Announcing Hypersphere’s largest investment to-date: 21 Capital

Background
Bitcoin has proven to be worthy of allocation to any portfolio, from retail to retirement. BlackRock, Fidelity, VanEck, and other financial heavy-weights issued Bitcoin ETFs to provide investors easy exposure to Bitcoin. While these BTC-backed investment vehicles do a great job of tracking Bitcoin price, investors will never earn additional yield on their bitcoin. A single share of a Bitcoin ETF will always track the same number of BTC and, after fees accumulate year after year, the Bitcoin you are entitled to per share may actually decrease.

The publicly listed software company, MicroStrategy (NASDAQ: MSTR), demonstrated another way to express a bullish view on Bitcoin. The company began purchasing Bitcoin before any Bitcoin ETF approvals, using profits from its legacy software business. Then, Michael Saylor, MicroStrategy’s founder, leveraged up his company (in a responsible way!) by issuing debt to purchase more Bitcoin — 2.5% of the total Bitcoin supply, and counting. MSTR can trade at a discount or premium to its net asset value (NAV) of BTC held in its treasury. Currently, MSTR enjoys more than a 75% premium to its BTC NAV. This premium is a reflection of the company’s ability to generate Bitcoin yield, or additional BTC per share, for its shareholders.

MicroStrategy transformed itself into a Bitcoin accumulation vehicle where, instead of trading around Bitcoin (or altcoins!) to “stack sats” of additional Bitcoin (this rarely works anyways), the company used its balance sheet to issue debt at favorable rates to acquire additional BTC per share. When executed effectively, shareholders keep their shares but enjoy their Bitcoin per share increasing over time.

People aren’t satisfied with just holding Bitcoin (because when are they ever?) — they simply want more Bitcoin. As an aside, we interviewed over 150 other crypto fund managers, as part of our multi-strategy fund, many of whom were focused solely on generating BTC yield for Bitcoin-denominated investors. It’s a whole cottage industry. The issue is Bitcoin-denominated funds have capacity constraints, so you can only invest a limited number of BTC, and as an investor you are taking counterparty risk. Separately, as part of a venture fund, we’ve spoken to over 50 companies in the “Bitcoin DeFi” space where projects are promising solutions to generate yield on Bitcoin users' deposits. Ergo, solving Bitcoin yield is a huge opportunity.

Investment
Enter Tether. Tether has one of the largest Bitcoin corporate balance sheets in the world and is a long-term believer in Bitcoin’s potential to appreciate in dollar terms. The best way for Tether to earn yield on their long-term Bitcoin holdings, and solve for capacity constraints and counterparty risk, is through their newly announced company: 21 Capital. We believe 21 Capital is the best business for accumulating BTC. And to back this belief, Hypersphere invested $40 million. The ticker, for now, is NASDAQ:CEP.

21 Capital (XXI) will be listed publicly via a SPAC merger with Cantor Equity Partners (CEP), a subsidiary of Cantor Fitzgerald. Cantor’s former CEO is Howard Lutnick, the current Secretary of Commerce. 21 Capital will capture narrative on all fronts, even with its ticker, XXI, which is the roman numeral for 21 (a reference to Bitcoin’s fixed 21 million supply). The company is a clean expression of a leveraged Bitcoin bet and has no debt, no unrelated businesses, no litigation, and great backers.

Tether and SoftBank seeded most of 21 Capital’s BTC treasury, contributing $2 billion and $1 billion, respectively, in Bitcoin at the price of $85,000 per BTC. 21 Capital’s initial 42,000 BTC treasury makes it the third-largest publicly listed Bitcoin treasury in the world, behind only MicroStrategy and Marathon (NASDAQ: MARA). Tether and SoftBank’s backing represent a strategic alignment between crypto’s top stablecoin issuer and globally-recognized institutional capital. While Tether’s alignment can help with operations and crypto-native ecosystem support, SoftBank’s offers a far-reaching network from LATAM to APAC and global regulatory expertise, having assisted Grab (Southeast Asia), Paytm (India), and Klarna (Sweden).

21 Capital will go further than other Bitcoin-acquisition vehicles. The company plans to generate Bitcoin-denominated cash flows by providing financial services. 21 Capital is led by long-time Bitcoin builder Jack Mallers. Given the company’s relationship to Strike and Tether, we hope to hear more about their roadmap after the SPAC is complete. Potential future offerings could position 21 Capital in the same premium to NAV league as other crypto financial services providers like Galaxy (GLXY), which trades at a 4x BTC NAV premium.

In the context of the changing monetary order, we are excited about our investment and we look forward to the road ahead for 21 Capital and Bitcoin’s place in the global financial system.