Blockchain is Replacing Trust with Truth
BLOK ETF rebounded 7.17% (NAV return) in May and closed the month up 10.83% YTD (view standardized performance). The biggest contributor to this performance was Core Scientific (CORZ) stock, the Fund’s largest position in the Bitcoin mining category. CORZ took a moonshot up 62% and nearly half of the month’s attribution came from upside in CORZ stock and bonds, together adding about 2% and MicroStrategy adding 1.43%. We only highlight investments that move the needle by greater than 1% in this section.
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In May, there was a great deal of activity in the Digital Infrastructure and Miner Category, much anticipated by us (see April article we wrote for CoinDesk that breaks the group into two buckets: the Bitcoin Accelerators and the HPC-AI Group). 1 As mentioned above, Core Scientific followed the advice to “get your stock up to a reasonable value or you will be taken over”. 2 So, after a rally of 65% in May, on June 3rd Core Scientific announced a $3.5 billion infrastructure deal with Coreweave and the stock rallied. 3 As a result of this deal, Core Scientific could be transformed and/or
recapitalized. - M&A activity also heated up with RIOT making an unsolicited offer to buy Bitfarms after accumulating just under 10% of the shares. 4,5 Also, in the first week of June, RIOT disclosed that it bought 1.5 million shares at $2.45, an increase from its original offer of $2.33. This brought their position to about 12%. M&A activity in the sector has heated up as a result and we would expect many companies with a clear growth plan to be “re-rated.” The question will be around which companies will remain accelerators, which companies have infrastructure, and which companies need to sell to execute their strategic plan.
- Quietly, we would note that Bitdeer, a company that BLOK does not currently own, has also been active in deals and M&A. It recently raised $100 - $150 million from Tether and spent $140 million to integrate its own Bitcoin mining equipment (see website link). 6 Marathon is no stranger to this opportunity and has invested in Aurodine. 7
- There are 30 publicly traded miners, and many are sub $75 million in market cap. Strategic M&A can be achieved on accretive basis based upon various KPIs (Key Performance Indicators), but scale is needed to make such deals worthwhile, so we would expect activity to continue to be robust within the next 3-6 months. Regardless, while we track these companies in the BLOK database, we are not likely to invest in companies which are foreign and/or below $300 million in market cap.
- Last month, we reported that Q1 earnings could be a catalyst for the group to rally since FASB (Financial Accounting Standard Board) would lead to a markup of BTC (Bitcoin) price on certain balance sheets and the impacts of the halving would not be felt until Q2. All this proved to be true but was well telegraphed.
2. Trillion-Dollar Asset Manager Race: The race continues between trillion-dollar asset management. Blackrock led the latest $47 million round of funding with Securitized. 8 We would also highlight that Blackrock (BUIDL) and Franklin (FOBXX), just found some additional competition from Fidelity. 9,10 The line in the sand has been drawn and asset managers who aren’t looking at the Blockchain and tokenization are going to find themselves missing a core leg to their growth strategy. Remember when Barclays agreed to sell iShares to CVC Capital Partners for $4 billion and then three months later Blackrock stepped up with a staggering Bid of $13.5 billion (What a deal!!!). The fact is that this is the future and when trillion-dollar firms see the landscape changing they will be aggressive in repositioning themselves. It was Steve Jobs who famously said, “If you don’t cannibalize yourself, someone else will”. 11
*BPs: A basis point (BP) is a unit that is equal to 1/100th of 1%.
**Schedule K-1 is a federal tax document used to report the income, losses, and dividends of a business’ or financial entity’s partners or an S corporation’s shareholders. This information does not constitute, and should not be considered a substitute for, legal or tax advice.
1 https://www.coindesk.com/markets/2024/04/17/bitcoin-miners-are-set-for-a-coiled-spring-rally/
2 https://corescientific.com/
3 https://www.coreweave.com/
4 https://www.riotplatforms.com/
5 https://investor.bitfarms.com/news-events
6 https://ir.bitdeer.com/news-events/news-releases
7 https://www.prnewswire.com/business/2023/05/16/bitcoin-miner-marathon-digital-linked-startup-auradine-raises-81m/
8 https://www.prnewswire.com/news-releases/securitize-announces-47-million-strategic-funding-round-led-by-blackrock-302133075.html
9 https://www.axios.com/2024/05/01/blackrock-tokenized-treasury-fund-franklin-templeton
10 https://www.coindesk.com/business/2024/06/10/fidelity-international-tokenizes-money-market-fund-on-jpmorgans-blockchain/
11 https://www.goodreads.com/quotes/908575-one-of-job-s-business-rules-was-to-never-be-afraid#:~:text=%E2%80%9COne%20of%20Job%27s%20business%20rules%20was%20to%20never,not%20deter%20him.%E2%80%9D%20%E2%80%95%20Walter%20Isaacson%2C%20Steve%20Jobs