Author: Bankless

Compiled by: Vernacular Blockchain

From a Wall Street "magician" to the creator of Ethereum microstrategy, Tom Lee's Bitmine held 833,000 Ethereum in less than a month after its establishment, accounting for nearly 1% of the total supply, becoming the world's largest publicly listed Ethereum treasury company.

Bitmine aims to match MicroStrategy and hold 5% of the total supply of Ethereum.

What does this Wall Street Ethereum bull think of Ethereum, and why does he think Ethereum is currently replicating the eve of Bitcoin's 2017 surge?

This interview elaborates on these issues in detail. The following is the content of the conversation, compiled by Baihua Blockchain.

Q1: Bitmine currently holds 833,000 Ethereum, representing nearly 1% of the total supply, making it the world's largest publicly listed Ethereum treasury. How does this achievement feel?

Tom Lee: We acted very quickly, announcing the establishment of Bitmine on June 30 and completing preparations on July 8. In just 27 days, we acquired these Ethereums at an extremely high speed.

This is significant because MicroStrategy has demonstrated the potential for a 30x return through its strategy. In August 2020, when MicroStrategy's stock price was only $13 and Bitcoin rose from $11,000 to $120,000, its asset strategy delivered another 20x return, for a total of 30x returns.

I believe Ethereum is one of the biggest macro trades of the next decade, so we want to act quickly and get as much Ethereum as possible at $3,500 or lower before it makes a similar leap to how Bitcoin has over 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 so many Ethereum treasury companies emerge within a single two weeks? Is this a market trend or a coincidence?

Tom Lee: Perhaps great minds think alike. For a long time, the market has primarily been dominated by Bitcoin asset companies and a few Solana asset companies. SharpInk was the first to announce its Ethereum asset company status in May, so we were actually a latecomer.

Ethereum is very attractive as an asset strategy. If you are bullish on Ethereum itself, an asset strategy can allow you to accumulate more Ethereum, which is more advantageous than ETFs.

Ethereum's staking and proof-of-stake mechanisms enable asset companies to become infrastructure companies, earning returns through staking and possessing the attributes of true commercial entities. For example, we hold over $3 billion in Ethereum, and can earn over 3% through native staking, meeting GAAP net income standards.

Furthermore, we strive for scarcity. Bitmine's goal is to acquire 5% of all Ethereum. We leverage our clean balance sheet and exceptionally high liquidity—$1.6 billion in daily trading volume, ranking 42nd in the US stock market, comparable to Uber. Our market capitalization is approximately $4 billion, while Uber's is $184 billion.

Q3. Bitmine held 830,000 Ethereum in four weeks, aiming to hold 5% of the total Ethereum supply, which would require approximately $20 billion. How did you achieve this goal?

Tom Lee: MicroStrategy currently holds 3.2% of the circulating supply of Bitcoin. Its goal is to hold at least 1 million Bitcoin, or approximately 5%, thereby gaining a "sovereign call option" on the Bitcoin ecosystem. If the United States wants to build a strategic Bitcoin reserve, purchasing 1 million Bitcoins on the open market would drive up the price due to a decrease in sellers, potentially reaching $1 million in an instant. MicroStrategy offers a simpler approach.

MicroStrategy took five years to reach 3%, purchasing an average of about 16 cents of Bitcoin per day. Since its inception, Bitmine has increased its Ethereum holdings by about 80 cents to $1 per day, a rate 12 times faster. If we maintain this pace, we could reach 5% within one to two years.

We are a fully compliant entity and 100% adhere to the concept of Ethereum as a legal and compliant blockchain. All Bitmine operations are within the United States, which meets the expectations of Wall Street and the US government for large-scale Ethereum staking entities.

Ethereum will be the primary blockchain for Wall Street's financialization. Someone on Twitter likened staking Ethereum to Wall Street like a gamer buying Nvidia. When Wall Street tokenizes its assets, it not only needs to hold Ethereum but also wants stakers to advance Ethereum's goals. We play a significant role through staking.

Q4. Can Ethereum Treasury also have a Bitcoin "sovereign call option" strategy similar to MicroStrategy's? With banks like JPMorgan Chase and stablecoin legislation pushing for the dollar to be on-chain, will the US government contact Bitmine to purchase Ethereum over-the-counter?

Tom Lee: Your point makes sense, but our goal is not to have a call option. Looking ahead, Wall Street hopes to migrate the financial system to the blockchain, and Ethereum is the largest and most compliant blockchain.

Ethereum is legally recognized under U.S. law and can also be used by other countries and institutions. The U.S. clearly wants to consolidate its dominance in Ethereum.

Beyond financialization, Ethereum is also relevant to artificial intelligence. Tokenizing robots or other assets requires a secure blockchain, and both tech and Wall Street are converging on Ethereum.

Goldman Sachs and JPMorgan Chase don't want Ethereum scattered across millions of wallets. They're not seeking centralization; they want staking to be conducted in a compliant manner. Bitmine has maintained a clean balance sheet from the outset, with no complex capital structure and transparent operations.

We haven’t announced our staking solution yet because $3 billion in Ethereum requires careful handling, but we will take a thoughtful approach in full compliance with GAAP and US staking requirements.

Ethereum asset companies are key infrastructure, not just asset strategies, but also provide staking returns and other potential income sources. They play a far more important role than just being an alternative to ETH ETFs and are crucial in the ecosystem.

Q5. Bitmine purchased $3 billion worth of Ethereum in a month. Why hasn't the price broken through $4,000? Why hasn't the market rallied in response to these large purchases?

Tom Lee: As one of the largest buyers of Ethereum, we've learned a lot, but we're not comfortable sharing too many details. In the short term, price movements don't fully reflect fair value. Last week's drop to $3,300 could be due to liquidation levels, pair trading, or the perception that Ethereum is a "dead chain," leading some to bet on other chains and attempt forced liquidations.

This is a short-term dynamic, similar to what happened to Bitcoin at $1,000 in 2017. Ethereum is experiencing a similar moment to Bitcoin in 2017, with Wall Street starting to support Ethereum.

At the beginning of 2017, Bitcoin was only $1,000, and it only began to rise sharply in August. Currently, Wall Street's interest in Ethereum assets and networks is something that has not been seen in the past four or five years.

Q6. Why choose Ethereum Treasury instead of Bitcoin asset companies like MicroStrategy or Solana? What are the unique advantages of the Ethereum Treasury strategy?

Tom Lee: I'm very bullish on Bitcoin, and research suggests its price could reach $1.5 million. However, Bitcoin and Ethereum play different roles in financialization. Ethereum represents the financialization of blockchain, which is not Bitcoin's goal.

Ethereum also offers a digitally native approach in the field of artificial intelligence, connecting the real world with digital security, thus attracting companies holding Ethereum assets.

If I were to invest in Bitcoin, I would choose MicroStrategy because it continues to increase its Bitcoin holdings and outperforms Bitcoin itself. Ethereum Asset Management is the only way for US stock market investors to gain exposure to Ethereum, unless they buy Ethereum directly or through an ETF.

This is a significant investment theme for institutional investors. They won't simply invest in JPMorgan Chase; they'll seek direct exposure to Ethereum, but ETFs may not fall within their fund parameters. Therefore, Ethereum Assets is a macro trading gateway for professional investors in the US stock market.

This explains why Cathie Wood and Bill Miller invested heavily in Bitmine, believing it was the best way to gain macro exposure to Ethereum.

Q7. What tools does Ethereum's DeFi ecosystem provide Bitmine with to accumulate more ETH? Besides MNAV premium, what other strategies are available?

Tom Lee: This is a good question, but some of the strategies are proprietary information and will not be disclosed for now.

Investors should not oversimplify our understanding of asset management companies. We are already the third largest crypto asset management company in the world, behind Mara Blockchain and MicroStrategy, and hold more assets than MetaPlanet.

For a company of our size and liquidity, the strategy is not a single one, but a multi-dimensional operation.

Q8. Why does Ethereum Treasury have a MNAV premium? Why do investors believe the premium should be close to 1 or below 1 in a bear market?

Tom Lee: Imagine someone acquires Bitmine. We have a strict cost structure. With $3 billion in Ethereum, some might think we're like an ETF, valued at just 1x NAV. But we have a 3% native staking yield. If paid as net income, at a 20x P/E ratio in the money market, that 3% yield translates to 6x NAV, or a 1.6x valuation.

In addition, we need to consider the speed. When the Ethereum strategy was launched on July 8, we held $4 of Ethereum per share. By July 27, it had increased to $23, and it is currently even higher. In 20 days, we increased $19 of Ethereum per share. This is the speed.

MicroStrategy adds 16 cents of Bitcoin per day, earning a 0.7% premium. Our speed is 12 times that, and the theoretical premium can reach 6 or more.

Furthermore, the liquidity premium cannot be ignored. MicroStrategy's daily trading volume is $3 billion. We are the second most liquid crypto asset company with $1.6 billion, while MetaPlanet's is only $50 million.

Therefore, Bitmine should be valued at 1x NAV, plus a 6x earnings premium, plus an acceleration and liquidity premium.

Q9. Bitmine's Ethereum acquisition rate in its first month was 12 times that of MicroStrategy. Can this pace be sustained over the next year? How did you achieve such a high acquisition rate?

Tom Lee: Speed depends on liquidity. Liquidity and speed complement each other. Our ability to maintain high speed stems from extremely high liquidity.

As of 2:00 PM on August 6th, our trading volume reached $800 million, while MicroStrategy's was $3 billion. Ether Machine, the third-largest Ethereum holder, had a mere $7 million in trading volume, while ours was 100 times greater. BTBT, the fourth-largest holder, had $49 million. This significant disparity in liquidity directly impacts trading speed.

High speed requires extremely high liquidity support.

Q10. Where does Bitmine’s liquidity come from? How did you attract such high trading volume to support Ethereum acquisition?

Tom Lee: Liquidity comes from teamwork. I am the chairman, and the lead private equity investor is the renowned macro hedge fund Mosaics, which has attracted support from top investors such as Founders Fund, Stan Druckenmiller, ARK Invest, and Bill Miller.

We have blue-chip backing from traditional markets and venture capital, and investors believe in our vision. I have been a long-time advocate for cryptocurrencies, and in 2017, I helped bring Wall Street's attention to Bitcoin, making it an institutional product with continued growth in holdings.

Ethereum is experiencing its "2017 moment," and this makes sense for those of us who understand and support the goals of Ethereum asset companies. I support companies like SharpLink and Andrew Keys as we work together to build a secure American blockchain by staking Ethereum.

Q11. In 2017, you promoted Bitcoin's "digital gold" narrative on CNBC and other media outlets. Is Ethereum currently at a similar stage? How do you think Ethereum's "2017 moment" parallels Bitcoin's?

Tom Lee: In 2017, Fundstrat focused on macro and thematic research and identified that millennials would become the driving force of the US economy. We collaborated with Snapchat to publish a white paper exploring advertising with millennials and Gen Z, which was quite compelling given that many companies were still focusing on Gen X.

Research on Bitcoin has revealed that its price surged from $100 during the JPMorgan era to $1,000 in 2014, reaching a staggering $100 billion market capitalization. Fundstrat, after months of research, confirmed that 97% of the price increase was driven by an increase in wallets and activity, demonstrating a network value effect.

We predict that as more people adopt Bitcoin, its price will rise exponentially, reaching $25,000 by 2022. This represents 5-10% of the value of gold, reaching $100,000. This is why we promote the "digital gold" narrative. Institutional holdings of Bitcoin are virtually nonexistent, with retail investors holding the majority. Bitcoin has become digital gold and a store of value, with millennials holding it like baby boomers held gold.

The webinars caused us to lose institutional clients, who thought recommending "drug dealer and dark web" assets was crazy and tarnished our reputation. But Bitcoin is now at $120,000, a 120-fold increase. Some of the 1-2% of investors are all in Bitcoin, becoming "DeGen" investors.

Ethereum is currently similar to Bitcoin in 2017, once considered a dormant blockchain, with investors seeking faster networks or new verification methods. However, Ethereum's ten-year zero downtime record has earned it significant recognition on Wall Street. Recently, Circle's IPO was strong, while Coinbase and Robinhood stocks have outperformed.

Q12. Circle, Coinbase, and Robinhood are all building Layer 2 on Ethereum, and the tokenization craze is sweeping the world. Does Wall Street recognize that Ethereum is at the heart of these trends? Is this why you're bullish on Ethereum Treasury companies?

Tom Lee: Your description makes perfect sense. But Wall Street only makes connections when there's money to be made. For example, many listeners hold Apple, Amazon, or Nvidia for the long term. Nvidia is an exponential growth stock, but sometimes it goes dormant for a year or even several years, then suddenly experiences a step-up, prompting the market to realize a repricing is necessary.

Ethereum is currently in a similar phase, with on-chain activity surging to all-time highs, a revitalized community, a price recovery, and increased adoption. The benefits of Genius Act to smart contract blockchains are comparable to those of Bitcoin, which doesn't host stablecoins.

Ethereum not reaching $15,000 isn't a bad thing. I've seen similar situations. Tesla and Nvidia, which I've recommended, have performed reliably in Fundstrat Capital's ETFs since 2019 and have long been core to our research portfolio. They don't grow linearly with revenue, but rather in steps.

I hope the price of Ethereum remains stable over the next five years, allowing us to acquire it at a lower price. If the price reaches $17,000, the acquisition cost will increase, but the stock price will benefit. The current price is favorable for us.

Q13. In 2017, you predicted that Bitcoin would rise from $2,000-3,000 to $25,000-40,000. Wall Street considered it crazy, but it ultimately turned out right. Ethereum's current price is similar. Do you think it will repeat Bitcoin's growth path? What are your predictions for Ethereum's price?

Tom Lee: Ethereum has greater upside potential than Bitcoin due to greater initial skepticism. Predictions of Bitcoin reaching $100,000 in 2017 seemed crazy, but it has actually grown 100-fold. Ethereum is now like Bitcoin in 2017: Wall Street isn't fully convinced of its viability due to issues with proof of stake and supply, but these are being addressed.

Many believe that the Layer 2 story is unhelpful for Layer 1. This perception will be shattered, ushering in step-function growth. Ethereum's potential could surpass Bitcoin by 100 times. Joe Lubin shares a similar view, and we are collaborating to advance Ethereum's digital infrastructure. If Bitcoin reaches 1 million, Ethereum will have enormous potential due to its financialization and artificial intelligence (a strategic role for the United States).

MicroStrategy has the potential to be three times that of Bitcoin, Ethereum asset companies have the potential to be three times that of Ethereum, Bitmine is ahead due to unique factors, but all Ethereum asset companies will perform well because Ethereum is undervalued.

In the short term, Ethereum should reach $4,000. A year ago, the Ethereum-to-Bitcoin ratio was 0.05, and today it's even stronger, with a price forecast near $6,000. By year-end, considering other corporate purchases and Bitcoin's appreciation, a range of $7,000 to $15,000 is reasonable. In 2026, with the Federal Reserve easing and increasing liquidity, Ethereum prices will continue to rise. There's no clear crypto cycle, but if there is one, it would be beneficial. We hope that Ethereum prices will remain stable within five years, followed by significant increases.

Q14. Will the Ethereum Treasury Company create a bubble due to excessive MNAV premiums, similar to the investment trusts of the 1920s? The collapse of GBTC and Three Arrows Capital caused market turmoil. Are you concerned that the Ethereum Treasury Company could trigger similar systemic risks?

Tom Lee: This is the most hated V-shaped rebound in the liquid stock market. Institutional clients on Zoom calls argued that the stock market shouldn't rise and was overvalued. But each call reinforced the case for continued gains. Non-consensus views drive the market. Markets need skepticism to rise; only when everyone is bullish can we tell the market has peaked.

Even if a digital asset company's stock price rises despite not holding any, it doesn't necessarily indicate a bubble. A true bubble occurs when everyone is bullish. It's a bubble when the audience is bullish but the market doesn't rise. Crypto asset companies run into trouble only because of leverage. Companies using complex financial instruments or debt structures, unless they are as rare and revolutionary as MicroStrategy or MetaPlanet, may be risky.

Most cryptoasset companies are normal, and price drops won't trigger a stock market crash. Crashes are typically triggered by debt or external shocks. We're far from a bubble. If capital costs are low and some Bitcoin asset companies have high trading volumes, the market might even believe there's oversupply, and prices will only rise when Bitcoin rises.

There are always people calling for a bubble, but the top is when no one is bearish. Right now, everyone is bearish on Ethereum, Bitcoin, and the stock market. Last week saw five bearish engulfing patterns. If it were a top, everyone would say, "No problem," but now everyone is calling it a top. Their conviction is fragile, indicating we're far from reaching the top.