notion will break, bringing step function growth. Ethereum's potential may exceed Bitcoin by 100 times; Joe Lubin shares a similar view, and we collaborate to promote Ethereum's digital infrastructure. If Bitcoin reaches $1 million, Ethereum has immense potential due to financialization and artificial intelligence (as part of the U.S. strategic role).
MicroStrategy has the potential to achieve three times the Bitcoin returns, and Ethereum asset companies have the potential to achieve three times the Ethereum returns. Bitmine leads due to unique factors, but all Ethereum asset companies will perform well due to Ethereum's undervaluation.
In the short term, Ethereum should reach $4,000. A year ago, the Ethereum-to-Bitcoin ratio was 0.05; today it is stronger, with prices expected to approach $6,000. By the end of the year, considering other companies buying and Bitcoin rising, $7,000 to $15,000 seems reasonable. By 2026, with the Federal Reserve easing and liquidity increasing, Ethereum's price will continue to rise. There is no clear crypto cycle, but if there is, it would benefit us. I hope Ethereum's price remains stable for five years before a significant rise.
Q14. Could the Ethereum treasury company form a bubble due to high MNAV premiums, similar to 1920s investment trusts? The crashes of GBTC and Three Arrows Capital caused market turmoil; are you concerned that the Ethereum treasury company could trigger similar systemic risks?
Tom Lee: In the liquid stock market, this is the most hated V-shaped rebound. Institutional clients in Zoom meetings believe the stock market should not rise, as valuations are too high. But every time the call ends, it reinforces the reasons for the stock market to continue rising; non-consensus views drive the market. The market needs skepticism to rise; if everyone is bullish, that is the top.
Not holding digital asset companies but seeing their rise does not indicate a bubble. A real bubble occurs when everyone is bullish. If the audience is bullish but the market does not rise, that is a bubble. Crypto asset companies only face issues due to leverage. Companies using complex financial tools or debt structures are at risk unless they are as scarce and transformative as MicroStrategy or MetaPlanet.
Most crypto asset companies are ordinary; price declines will not trigger a stock market crash. Crashes are usually caused by debt or external shocks. We are far from a bubble. If capital costs are low, some Bitcoin asset companies have high trading volumes, and the market even perceives oversupply, only rising when Bitcoin rises.
There are always calls of a bubble, but tops occur when no one is bearish. Now everyone is bearish on Ethereum, Bitcoin, and the stock market. Last Friday showed a bearish engulfing pattern; if this is a top, everyone would say 'no problem', but now everyone is calling it a top, showing weak conviction, indicating we are far from a top.
