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A Quick Guide to MSTR MicroStrategy's Bitcoin Strategy
Original Article Title: "Understanding MicroStrategy's Bitcoin Strategy in One Article"
Original Article Author: 0xCousin, IOBC Capital
In the history of Wall Street, legendary stories have never been lacking, but MicroStrategy's Bitcoin Treasury Company's strategic transformation journey is destined to become a unique new legend.
A Globally Spotlighted Bitcoin Strategy
In 2020, the COVID-19 pandemic triggered a global liquidity crisis, with countries adopting loose monetary policies to stimulate the economy, leading to currency devaluation and heightened inflation risks.
During the COVID-19 pandemic, Michael Saylor reevaluated the value of Bitcoin. He believed that with the currency's supply growing at a rate of 15% per year, people needed a hedging asset not tied to fiat cash flow. Therefore, he chose a Bitcoin strategy for MicroStrategy.
Compared to BTC ETFs launched by companies like BlackRock or other Spot Bitcoin ETPs, MicroStrategy's Bitcoin strategy is more aggressive. It purchases Bitcoin through corporate idle funds, issuing convertible bonds, share offerings, and other financing methods to gain potential gains from Bitcoin's rise while bearing potential risks from Bitcoin's fall, whereas ETFs/ETPs focus more on price tracking.
MicroStrategy's Funding Sources and Bitcoin Acquisition Journey
MicroStrategy mainly raised funds to purchase Bitcoin through four avenues.
1. Purchases Using Corporate Cash
For the initial three investments, MicroStrategy used its idle corporate cash for purchases. In August 2020, MicroStrategy invested $250 million to buy 21,400 Bitcoins; in September, it invested $175 million to buy 16,796 Bitcoins; in December, it invested $50 million to buy 2,574 Bitcoins.
2. Issuance of Convertible Senior Notes
To purchase more Bitcoin, MicroStrategy began using convertible bond issuance to finance its purchases.
Convertible Senior Notes are a financial instrument that allows investors to convert the bond into company stock under specific conditions. These bonds have a low or even zero-interest rate and a conversion price set higher than the current stock price. Investors are willing to purchase such bonds mainly because they provide downside protection (i.e., the bond's maturity guarantees the principal and interest) and potential gains when the stock price rises. MicroStrategy's issued convertible bonds mostly have interest rates between 0% and 0.75%, indicating that investors are confident in MSTR's stock price increase, hoping for the bonds to convert into stocks to earn more returns.
3. Senior Secured Notes
In addition to convertible senior notes, MicroStrategy has also issued $489 million of Senior Secured Notes due in 2028 with a 6.125% interest rate.
Senior Secured Notes are a type of collateralized bond with lower risk compared to convertible senior notes, but they only provide a fixed interest return. The batch of Senior Secured Notes issued by MicroStrategy has already been selected for early redemption.
4. At-the-Market Equity Offerings
As MicroStrategy's Bitcoin strategy began to show results, MSTR's stock price continued to rise. MicroStrategy opted for more At-the-Market Equity Offerings to fund its initiatives. This funding method carries lower risk as it is not debt, there is no repayment pressure, and there is no specific repayment date in sight.
MicroStrategy has entered into At-the-Market offering agreements with structures such as Jefferies, Cowen and Company LLC, and BTIG LLC. Under these agreements, MicroStrategy can periodically issue and sell its Class A common stock through these agents. This is what is commonly known in the industry as an ATM.
At-the-Market Equity Offerings provide greater flexibility, allowing MicroStrategy to choose the timing of selling new shares based on secondary market conditions. While issuing stock dilutes existing shareholder equity, the market's response to this measure has been complex due to factors such as its correlation with Bitcoin prices, the increase in MSTR's per-share Bitcoin holdings, leading to higher overall volatility in MSTR's stock price.
MicroStrategy's journey of purchasing Bitcoin through the four methods above is as follows:
Production: IOBC Capital
In the corresponding BTC price chart, MicroStrategy's specific purchase history is shown in the following image:
Source: bitcointreasuries.net
As of December 30, 2024, MicroStrategy has invested approximately $27.7 billion, acquiring 444,262 bitcoins at an average price of $62,257 per bitcoin.
Key Issues Regarding MicroStrategy's "Intelligent Leverage" Bitcoin Purchase
There has been much controversy in the market regarding MicroStrategy's "Intelligent Leverage" strategy for purchasing Bitcoin. In response to several key issues that are widely discussed in the market, I will share my thoughts:
1. How High is MSTR's Leverage Risk?
Let me start with the conclusion: it is not very high.
Based on the information disclosed by MSTR during the Q3 2024 earnings call, at that time, MSTR's total assets were approximately $8.344 billion. Because the Bitcoin carrying value in this financial report was only $6.85 billion (at that time, only 252,220 coins calculated at a price of $27,160), and the total debt was around $4.57 billion, the corresponding debt-to-equity ratio was 1.21.
We will not discuss this accounting standard, only consider the data at the time of actual sale, which reflects the latest market price. If we calculate based on the latest market price of Bitcoin on September 30, 2024 ($63,560), the actual market value of Bitcoin held by MSTR would be $16.03 billion, resulting in a MSTR debt-to-equity ratio of only 0.35.
Now, let's look at the data as of December 30, 2024.
As of December 30, 2024, MicroStrategy's total outstanding debt was $7.27385 billion, as follows:
Produced by: IOBC Capital
As of December 30, 2024, MicroStrategy held 444,262 Bitcoins, valued at $42.25 billion. Assuming that the rest of MicroStrategy's assets remain the same (i.e., $1.49 billion), then MSTR's total assets would be $43.74 billion, with liabilities of $7.27385 billion, resulting in a debt-to-equity ratio of only 0.208.
Let's take a look at the debt-to-equity ratios of some top U.S. listed companies—Alphabet 0.05, Twitter 0.7, Meta 0.1, The Goldman Sachs Group 2.5, JPMorgan Chase & Co. 1.5.
MicroStrategy is a company that has transitioned from the software industry to the financial industry, and its debt-to-equity ratio is still healthy.
2. Under what circumstances will these convertible bonds become an unbearable burden in the future?
Let's start with the conclusion: If MicroStrategy does not continue to issue convertible bonds in the future, then only if the price of Bitcoin falls below $16,364 in the long term, the value of MicroStrategy's 444,262 BTC holdings will be lower than the total amount of its convertible bonds of $7.27 billion. If MicroStrategy only uses ATM financing and idle funds to buy coins in the future without issuing more convertible bonds, as the amount of Bitcoin held by MicroStrategy increases, this "underwater" price line can become even lower.
If MicroStrategy continues to issue convertible bonds frantically to buy Bitcoin at a high price and Bitcoin enters a bear market, causing the value of MicroStrategy's Bitcoin holdings to fall below the total amount of its convertible bonds, it will also cause MSTR's stock price to slump, thereby affecting its refinancing ability and debt repayment capacity, eventually turning the convertible bonds into an unbearable burden.
Holders of MicroStrategy's convertible bonds have the right to convert their bonds into MSTR's stock, which is divided into 2 stages: 1. Initial stage - If the bond's trading price drops by>2%, the bondholder can exercise the conversion option, convert the bond into MSTR shares, and sell to recoup the principal; if the bond's trading price remains normal or even rises, the bondholder can sell the bond in the secondary market at any time to recoup the principal. 2. Later stage - When the bond is about to mature, the 2% rule no longer applies, and the bondholder can either take the cash and leave or directly convert the bond into MSTR shares.
Since MicroStrategy's issued convertible bonds are all low-interest or even zero-interest bonds, it is clear that bondholders are actually looking for a conversion premium. If, on the repayment date, the MSTR stock price has increased compared to the price at the time of financing, then the bondholders are more likely to consider converting the bonds into shares. If the MSTR stock price has decreased compared to the price at the time of financing, then the bondholders will consider receiving the principal and interest.
If bondholders do not choose to convert into MSTR shares and actually need repayment, MicroStrategy also has several options:
· Continue to issue new shares to raise funds for repayment;
· Continue to issue new bonds to repay the old ones; (This was done in September 2024)
· Sell some of the Bitcoin to use for repayment.
Therefore, at present, the likelihood of MicroStrategy falling into an "underwater" situation is not high.
3. Why are investors starting to care about MSTR's per-share coin holdings?
Let's start with the conclusion: Per-share coin holdings will determine MSTR's per-share net asset value.
Whether through issuing convertible bonds or ATM offerings, financing is achieved through share dilution. The purpose of this financing is to increase the Bitcoin reserve. For MSTR shareholders, share dilution is a negative signal, traditionally speaking, not a favorable development. The story MicroStrategy's management tells its shareholders is the BTC Yield KPI.
In essence, as long as MSTR's market capitalization is higher than the total value of the held BTC, creating a market value premium, diluting MSTR's shares to buy BTC can increase MSTR's per-share coin holdings. An increase in MSTR's per-share coin holdings means an increase in MSTR's per-share net assets. Therefore, for shareholders, diluting shares to finance the purchase of Bitcoin is still a worthwhile endeavor.
Currently, MicroStrategy holds 444,262 BTC, with a total holding value of approximately $42.256 billion. With MSTR's current market capitalization at $80.37 billion, MSTR's market cap is 1.902 times the Bitcoin holding value, resulting in a current premium of 90.2%. Currently, MSTR has a total share count of 24 million, with each share corresponding to approximately 0.0018 BTC.
This is the essence of "intelligent leverage," converting the difference between its corporate market value and Bitcoin holding market value into a capital operation advantage.
4. Why has MicroStrategy been more aggressive in buying Bitcoin in the past two months?
Let's start with the conclusion: It may be because MSTR's stock price is very high.
In the past two months, MicroStrategy has significantly increased the scale of its coin acquisition through financing. In November and December 2024, MicroStrategy invested a total of $17.69 billion (representing 63.8% of the total investment amount) in purchasing 192,042 bitcoins (representing 43.2% of the total purchase amount) through ATMs and convertible bond offerings. Only $3 billion was from convertible bonds, while the remaining $14.69 billion was financed through ATMs.
Overall, MicroStrategy's strategic allocation of Bitcoin appears to have characteristics of dollar-cost averaging over time. However, in terms of quantity and amount, it seems to be more aggressive in buying during a bull market than in a bear market.
I couldn't understand this feature and could only make a bold guess. It might be because during the bull market, MSTR's stock price saw a higher increase. In August 2024, after a stock split, MSTR's stock price tripled, with a more than fourfold increase throughout the year, while Bitcoin only saw a 2.2-fold increase this year.
MicroStrategy's CEO discussed a beautiful "42B Plan" during the Q3 2024 earnings call.
British author Douglas Adams said in "The Hitchhiker's Guide to the Galaxy" that the supercomputer Deep Thought provided the answer "42" as the ultimate answer to "Life, the Universe, and Everything."
MicroStrategy considers this a magical number and has thus proposed the 42B financing plan. 21 is also a magical number as Bitcoin's maximum total supply is 21M. Therefore, MicroStrategy plans to issue 21B ATM + 21B Fixed Income in the next three years to continue accumulating Bitcoin.
If MicroStrategy eventually raises $42 billion through share issuance, assuming an issuance at a $330 share price, the total share capital post-issuance would become 371.3 million shares. Assuming MicroStrategy buys Bitcoin at an average price of 100,000 USD, the company could acquire 420,000 bitcoins, bringing MicroStrategy's total holdings to 864,262 bitcoins. At that point, the bitcoin holdings per share would increase to 0.00233, a growth of about 29.4%. At this time, MSTR's total market capitalization would be $1,225.3 billion, with the total value of BTC holdings at $864 billion. In this scenario, a market value premium would still exist.
5. What Will Drive Bitcoin's Price Up After MicroStrategy?
Starting with a conclusion, besides publicly traded companies buying Bitcoin driven by MicroStrategy, the only other significant potential driver is more national-level strategic reserves, but expectations shouldn't be too high in this bull market cycle.
During this cycle, some of the major Bitcoin buyers are:
1. Long-Term Holders with Strong Consensus on Bitcoin
Bitcoin's long-term uptrend doesn't need a reason; in the eyes of BTCers, it's as natural as monkeys climbing trees or mice digging holes because it is digital gold.
After Bitcoin fell below $16,000, at that time, the most mainstream Antminer S17 series miners were shut down near the shutdown price, and miners like the Whatsminer M30S, Whatsminer M30S, and Antminer T19 had already reached the shutdown coin price range. In this price range, even if nothing happens, a bounce will occur. The bull-bear transition is like a basketball falling freely from a height, bouncing sequentially weaker after hitting the ground.
Source: glassnode
As can be seen from the above chart, by the end of 2022, Long Term Holders continue to accumulate.
After more than a decade of development, the Bitcoin consensus has become strong enough, with on-chain hodlers and Long Term Holders reaching a consensus near the mainstream miner shutdown price.
2. ETF Bringing Incremental Capital from Traditional Financial Markets
Since the introduction of BTC ETFs, a total of 528.6k BTC have been net inflowed. In this bull market cycle, ETFs have brought nearly 36 billion in incremental buying pressure to Bitcoin, and 2.6 billion to ETH.
Source: coinglass.com
Furthermore, the approval of BTC ETFs (and ETH ETFs) will also have a driving effect, with more traditional financial institutions starting to pay attention to and enter the Crypto space.
3. MicroStrategy Continues to Buy, Multiple Public Companies Follow Suit, Davis Double Click
According to Bitcointreasuries data, as of December 30, 2024, 149 entities collectively hold over 2.95 million BTC. This data is still growing rapidly in recent times.
Source: bitcointreasuries.net
Among these entities holding Bitcoin, there are 73 public companies, 18 private companies, 11 countries, 42 ETFs or Funds, and 5 DeFi protocols.
MicroStrategy was the first public company to adopt a "Bitcoin Treasury Company" strategy, but not the only one. Other public companies such as Marathon Digital Holdings, Riot Blockchain, Boyaa Interactive International Limited, among others, have also implemented this strategy. However, MicroStrategy still has the largest impact.
4. National Strategic Reserves
Currently, some governments hold Bitcoin. Specific details are as follows:
Source: bitcointreasuries.net
Although these countries hold Bitcoin, most of the Bitcoin was seized by law enforcement agencies during law enforcement processes. It is temporarily not being sold and does not belong to a stable Holder.
Among these countries, perhaps only El Salvador is a true BTC Holder. Since 2021, El Salvador has been buying Bitcoin, purchasing 1 BTC per day. As of now, they hold 6,002 BTC, valued at over $560 million.
Furthermore, Bhutan holds 11,688 BTC through Bitcoin mining. However, Bhutan is not considered a BTC Holder and has recently reduced its holdings in the past two months.
During his election campaign, former U.S. President Trump once stated that if he were elected president, he would establish a strategic Bitcoin reserve.
If MicroStrategy paved the way, one could argue that there is no greater force to drive Bitcoin's rise than Trump taking office and pushing for a U.S. government Bitcoin strategic reserve, subsequently leading to more countries strategically reserving Bitcoin.
Conclusion
MicroStrategy's Bitcoin strategy is not just a corporate transformational business experiment but also a significant innovation in financial history. Through clever capital operations, intelligent leverage, and a profound insight into Bitcoin's value, it has not only achieved brilliant market value growth for itself but has also more profoundly brought Bitcoin into the traditional financial landscape, breaking down the barriers between crypto assets and mainstream capital markets.
MicroStrategy's bold attempt may only be the prelude to Bitcoin's legend or perhaps an insignificant step in Bitcoin's true rise, but it could be a significant step toward a new financial era.
References:
https://www.microstrategy.com/press/microstrategy-announces-third-quarter-2024-financial-results-and-announces-42-billion-capital-plan_10-30-2024
https://www.hope.com/for-corporations
https://bitcointreasuries.net/
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On May 13, S&P Dow Jones Indices announced that Coinbase would officially replace Discover Financial Services in the S&P 500 on May 19. While other companies like Block and MicroStrategy, closely tied to Bitcoin, were already part of the S&P 500, Coinbase became the first cryptocurrency exchange whose primary business is in the index. This also signifies that cryptocurrency is gradually moving from the fringes to the mainstream in the U.S.
On the day of the announcement, Coinbase's stock price surged by 23%, surpassing the $250 mark. However, just 3 days later, Coinbase was hit by two consecutive events: a hack where employees were bribed to steal customer data and a demand for a $20 million ransom, and an investigation by the U.S. Securities and Exchange Commission (SEC) into the authenticity of its claim of having over 100 million "verified users" in its securities filings and marketing materials. These two events acted as mini-bombs, and at the time of writing, Coinbase's stock had already dropped by over 7.3%.
Coincidentally, Discover Financial Services, being replaced by Coinbase, can also be considered the "Coinbase" of the previous payment era. Discover is a U.S.-based digital banking and payment services company headquartered in Illinois, founded in 1960. Its payment network, Discover Network, is the fourth largest payment network apart from Visa, Mastercard, and American Express.
In April, after the approval of the acquisition of Discover by the sixth-largest U.S. bank, Capital One, this well-established digital banking company of over 60 years smoothly handed over its S&P 500 "seat" to this emerging cryptocurrency "bank." This unexpected coincidence also portrayed the handover between the new and old eras in Coinbase's entry into the S&P 500, resembling a relay race scene. However, this relay baton also brought Coinbase's accumulated "external troubles and internal strife" to a tipping point.
Over the past decade, cryptocurrency exchanges have been the most stable "profit machines." They play a role in providing liquidity to the entire industry and rely on trading fees to sustain their operations. However, with the comprehensive rollout of ETF products in the U.S. market, this profit model is facing unprecedented challenges. As the leader in the "American stack," with over 80% of its business coming from the U.S., Coinbase is most affected by this.
Starting from the approval of Bitcoin and Ethereum spot ETFs, traditional financial capital has significantly onboarded users and funds that originally belonged to exchanges in a more cost-effective, compliant, and transparent manner. The transaction fee revenue of cryptocurrency exchanges has started to decline, and this trend may further intensify in the coming months.
According to Coinbase's 2024 Q4 financial report, the platform's total trading revenue was $417 million, a 45% year-on-year decrease. The contribution of BTC and ETH's trading revenue dropped from 65% in the same period last year to less than 50%.
This decline is not a result of a decrease in market enthusiasm. In fact, since the approval of the Bitcoin ETF in January 2024, the inflow of BTC into the U.S. market has continued to reach new highs, with asset management giants like BlackRock and Fidelity rapidly expanding their management scale. Data shows that BlackRock's iShares Bitcoin ETF (IBIT) alone has surpassed $17 billion in assets under management. As of mid-May 2025, the cumulative net inflow of 11 major institutional Bitcoin spot ETFs on the market has exceeded $41.5 billion, with a total net asset value of $1214.69 billion, accounting for approximately 5.91% of the total Bitcoin market capitalization.
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In other words, the more rational users are, the more likely they are to move from exchanges to ETF products, especially for investors aiming for long-term holdings.
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However, the Bitcoin and Ethereum ETFs passed in 2024 also reduced the fees for these two tokens on Coinbase from 30% and 15% to 26% and 10%, respectively. If the SOL and XRP ETFs are approved, it will further undermine the core fee revenue of exchanges like Coinbase.
The expansion of ETF products is gradually weakening the financial intermediary status of cryptocurrency exchanges. From their original roles as matchmakers and clearers to now gradually becoming mere "on-ramps and off-ramps" for funds, exchanges are seeing their marginal value squeezed by ETFs.
On May 12, 2025, SEC Chairman Paul S. Atkins gave a keynote speech at the Tokenization and Cryptocurrency Working Group roundtable. The theme of his speech revolved around "It is a new day at the SEC," where he indicated that the SEC would not approach enforcement and regulation the same way as before but would instead pave the way for cryptocurrency assets in the U.S. market.
With signs of cryptocurrency compliance such as the SEC's "NEW DAY" declaration, an increasing number of traditional brokerages are attempting to enter the cryptocurrency industry. One of the most representative cases is the well-known U.S. brokerage Robinhood, which began expanding its crypto business in 2018. By the time of its IPO in 2021, Robinhood's crypto business revenue accounted for over 50% of the company, with a significant boost from the Dogecoin "moonshot" promoted by Musk.
In Q1 2025 earnings report, Robinhood showcased strong growth, especially in revenue from cryptocurrency and options trading. Fueled by Trump's Memecoin, cryptocurrency-related revenue reached $250 million, nearly doubling year-over-year. Consequently, Robinhood Gold subscription users reached 3.5 million, a 90% increase from the previous year, with the rapid growth of Robinhood Gold providing the company with a stable source of income.
Meanwhile, RobinHood is actively pursuing acquisitions in the cryptocurrency space. In 2024, it announced a $2 billion acquisition of the long-standing European cryptocurrency exchange Bitstamp. Additionally, Canada's largest cryptocurrency CEX, WonderFi, which recently went public on the Toronto Stock Exchange, also announced its integration with RobinHood Crypto. After obtaining virtual asset licenses in the UK, Canada, Singapore, and other markets, RobinHood has taken a proactive approach in the compliant cryptocurrency trading market.
Furthermore, an increasing number of brokerage firms are exploring the same path. Futu Securities, Tiger Brokers, and others are also dipping their toes into cryptocurrency trading, with some having applied for or obtained the VA license from the Hong Kong SFC. Although their user bases are currently small, traditional brokerages have a natural advantage in user trust, regulatory licenses, and low fee structures. This could pose a threat to native cryptocurrency platforms in the future.
In April 2025, security researchers discovered that some Coinbase user data was leaked on the dark web. While the platform initially responded by attributing it to a "technical misinformation," it still raised concerns among users regarding its security and privacy protection. Just two days before Dow Jones Indexes announced Coinbase's addition to the S&P 500 Index, on May 11, 2025, Coinbase received an email from an unknown threat actor claiming to have obtained customer account information and internal documents, demanding a $20 million ransom to keep the data private. Subsequent investigations confirmed the data breach.
Cybercriminals obtained the data by bribing overseas customer service agents and support staff, mainly in "non-U.S. regions such as India." These agents abused their access to Coinbase's internal customer support system and stole customer data. As early as February this year, blockchain detective ZachXBT revealed on X platform that between December 2024 and January 2025, Coinbase users lost over $65 million to social engineering scams, with the actual amount potentially higher.
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In addition, Coinbase Custody also serves over 300 institutional clients, including hedge funds, family offices, pension funds, and endowments. As of the Q1 2025 financial report, Coinbase's total assets under management (including institutional and retail clients) reached $404 billion. The specific amount of institutional custodied assets was not explicitly disclosed in the latest report, but it should still be over 50% based on the Q4 2024 report.
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After Surging 40%, Has Ethereum Price Peaked Upon Exiting the Craze?
Whether you are an insider or an outsider, these days you must be familiar with the news about Ethereum. The reason is simple, causing Ethereum enthusiasts to sigh with emotion and almost throwing off-guard those who defend Ethereum, Ethereum, with a "3-day surge of 40%," climbed to the top of the Douyin Hot List.
As we all know, Ethereum launched the Pectra upgrade on May 7th. This most significant network upgrade since early 2024 integrates the Prague execution layer hard fork and the Electra consensus layer upgrade, significantly improving Ethereum's performance through 11 improvement proposals. The account abstraction feature (EIP-7702) allows users to flexibly manage wallets through social media accounts or multi-signature schemes, reducing the user threshold, attracting more users and developers. The staking mechanism optimization increases the validator ETH cap from 32ETH to 2048ETH and introduces a flexible withdrawal method, making it easier for institutions and individuals to participate in network security, enhancing the market's confidence in Ethereum's long-term value.
At the same time, Pectra optimized the interaction efficiency of Layer 2 networks such as Arbitrum and Optimism, making transactions faster and cheaper, leading to a surge in on-chain activity. As a crucial step for Ethereum's transition from "2G" to "5G," the Pectra upgrade not only enhances network vitality but also "recharges confidence" in the market, directly driving the price increase.
Related Reading: "Ethereum Skyrockets 22% in One Day, E Enthusiasts Rejoice"
It's not just Ethereum itself, as Wall Street also brought important bullish news.
The world's largest asset management company, BlackRock, proposed to the SEC allowing Ethereum ETFs for staking. This proposal is expected to elevate Ethereum ETFs from a mere investment tool to a bond-like "interest-bearing asset," bringing investors both capital appreciation and passive income, igniting market optimism about Ethereum's future potential.
Specifically, BlackRock has proposed to amend its S-1 filing to allow investors to create and redeem ETF shares directly with Ethereum instead of the U.S. dollar (i.e., in-kind redemption). This move, combined with its $2.9 billion BUIDL Fund launched in March 2024, aims to deepen the integration of traditional finance with blockchain. The BUIDL Fund is a tokenized fund operating on the Ethereum network, investing in traditional assets such as U.S. Treasury bonds. This setup is highly attractive to institutional investors, as they can not only benefit from Ethereum's price appreciation but also earn stable cash flow through staking.
Robert Mitchnick, BlackRock's Head of Digital Assets, stated in a CNBC interview in March 2025 that the addition of staking functionality will significantly enhance the appeal of the Ethereum ETF. He admitted that when the Ethereum spot ETF was launched in July 2024 without staking functionality, the market demand was lackluster, and staking could be the key to reversing this trend.
Meanwhile, the SEC's shifting stance on cryptocurrency regulation has also fueled this upward trend. During the tenure of the previous SEC chairman, the regulatory approach was tough, and staking was strictly viewed through the Howey test as a potential unregistered security. Therefore, when approving the Ethereum spot ETF in May 2024, staking functionality was explicitly prohibited.
However, with Trump back in the White House and Paul Atkins taking over the SEC, there has been a noticeable relaxation in crypto regulation. Apart from BlackRock, ETF issuers such as Invesco Galaxy, VanEck, WisdomTree, and 21Shares have also submitted applications for similar staking and in-kind redemption.
Related reading: "New Chairman Takes Office, SEC Transforms into 'Crypto Daddy' Within 48 Hours"
If staking ETFs are approved, the benefits are likely to go beyond price appreciation. The introduction of staking functionality could redefine the role of crypto assets, making them more similar to traditional financial products that provide returns and value appreciation, thereby driving Ethereum closer to mainstream finance.
Currently, the SEC still needs to address several decisions related to crypto ETFs, including whether to approve ETFs for Solana, XRP, Litecoin, and even Dogecoin. With the calls for an "altcoin season" growing louder, Ethereum's strong performance may just be the beginning of a larger crypto market frenzy.
In addition, the Trump family-related DeFi project WLFI is also bullish on this wave of rise, with frequent on-chain activities. According to on-chain data analyst @ai_9684xtpa's monitoring, a WLFI-related address is currently borrowing coins to go long on ETH, borrowing 4 million U from Aave to buy 1590 ETH at an average price of $2515 per ETH.
For this epic surge of Ethereum after half a year of silence, the community has indeed gained more confidence and hope, which has also led to a revival of the entire altcoin market. However, amidst the joy, there are also voices of pessimism. Below is a summary conducted by BlockBeats based on community discussions.
The optimists point out that the current market structure is similar to the eve of the bull markets in 2016 and 2020, predicting a life-changing surge in the next 3-6 months, where some altcoins may even achieve astonishing single-day gains of up to 40%.
@liuwei16602825 stated that this surge signifies the return of the bull market as a sure thing. There is no need to worry about a pullback. The driving force behind the surge uses a high-cost isolated operation, fearing a drop more than any retail investor and will definitely do everything to support the price.
Related Reading: "Ethereum Leads the Surge Triggering the 'Altcoin Season' Speculation, How Do Traders View the Future Market?"
The bears mainly believe that this surge is different from the bull market of 2021, as the current market lacks the confidence of large-scale retail investors entering and holding positions for the long term, with funds rotating too quickly.
@market_beggar observed that a Bitfinex E/B whale has started to close positions and believes that if this whale maintains its high-speed position-closing operation for the next few days, it can be inferred that the whale no longer sees the upside potential of ETH, preparing to take profits and exit. The closing time will be a key focus going forward.
@FLS_OTC stated that there are still many uncertainties at the macro level, and the liquidity cannot support a major bull market. At this stage, it is a "last hurrah," not a complete reversal, and will continue to remain in a short position.
@off_thetarget believes that after ETH transitioned from POW to POS, it lost the "gold standard" of mining machine power cost support. The staking economic model led to a breakdown in value anchoring. Additionally, the L2 ecosystem (such as Starknet, zkSync, etc.) suffered from liquidity fragmentation, failing to establish an effective capital inflow mechanism, causing the collapse of the split disc pattern. Furthermore, the ETH community's excessive pursuit of technical narratives divorced from real-world needs resulted in a weak ecosystem growth. Therefore, he believes that ETH's intrinsic value system has crumbled, and the price is bound to plummet to the 800-1200 range, with a decisive short position at 1800.
@Airdrop_Guard, based on the core logic of the "High Probability Trading Strategy," where three sets of underlying logic different trading systems (such as volume depletion, price supply-demand, long/short position funding rate, etc.) simultaneously issue a short signal at the same point (2580), creating a high-probability trading opportunity. He emphasizes that these systems must be based on different algorithms and logics (rather than mere technical indicator overlays). The current ETH trend aligns with the short conditions in multiple independent dimensions of his trading system, hence the decision to short.
Overall, Bitcoin still maintains over 54% market dominance, and institutional funds' continued preference for it may limit the altcoin's upward potential. The market's future direction will depend on multiple factors, such as Bitcoin's price trend, global macroeconomic conditions, and whether funds can effectively rotate from Bitcoin to the altcoin sector.
Although Ethereum's recent leadership in the market has brought about optimistic sentiment, investors still need to remain rational as different sectors of altcoins are likely to show divergence in trends. Whether this round of Ethereum's rise will usher in a true altcoin frenzy may require more time and conducive conditions.
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$COIN Joins S&P 500, but Coinbase Isn't Celebrating
On May 13, S&P Dow Jones Indices announced that Coinbase would officially replace Discover Financial Services in the S&P 500 on May 19. While other companies like Block and MicroStrategy, closely tied to Bitcoin, were already part of the S&P 500, Coinbase became the first cryptocurrency exchange whose primary business is in the index. This also signifies that cryptocurrency is gradually moving from the fringes to the mainstream in the U.S.
On the day of the announcement, Coinbase's stock price surged by 23%, surpassing the $250 mark. However, just 3 days later, Coinbase was hit by two consecutive events: a hack where employees were bribed to steal customer data and a demand for a $20 million ransom, and an investigation by the U.S. Securities and Exchange Commission (SEC) into the authenticity of its claim of having over 100 million "verified users" in its securities filings and marketing materials. These two events acted as mini-bombs, and at the time of writing, Coinbase's stock had already dropped by over 7.3%.
Coincidentally, Discover Financial Services, being replaced by Coinbase, can also be considered the "Coinbase" of the previous payment era. Discover is a U.S.-based digital banking and payment services company headquartered in Illinois, founded in 1960. Its payment network, Discover Network, is the fourth largest payment network apart from Visa, Mastercard, and American Express.
In April, after the approval of the acquisition of Discover by the sixth-largest U.S. bank, Capital One, this well-established digital banking company of over 60 years smoothly handed over its S&P 500 "seat" to this emerging cryptocurrency "bank." This unexpected coincidence also portrayed the handover between the new and old eras in Coinbase's entry into the S&P 500, resembling a relay race scene. However, this relay baton also brought Coinbase's accumulated "external troubles and internal strife" to a tipping point.
Over the past decade, cryptocurrency exchanges have been the most stable "profit machines." They play a role in providing liquidity to the entire industry and rely on trading fees to sustain their operations. However, with the comprehensive rollout of ETF products in the U.S. market, this profit model is facing unprecedented challenges. As the leader in the "American stack," with over 80% of its business coming from the U.S., Coinbase is most affected by this.
Starting from the approval of Bitcoin and Ethereum spot ETFs, traditional financial capital has significantly onboarded users and funds that originally belonged to exchanges in a more cost-effective, compliant, and transparent manner. The transaction fee revenue of cryptocurrency exchanges has started to decline, and this trend may further intensify in the coming months.
According to Coinbase's 2024 Q4 financial report, the platform's total trading revenue was $417 million, a 45% year-on-year decrease. The contribution of BTC and ETH's trading revenue dropped from 65% in the same period last year to less than 50%.
This decline is not a result of a decrease in market enthusiasm. In fact, since the approval of the Bitcoin ETF in January 2024, the inflow of BTC into the U.S. market has continued to reach new highs, with asset management giants like BlackRock and Fidelity rapidly expanding their management scale. Data shows that BlackRock's iShares Bitcoin ETF (IBIT) alone has surpassed $17 billion in assets under management. As of mid-May 2025, the cumulative net inflow of 11 major institutional Bitcoin spot ETFs on the market has exceeded $41.5 billion, with a total net asset value of $1214.69 billion, accounting for approximately 5.91% of the total Bitcoin market capitalization.
Institutional investors and some retail investors are shifting towards ETF products, partly due to compliance and tax considerations. On one hand, ETFs have much lower trading costs compared to cryptocurrency exchanges. While Coinbase's spot trading fee rate varies annually in a tiered manner but averages around 1.49%, for example, the management fee for IBIT ETF is only 0.25%, and the majority of ETF institution fees fluctuate around 0.15% to 0.25%.
In other words, the more rational users are, the more likely they are to move from exchanges to ETF products, especially for investors aiming for long-term holdings.
According to multiple sources, several institutions, including VanEck and Grayscale, have submitted applications to the SEC for a Solana (SOL) ETF, with some institutions also planning to submit an XRP ETF proposal. Once approved, this may trigger a new round of fund migration. According to a report submitted by Coinbase to the SEC, as of April, the platform's trading revenue from XRP and Solana accounted for 18% and 10%, nearly one-third of the platform's fee revenue.
However, the Bitcoin and Ethereum ETFs passed in 2024 also reduced the fees for these two tokens on Coinbase from 30% and 15% to 26% and 10%, respectively. If the SOL and XRP ETFs are approved, it will further undermine the core fee revenue of exchanges like Coinbase.
The expansion of ETF products is gradually weakening the financial intermediary status of cryptocurrency exchanges. From their original roles as matchmakers and clearers to now gradually becoming mere "on-ramps and off-ramps" for funds, exchanges are seeing their marginal value squeezed by ETFs.
On May 12, 2025, SEC Chairman Paul S. Atkins gave a keynote speech at the Tokenization and Cryptocurrency Working Group roundtable. The theme of his speech revolved around "It is a new day at the SEC," where he indicated that the SEC would not approach enforcement and regulation the same way as before but would instead pave the way for cryptocurrency assets in the U.S. market.
With signs of cryptocurrency compliance such as the SEC's "NEW DAY" declaration, an increasing number of traditional brokerages are attempting to enter the cryptocurrency industry. One of the most representative cases is the well-known U.S. brokerage Robinhood, which began expanding its crypto business in 2018. By the time of its IPO in 2021, Robinhood's crypto business revenue accounted for over 50% of the company, with a significant boost from the Dogecoin "moonshot" promoted by Musk.
In Q1 2025 earnings report, Robinhood showcased strong growth, especially in revenue from cryptocurrency and options trading. Fueled by Trump's Memecoin, cryptocurrency-related revenue reached $250 million, nearly doubling year-over-year. Consequently, Robinhood Gold subscription users reached 3.5 million, a 90% increase from the previous year, with the rapid growth of Robinhood Gold providing the company with a stable source of income.
Meanwhile, RobinHood is actively pursuing acquisitions in the cryptocurrency space. In 2024, it announced a $2 billion acquisition of the long-standing European cryptocurrency exchange Bitstamp. Additionally, Canada's largest cryptocurrency CEX, WonderFi, which recently went public on the Toronto Stock Exchange, also announced its integration with RobinHood Crypto. After obtaining virtual asset licenses in the UK, Canada, Singapore, and other markets, RobinHood has taken a proactive approach in the compliant cryptocurrency trading market.
Furthermore, an increasing number of brokerage firms are exploring the same path. Futu Securities, Tiger Brokers, and others are also dipping their toes into cryptocurrency trading, with some having applied for or obtained the VA license from the Hong Kong SFC. Although their user bases are currently small, traditional brokerages have a natural advantage in user trust, regulatory licenses, and low fee structures. This could pose a threat to native cryptocurrency platforms in the future.
In April 2025, security researchers discovered that some Coinbase user data was leaked on the dark web. While the platform initially responded by attributing it to a "technical misinformation," it still raised concerns among users regarding its security and privacy protection. Just two days before Dow Jones Indexes announced Coinbase's addition to the S&P 500 Index, on May 11, 2025, Coinbase received an email from an unknown threat actor claiming to have obtained customer account information and internal documents, demanding a $20 million ransom to keep the data private. Subsequent investigations confirmed the data breach.
Cybercriminals obtained the data by bribing overseas customer service agents and support staff, mainly in "non-U.S. regions such as India." These agents abused their access to Coinbase's internal customer support system and stole customer data. As early as February this year, blockchain detective ZachXBT revealed on X platform that between December 2024 and January 2025, Coinbase users lost over $65 million to social engineering scams, with the actual amount potentially higher.
Among the victims was a well-known figure, 67-year-old Ed Suman, an established artist in the art world for nearly two decades, having been involved in the creation of artworks such as Jeff Koons' "Balloon Dog" sculpture. Earlier this year, he fell victim to an impersonation scam involving fake Coinbase customer support, resulting in a loss of over $2 million in cryptocurrency. ZachXBT critiqued Coinbase for its inadequate handling of such scams, noting that other major exchanges have not faced similar issues and recommending Coinbase to enhance its security measures.
Amidst a series of ongoing social engineering incidents, although there has not been any impact on user assets at the technical level so far, it has raised concerns among many retail and institutional investors. Especially institutions holding massive assets on Coinbase. Just considering the U.S. BTC ETF institutions, as of mid-May 2025, they collectively hold nearly 840,000 BTC, and 75% of these are custodied by Coinbase. If we price BTC at $100,000, this amount reaches a staggering $63 billion, which is equivalent to the nominal GDP of two Iceland in the year 2024.
In addition, Coinbase Custody also serves over 300 institutional clients, including hedge funds, family offices, pension funds, and endowments. As of the Q1 2025 financial report, Coinbase's total assets under management (including institutional and retail clients) reached $404 billion. The specific amount of institutional custodied assets was not explicitly disclosed in the latest report, but it should still be over 50% based on the Q4 2024 report.
Once this security barrier is breached, not only could the rate of user attrition far exceed expectations, but more importantly, institutional trust in it would undermine the foundation of its business. Therefore, after a hacking event, Coinbase's stock price plummeted significantly.
Facing a decline in spot trading fee revenue, Coinbase is also accelerating its transformation, attempting to find growth opportunities in derivatives and emerging assets. Coinbase acquired a stake in the options platform Deribit at the end of 2024 and announced the official launch of perpetual contract products in 2025. This acquisition fills in Coinbase's gap in options trading and its relatively small global market share.
Deribit has a strong presence in non-U.S. markets, especially in Asia and Europe. The acquisition has enabled Coinbase to gain a dominant position in bitcoin and ethereum options trading on Deribit, accounting for approximately 80% of the global options trading volume, with daily trading volume remaining above $2 billion.
Meanwhile, 80-90% of Deribit's customer base consists of institutional investors, with their professionalism and liquidity in the Bitcoin and Ethereum options market highly favored by institutions. Coinbase's compliance advantage, coupled with its already robust institutional ecosystem, makes it even more suitable. By using institutions as an entry point, it can face the squeeze from giants like Binance and OKX in the derivatives market.
Facing a similar dilemma is Kraken, which is attempting to replicate Binance Futures' model in non-U.S. markets. Since the derivatives market relies more on professional users, fee rates are relatively higher and stickiness is stronger, making it a significant source of revenue for exchanges. In the first half of 2025, Kraken completed the acquisition of TradeStation Crypto and a futures exchange, aiming to build a complete derivatives trading ecosystem to hedge the risk of declining spot transaction fee income.
With the surge of Memecoin in 2024, Binance, OKX, and various CEX platforms began massively listing small-market-cap, highly volatile tokens to activate active trading users. Due to the wealth effect and trading activity of Memecoins, Coinbase was also forced to join the battle, successively listing popular tokens from the Solana ecosystem such as BOOK OF MEME and Dogwifhat. Although these coins are controversial, they are frequently traded, with fee rates several times higher than mainstream coins, serving as a "blood-boosting" method for spot trading.
However, due to its status as a publicly traded company, this practice is a riskier endeavor for Coinbase. Even in the current crypto-friendly environment, the SEC is still investigating whether tokens like SOL, ADA, and SAND constitute securities.
In addition to the forced transformation strategies carried out by the aforementioned CEXs, they are also starting to lay out RWAs and the most talked-about stablecoin payment fields, such as the PYUSD launched through a collaboration between Coinbase and Paypal, Coinbase's support for the Euro stablecoin EURC by Circle that complies with EU MiCA regulatory requirements, or the USD1 launched through a collaboration between Binance and WIFL. In the increasingly crowded trading field, many CEXs have shifted their focus from just the trading market to the application field.
The golden age of transaction fees has quietly ended, and the second half of the crypto exchange platform game has silently begun.
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Source: Overheard on CT (tg: @overheardonct), Kaito
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COINBASE: Today, Coinbase became the first crypto company to join the S&P 500 Index, replacing Discover Financial Services, sparking widespread industry attention. The entire crypto community views this milestone as a significant development, signaling that crypto assets are further integrating into the mainstream financial system. The news has sparked lively discussions on Twitter, with many users pointing out that this may attract more institutional investors to enter the Bitcoin and other cryptocurrency markets.
XRP: XRP became the focal point of today's crypto discussion, with its significant market movements and strategic advances drawing attention. XRP has surpassed USDT to become the third-largest cryptocurrency by market capitalization, sparking market excitement and discussions about its future potential. The surge in market capitalization and price is believed to be related to increasing institutional interest, deepening strategic partnerships, and its role in the crypto ecosystem. Additionally, XRP's integration into multiple financial systems and its potential as a macro asset class are also seen as key factors driving the current market sentiment.
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After Surging 40%, Has Ethereum Price Peaked Upon Exiting the Craze?
Whether you are an insider or an outsider, these days you must be familiar with the news about Ethereum. The reason is simple, causing Ethereum enthusiasts to sigh with emotion and almost throwing off-guard those who defend Ethereum, Ethereum, with a "3-day surge of 40%," climbed to the top of the Douyin Hot List.
As we all know, Ethereum launched the Pectra upgrade on May 7th. This most significant network upgrade since early 2024 integrates the Prague execution layer hard fork and the Electra consensus layer upgrade, significantly improving Ethereum's performance through 11 improvement proposals. The account abstraction feature (EIP-7702) allows users to flexibly manage wallets through social media accounts or multi-signature schemes, reducing the user threshold, attracting more users and developers. The staking mechanism optimization increases the validator ETH cap from 32ETH to 2048ETH and introduces a flexible withdrawal method, making it easier for institutions and individuals to participate in network security, enhancing the market's confidence in Ethereum's long-term value.
At the same time, Pectra optimized the interaction efficiency of Layer 2 networks such as Arbitrum and Optimism, making transactions faster and cheaper, leading to a surge in on-chain activity. As a crucial step for Ethereum's transition from "2G" to "5G," the Pectra upgrade not only enhances network vitality but also "recharges confidence" in the market, directly driving the price increase.
Related Reading: "Ethereum Skyrockets 22% in One Day, E Enthusiasts Rejoice"
It's not just Ethereum itself, as Wall Street also brought important bullish news.
The world's largest asset management company, BlackRock, proposed to the SEC allowing Ethereum ETFs for staking. This proposal is expected to elevate Ethereum ETFs from a mere investment tool to a bond-like "interest-bearing asset," bringing investors both capital appreciation and passive income, igniting market optimism about Ethereum's future potential.
Specifically, BlackRock has proposed to amend its S-1 filing to allow investors to create and redeem ETF shares directly with Ethereum instead of the U.S. dollar (i.e., in-kind redemption). This move, combined with its $2.9 billion BUIDL Fund launched in March 2024, aims to deepen the integration of traditional finance with blockchain. The BUIDL Fund is a tokenized fund operating on the Ethereum network, investing in traditional assets such as U.S. Treasury bonds. This setup is highly attractive to institutional investors, as they can not only benefit from Ethereum's price appreciation but also earn stable cash flow through staking.
Robert Mitchnick, BlackRock's Head of Digital Assets, stated in a CNBC interview in March 2025 that the addition of staking functionality will significantly enhance the appeal of the Ethereum ETF. He admitted that when the Ethereum spot ETF was launched in July 2024 without staking functionality, the market demand was lackluster, and staking could be the key to reversing this trend.
Meanwhile, the SEC's shifting stance on cryptocurrency regulation has also fueled this upward trend. During the tenure of the previous SEC chairman, the regulatory approach was tough, and staking was strictly viewed through the Howey test as a potential unregistered security. Therefore, when approving the Ethereum spot ETF in May 2024, staking functionality was explicitly prohibited.
However, with Trump back in the White House and Paul Atkins taking over the SEC, there has been a noticeable relaxation in crypto regulation. Apart from BlackRock, ETF issuers such as Invesco Galaxy, VanEck, WisdomTree, and 21Shares have also submitted applications for similar staking and in-kind redemption.
Related reading: "New Chairman Takes Office, SEC Transforms into 'Crypto Daddy' Within 48 Hours"
If staking ETFs are approved, the benefits are likely to go beyond price appreciation. The introduction of staking functionality could redefine the role of crypto assets, making them more similar to traditional financial products that provide returns and value appreciation, thereby driving Ethereum closer to mainstream finance.
Currently, the SEC still needs to address several decisions related to crypto ETFs, including whether to approve ETFs for Solana, XRP, Litecoin, and even Dogecoin. With the calls for an "altcoin season" growing louder, Ethereum's strong performance may just be the beginning of a larger crypto market frenzy.
In addition, the Trump family-related DeFi project WLFI is also bullish on this wave of rise, with frequent on-chain activities. According to on-chain data analyst @ai_9684xtpa's monitoring, a WLFI-related address is currently borrowing coins to go long on ETH, borrowing 4 million U from Aave to buy 1590 ETH at an average price of $2515 per ETH.
For this epic surge of Ethereum after half a year of silence, the community has indeed gained more confidence and hope, which has also led to a revival of the entire altcoin market. However, amidst the joy, there are also voices of pessimism. Below is a summary conducted by BlockBeats based on community discussions.
The optimists point out that the current market structure is similar to the eve of the bull markets in 2016 and 2020, predicting a life-changing surge in the next 3-6 months, where some altcoins may even achieve astonishing single-day gains of up to 40%.
@liuwei16602825 stated that this surge signifies the return of the bull market as a sure thing. There is no need to worry about a pullback. The driving force behind the surge uses a high-cost isolated operation, fearing a drop more than any retail investor and will definitely do everything to support the price.
Related Reading: "Ethereum Leads the Surge Triggering the 'Altcoin Season' Speculation, How Do Traders View the Future Market?"
The bears mainly believe that this surge is different from the bull market of 2021, as the current market lacks the confidence of large-scale retail investors entering and holding positions for the long term, with funds rotating too quickly.
@market_beggar observed that a Bitfinex E/B whale has started to close positions and believes that if this whale maintains its high-speed position-closing operation for the next few days, it can be inferred that the whale no longer sees the upside potential of ETH, preparing to take profits and exit. The closing time will be a key focus going forward.
@FLS_OTC stated that there are still many uncertainties at the macro level, and the liquidity cannot support a major bull market. At this stage, it is a "last hurrah," not a complete reversal, and will continue to remain in a short position.
@off_thetarget believes that after ETH transitioned from POW to POS, it lost the "gold standard" of mining machine power cost support. The staking economic model led to a breakdown in value anchoring. Additionally, the L2 ecosystem (such as Starknet, zkSync, etc.) suffered from liquidity fragmentation, failing to establish an effective capital inflow mechanism, causing the collapse of the split disc pattern. Furthermore, the ETH community's excessive pursuit of technical narratives divorced from real-world needs resulted in a weak ecosystem growth. Therefore, he believes that ETH's intrinsic value system has crumbled, and the price is bound to plummet to the 800-1200 range, with a decisive short position at 1800.
@Airdrop_Guard, based on the core logic of the "High Probability Trading Strategy," where three sets of underlying logic different trading systems (such as volume depletion, price supply-demand, long/short position funding rate, etc.) simultaneously issue a short signal at the same point (2580), creating a high-probability trading opportunity. He emphasizes that these systems must be based on different algorithms and logics (rather than mere technical indicator overlays). The current ETH trend aligns with the short conditions in multiple independent dimensions of his trading system, hence the decision to short.
Overall, Bitcoin still maintains over 54% market dominance, and institutional funds' continued preference for it may limit the altcoin's upward potential. The market's future direction will depend on multiple factors, such as Bitcoin's price trend, global macroeconomic conditions, and whether funds can effectively rotate from Bitcoin to the altcoin sector.
Although Ethereum's recent leadership in the market has brought about optimistic sentiment, investors still need to remain rational as different sectors of altcoins are likely to show divergence in trends. Whether this round of Ethereum's rise will usher in a true altcoin frenzy may require more time and conducive conditions.
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