The Roundup
- Twenty One Capital will use Bitcoin as a springboard for ‘structured debt and equity products.’
- Its model eschews the simplicity prized by Warren Buffett.
A version of this story appeared in our The Roundup newsletter on April 25. Sign up here.
Investing in Bitcoin is pretty simple.
You can open a Coinbase or a Robinhood account with little fuss, or buy shares in one of the many Bitcoin ETFs on the market for peanuts.
If you’d bought Bitcoin 24 months ago and then done nothing but HODL, you would have tripled your money.
And yet this week, a new venture backed by some very famous names rolled out a “purpose-built vehicle for Bitcoin” that converts this simple trade into something head-scratchingly complicated.
Mashup
Dubbed Twenty One Capital, the firm is a mashup of a SPAC, a PIPE, convertible debt, equity, leverage, and a whopping 42,000 Bitcoin, worth almost $4 billion.
What all of that jargon amounts to is a listed company that is applying Wall Street’s financial alchemy to Bitcoin.
While everyone knows Bitcoin’s risk is volatility, Twenty One lists 76 material risk factors, including a “Bitcoin education and literacy” project, that may adversely affect the business.
This venture is backed by some heavy hitters.
Tether, the issuer of the world-beating stablecoin USDT, and SoftBank, the Japanese investment juggernaut that backed Nvidia and OpenAI, are partners.
So, too, is Brandon Lutnick, the son of US Commerce Secretary Howard Lutnick, who has replaced his father as chair of Wall Street brokerage Cantor Fitzgerald.
The partners tapped Jack Mallers, the Bitcoin maxi, to lead the venture. In Mallers, Twenty One gets an outspoken evangelist who helped El Salvador embrace Bitcoin, report Tim Craig, Pedro Solimano, and Andrew Flanagan.
Crypto springboard
While the company is inspired by another maxi, Michael Saylor, it aims to do more than merely stockpile Bitcoin.
Twenty One promises to use the cryptocurrency as a springboard for “Bitcoin-related debt and equity structured products,” as well as lending.
That’s a business model any pro trading whiz would recognise.
Set aside that crypto is supposed to be an antidote to the head-spinning machinations that triggered the subprime mortgage crash of 2008.
The big headline here is that structured finance — the practice of making 2 + 2 = 20 — is moving into crypto. To see just how complicated this model is check out the flow chart on page 24 of the prospectus.
This brings to mind one of Warren Buffett’s most famous maxims: “Keep your investing strategy simple — complexity is often the enemy of clarity.”
Twenty One may very well deliver well-heeled investors a Bitcoin Deluxe experience, but it’s safe to say that if the Oracle of Omaha ever did become interested in crypto — and that is a very, very big if — he would very likely just HODL.
Edward Robinson is the story editor for DL News. Contact the author at [email protected].
