Bitcoin’s $3 Trillion Moon Shot: A Tale of Greed, Hope, and Perpetual Preferred Stocks

Markets

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$3 trillion. Such is the sum that bitcoin treasury executives, with their eyes gleaming like a merchant’s upon a fresh hoard, foresee in digital credit-a novel breed of bitcoin-backed debt instruments. These are designed, they say, to wring yield from bitcoin holdings, as if the very essence of the cryptocurrency could be milked like a cow in a Tolstoy novel.

The market, in its infantile state, has already swelled to $10 billion in less than a year, the participants proclaim with the gravity of a priest announcing a miracle.

“What we’re witnessing with digital credit is exponential adoption,” declared Matt Cole, Chairman and CEO of Strive, during a panel at Consensus Miami. His tone was that of a man who has seen the light, or perhaps merely the glow of potential profits. “We’re at $10 billion in less than a year, and following the launch of Strive-outside of the bitcoin ETFs-this is the second fastest product launch in capital markets history.”

“A marvel, is it not? Like a muzhik discovering a hidden stash of vodka, only to find it is but a mirage.”

Cole, ever the visionary, added that the global credit market stands at $300 trillion, and a mere 1% captured by bitcoin-backed credit would amount to $3 trillion in demand. “I don’t think that’s crazy,” he said, with the confidence of a man who has never known the cold embrace of reality.

Digital credit, this newfangled instrument, is a security backed by bitcoin, designed to allow investors to earn yield while shielding them from the tempestuous swings of bitcoin’s price. It borrows from traditional credit markets, but instead of a company’s revenue or cash flows, the debt is secured by bitcoin held on the balance sheet-a modern twist on an age-old gamble.

These instruments are typically structured as perpetual preferred stocks, paying a regular yield with no fixed repayment date. A promise of eternity, much like the endless Russian steppe, yet far less reliable. Strategy, the world’s largest publicly-listed bitcoin holding firm, pioneered this category last year, paving the way for others. Strive followed suit with its product, SATA, the second public issuer of digital credit.

Strive is not alone in its optimism. Katherine Dowling, president of Bitcoin Standard Treasury Company, which plans to bring roughly 30,000 bitcoin onto its balance sheet, declared her firm’s interest in digital credit with the fervor of a convert. “We too will be looking at digital credit,” she said, her voice tinged with the certainty of a woman who has read the tea leaves. “I think it’s tremendously important.” She noted that her firm’s CIO, with a background in structured finance, would evaluate these products, and that the firm would consider diverse offerings to cater to the whims of the market.

“One must strike a balance,” she added, “between what the market desires and what it can bear. A delicate dance, like a nobleman navigating the intricacies of high society.”

Amanda Fabiano, COO of Nakamoto, revealed that her firm had foreseen the structured credit trend and built a fund atop it, offering institutional investors access to digital credit in a wrapper suitable for all, even those who cannot buy the instruments directly. Nakamoto, however, does not have its own preferred stock product and is still pondering whether such a move aligns with its structure as an operating company with a treasury beneath it.

“I believe more treasury companies will issue these,” Fabiano said, “and we shall assess which ones merit inclusion in our fund. A discerning eye, like a landlady choosing her tenants.”

Kwasi Kwarteng, executive chairman of Stack and former U.K. Chancellor of the Exchequer, painted the opportunity in the starkest terms. There are roughly 200 bitcoin treasury companies, he noted, quoting Blockstream’s CEO Adam Back, compared to 5,000 banks in the U.S. alone. “If bitcoin becomes a global financial currency, as I believe it will, there is room for many more bitcoin treasury companies,” he said, his voice heavy with conviction.

“It is a binary choice,” Kwarteng declared, “either you believe bitcoin is bound for the moon, or you believe it is a Ponzi scheme. There is no middle ground, no room for the faint of heart.”

For those who choose the former, the reward is not incremental. Kwarteng explained that 1% of the $300 trillion global credit market would represent roughly $3 trillion, nearly double bitcoin’s current market capitalization of around $2 trillion. “You will have digital credit, the full spectrum of opportunities. You will create, or recreate, the global financial system around bitcoin,” he noted, his words echoing like a prophecy in a vast, empty hall.

“A grand vision, indeed. Yet one cannot help but wonder: is it the dawn of a new era, or merely the latest chapter in humanity’s endless quest for folly?”