Author: Bankless

Compiled by: Blockchain Simplified

From Wall Street's 'oracle' to the creator of Ethereum's micro-strategy, Tom Lee's Bitmine has, within less than a month of its establishment, acquired 833,000 Ethereum, accounting for nearly 1% of the total supply, becoming the world's largest publicly traded Ethereum treasury company.

Bitmine's goal is to benchmark against MicroStrategy, holding 5% of the total supply of Ethereum.

How does this Wall Street Ethereum bull view Ethereum, and why does he believe Ethereum is currently replicating Bitcoin's explosive growth before 2017?

This interview elaborates on these issues in detail, with the following dialogue compiled by the Blockchain Simplified.

Q1: Bitmine currently holds 833,000 Ethereum, accounting for nearly 1% of the total supply, becoming the world's largest publicly traded Ethereum treasury company. How does this achievement feel?

Tom Lee: We acted very quickly; Bitmine was announced on June 30, and preparations were completed by July 8. In just 27 days, we acquired these Ethereum at an extremely high speed.

This is very important because MicroStrategy has proven the potential for 30 times returns with its strategy. In August 2020, MicroStrategy's stock price was only $13, while Bitcoin rose from $11,000 to $120,000, and its asset strategy yielded another 20 times return, totaling a 30 times return.

I believe Ethereum is one of the biggest macro trades of the next decade. Therefore, we want to act quickly to acquire more Ethereum at $3,500 or lower, before it achieves similar leaps to Bitcoin 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 multiple Ethereum treasury companies emerge within two weeks? Is it a market trend or coincidence?

Tom Lee: Perhaps heroes see alike. For a long time, the market mainly had Bitcoin asset companies and a few Solana asset companies. SharpInk was the first to announce it would become an Ethereum asset company in May, and we are actually latecomers.

Ethereum as an asset strategy is highly attractive. If you are optimistic about Ethereum itself, the asset strategy allows you to accumulate more Ethereum, offering advantages over ETFs.

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

In addition, we pursue scarcity. Bitmine aims to acquire 5% of Ethereum, leveraging a clean balance sheet and extremely high liquidity advantage—daily trading volume of $1.6 billion, ranking 42nd in the U.S. stock market, comparable to Uber. Our market value is about $4 billion, while Uber's is $184 billion.

Q3. Bitmine holds 830,000 Ethereum in four weeks, aiming to hold 5% of the total supply, which requires about $20 billion. How do you plan to achieve this goal?

Tom Lee: MicroStrategy currently holds 3.2% of Bitcoin's circulating supply, aiming to hold at least 1 million Bitcoins, about 5%, to gain a 'sovereign bullish option' on the Bitcoin ecosystem. If the U.S. wants to establish a strategic Bitcoin reserve, publicly purchasing 1 million Bitcoins would push prices up due to reduced sellers, possibly skyrocketing to $1 million instantly; MicroStrategy is a simpler way.

MicroStrategy achieves 3% over five years, purchasing about $0.16 worth of Bitcoin daily. Meanwhile, Bitmine has been adding about $0.80 to $1.00 of Ethereum daily since its inception, at a speed 12 times higher. If we maintain this speed, we could reach 5% in 1 to 2 years.

We are a fully compliant entity, adhering 100% to the concept of Ethereum as a legitimate and compliant blockchain. All Bitmine operations are within the United States, meeting Wall Street and U.S. government expectations for large-scale staking Ethereum entities.

Ethereum will be the primary blockchain for Wall Street's financialization. Someone on Twitter likened staking Ethereum to gamers buying Nvidia. When Wall Street tokenizes assets, it needs not only to hold Ethereum but also hopes that stakers will drive Ethereum's goals. We play an important role through staking.

Q4. Can the Ethereum treasury company also have a 'sovereign bullish options' strategy similar to MicroStrategy's? With banks like JPMorgan and stablecoin legislation pushing the dollar on-chain, will the U.S. government contact Bitmine for over-the-counter purchases of Ethereum?

Tom Lee: Your point is quite valid, but our goal is not to hold bullish options. Looking ahead, Wall Street hopes to migrate its financial system to 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 solidify its dominance over Ethereum.

In addition to financialization, Ethereum is also related to artificial intelligence. Tokenizing robots or other assets requires a secure blockchain, and technology and Wall Street are converging on Ethereum.

Goldman Sachs and JPMorgan do not want Ethereum scattered across millions of wallets; they are not seeking centralization but hope to stake in a compliant manner. Bitmine has maintained a clean balance sheet from the start, with no complex capital structure and transparent operations.

We have not yet announced our staking solution because the $3 billion in Ethereum needs to be handled cautiously, but we will fully comply with GAAP and U.S. staking requirements, taking a thoughtful approach.

Ethereum asset companies are key infrastructure; they are not just asset strategies but provide staking yields and other potential income sources, playing a crucial role in the ecosystem far beyond that of an ETH ETF.

Q5. Why did Bitmine purchase $3 billion in Ethereum in a month, yet the price has not broken through $4,000? Why has the market not risen due to large purchases?

Tom Lee: As one of the largest buyers of Ethereum, we have learned a lot, but it is not appropriate to disclose too many details. In the short term, price movements do not fully reflect fair value. Last week, Ethereum fell to $3,300, possibly due to liquidation levels, paired trading, or someone considering Ethereum a 'dead chain', betting on other chains and attempting forced liquidation.

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

At the beginning of 2017, Bitcoin was only $1,000, and it wasn't until August that it skyrocketed. Currently, Wall Street's interest in Ethereum assets and networks is unprecedented in the past four to five years.

Q6. Why choose an Ethereum treasury company instead of Bitcoin asset companies like MicroStrategy or Solana asset companies? What unique advantages does the Ethereum treasury strategy have?

Tom Lee: I am very optimistic about Bitcoin; research shows its price could reach $1.5 million. But Bitcoin and Ethereum play different roles in financialization. Ethereum represents blockchain financialization, which is not Bitcoin's goal.

Ethereum also provides a digital native way in the field of artificial intelligence, connecting the real world with digital security, thereby attracting companies that hold Ethereum assets.

If investing in Bitcoin, I would choose MicroStrategy because it continuously increases its Bitcoin holdings, outperforming Bitcoin itself. Ethereum asset companies are the only way for U.S. stock market investors to gain exposure to Ethereum unless they directly buy Ethereum or an ETF.

For institutional investors, this is a significant investment theme. They will not simply invest in JPMorgan, but seek direct exposure to Ethereum, even if ETFs may not fall within their fund parameters. Therefore, Ethereum asset companies are the macro trading entry point for professional investors in the U.S. stock market.

This explains why Cathie Wood and Bill Miller have made substantial investments in Bitmine; they believe it is the best way to gain macro exposure to Ethereum.

Q7. What tools does Ethereum's DeFi ecosystem provide Bitmine to accumulate more Ethereum? Besides MNAV premiums, what other strategies are there?

Tom Lee: This is a good question, but some strategies are proprietary information and cannot be disclosed at this time.

Investors should not oversimplify their understanding of asset companies. We are already the world's third largest crypto asset company, after Mara Blockchain and MicroStrategy, holding assets exceeding MetaPlanet.

For companies of our scale and liquidity, the strategy is not singular but operates multidimensionally.

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

Tom Lee: Assuming someone acquires Bitmine, our cost structure is strict. Holding $3 billion in Ethereum, some may think we are like an ETF, valued only at 1 times net asset value. But we have a 3% native staking yield, which, if paid as net income, would be valued at 6 times net asset value based on a 20 times price-to-earnings ratio, achieving a valuation of 1.6 times.

Additionally, speed must be considered. When launching the Ethereum strategy on July 8, we held $4 worth of Ethereum per share, which increased to $23 by July 27, and is currently higher. In 20 days, we added $19 worth of Ethereum per share; this is speed.

MicroStrategy increases its Bitcoin holdings by $0.16 daily, achieving a 0.7 premium. Our speed is 12 times that, with theoretical premiums reaching 6 or higher.

Additionally, liquidity premiums should not be ignored. MicroStrategy's daily trading volume is $3 billion, while we rank second among liquidity crypto asset companies with $1.6 billion, and MetaPlanet only has $50 million.

Therefore, Bitmine's valuation should be 1 times net asset value, plus a 6 times earnings premium, plus speed and liquidity premiums.

Q9. Bitmine's Ethereum acquisition speed in the first month is 12 times that of MicroStrategy. Can this speed be sustained over the next year? How can such a high purchase speed be achieved?

Tom Lee: The speed depends on liquidity, and liquidity and speed complement each other. Our ability to maintain a high speed comes from extremely high liquidity.

As of August 6 at 2 PM, our trading volume reached $800 million; MicroStrategy was at $3 billion. The third largest holder of Ethereum, Ether Machine, had a trading volume of only $7 million, which is 100 times less than us; the fourth largest holder, BTBT, had $49 million. The liquidity difference is huge, directly affecting speed.

High speed requires extremely high liquidity support.

Q10. Where does Bitmine's liquidity come from? How are you attracting such high trading volumes to support Ethereum acquisitions?

Tom Lee: Liquidity comes from team collaboration. As chairman, the private equity lead investor is the well-known macro hedge fund Mosaics, attracting support from top investors like Founders Fund, Stan Druckenmiller, ARK Invest, and Bill Miller.

We have blue-chip endorsements in traditional markets and venture capital, and investors trust our vision. I have long advocated for cryptocurrencies, pushing Wall Street to focus on Bitcoin in 2017, making it an institutional product with continuously growing holdings.

Ethereum is experiencing its '2017 moment', which makes sense for those who understand us, supporting the goals of Ethereum asset companies. I support companies like SharpLink and Andrew Keys, and we work together to create a secure U.S. blockchain through staking Ethereum.

Q11. In 2017, you promoted the 'digital gold' narrative for Bitcoin on media like CNBC. Is Ethereum now in a similar stage? What similarities do you see between Ethereum's '2017 moment' and Bitcoin's?

Tom Lee: In 2017, Fundstrat focused on macro and thematic research, finding that millennials would become the driving force of the U.S. economy. We collaborated with Snapchat to publish a white paper exploring advertising for millennials and Generation Z, which was compelling research, while many companies were still focused on Generation X.

Research on Bitcoin found its price rose from $100 (during JPMorgan's era) to $1,000 in 2014, with a market value of $100 billion, which was astonishing. Fundstrat researched for months, confirming that 97% of price increases came from the growth in wallet numbers and activity, reflecting network value effects.

We predict that if more people use Bitcoin, the price will rise exponentially, potentially reaching $25,000 by 2022, representing 5-10% of gold value, which could reach $100,000, thus promoting the 'digital gold' narrative. Institutional holdings of Bitcoin are almost zero, all are retail investors. Bitcoin is becoming digital gold, a store of value, with millennials holding Bitcoin like the baby boomers held gold.

The webinar caused us to lose institutional clients, as they thought recommending 'drug dealer and dark web' assets was crazy, damaging our reputation. But Bitcoin is now at $120,000, up 120 times, and 1-2% of investing clients are fully in Bitcoin, becoming 'DeGen'.

Ethereum is now similar to Bitcoin in 2017, previously seen as a dormant chain, with people seeking faster networks or new validation methods. However, Ethereum has had ten years with no downtime, which Wall Street values. Recently, Circle's IPO was strong, and stocks of Coinbase and Robinhood performed excellently.

Q12. Circle, Coinbase, and Robinhood are all building Layer 2 on Ethereum. Has the tokenization craze swept through, and has Wall Street recognized that Ethereum is at the core of these trends? Is this why you are optimistic about the Ethereum treasury company?

Tom Lee: Your description makes complete sense. But Wall Street only establishes connections when making money. For example, many listeners have long held Apple, Amazon, or Nvidia. Nvidia is a stock that grows exponentially, but sometimes it remains stagnant for a year or even years before suddenly jumping, and the market realizes it needs to be repriced.

Ethereum is currently at a similar stage, with on-chain activity surging to historical highs, the community is revitalized, and prices are recovering, with more people using Ethereum. The Genius Act benefits smart contract blockchains similarly to Bitcoin, but Bitcoin does not carry stablecoins.

The fact that Ethereum has not reached $15,000 is not a bad thing. I've seen similar situations; Tesla and Nvidia, which I recommended, have performed steadily in Fundstrat Capital's ETF since 2019, and long-term they are core to the research portfolio. They do not grow linearly with income but move in jumps.

I hope that Ethereum's price remains stable in the next five years, allowing us to acquire at lower prices. If the price reaches $17,000, acquisition costs will increase, but the stock price will benefit. The current price is favorable for us.

Q13. In 2017, you predicted Bitcoin would rise from $2,000-$3,000 to $25,000-$40,000, which was considered crazy by Wall Street but ultimately correct. Ethereum's current price is similar; do you think it will replicate Bitcoin's growth path? What is your price prediction for Ethereum?

Tom Lee: The upward potential of Ethereum is greater than that of Bitcoin, due to more initial skepticism. Predicting Bitcoin to reach $100,000 in 2017 seemed crazy, but it achieved a 100-fold increase. Ethereum is now like Bitcoin in 2017; Wall Street has not fully believed in its survival due to proof of stake and supply issues, but these are being resolved.

Many believe that the Layer 2 story is not beneficial for Layer 1, but this perception will break, leading to exponential growth. Ethereum's potential may surpass Bitcoin by 100 times; Joe Lubin shares a similar view, and we collaborate to promote Ethereum's digital infrastructure. If Bitcoin reaches $1 million, Ethereum's financialization and artificial intelligence (the U.S. strategic role) have immense potential.

MicroStrategy's potential is three times that of Bitcoin, while Ethereum asset companies' potential is three times that of Ethereum. Bitmine leads due to unique factors, but all Ethereum asset companies will perform well due to Ethereum's undervaluation.

In the short term, Ethereum should reach $4,000. A year ago, the Ethereum-to-Bitcoin ratio was 0.05; today, it is stronger, with the price expected to approach $6,000. By the end of the year, considering purchases by other companies and Bitcoin's rise, a range of $7,000 to $15,000 is reasonable. In 2026, with the Federal Reserve easing and liquidity increasing, Ethereum's price will continue to rise. There is no clear crypto cycle, but if there is, it will benefit us. I hope Ethereum remains stable in price over the next five years and then rises significantly.

Q14. Will the Ethereum treasury company create a bubble due to a high MNAV premium, similar to the investment trusts of the 1920s? The collapse of GBTC and Three Arrows Capital triggered market turmoil; are you concerned that the Ethereum treasury company could cause similar systemic risks?

Tom Lee: In the liquid stock market, this is the most hated V-shaped rebound. Institutional clients believe in Zoom meetings that the stock market should not rise, as valuations are too high. However, every time the call ends, this reinforces the reasons for the stock market to continue rising; non-consensus views drive the market. The market needs skepticism to rise; if everyone is bullish, it is the top.

Not holding a digital asset company but its rise does not represent a bubble. The real bubble is when everyone is bullish. If the audience is bullish but the market does not rise, that is the bubble. Crypto asset companies only face problems due to leverage. Companies using complex financial instruments or debt structures, unless they are as scarce and transformative as MicroStrategy or MetaPlanet, may carry risks.

Most crypto asset companies are ordinary; a price drop will not trigger a stock market crash. Crashes are usually caused by debt or external shocks. We are far from a bubble. If capital costs are low, some Bitcoin asset companies have high trading volumes, and the market might even think there is an oversupply, which only rises when Bitcoin goes up.

There will always be people shouting bubble, but the top is when no one is bearish. Now everyone is bearish on Ethereum, Bitcoin, and the stock market. Last week there was a bearish engulfing pattern for five days; if it's the top, everyone would say 'it's fine', but now everyone is shouting top, indicating that we are far from the top.