CRCL, BMNR, RIAs and 1000x leverage

Circle traded at 1x AUM

At its June 23, history-making peak, Circle shares traded at an enterprise value (market cap minus cash) of roughly $62 billion.

That is wild because Circle’s assets under management is…wait for it…$62 billion!

In other words, stock market investors were briefly valuing Circle at 100% of AUM.

(It’s down to about 67% now.)

By contrast, BlackRock Asset Management’s enterprise value is just 1.5% of the $11.5 trillion of assets it manages.

That’s clearly not a metric any Circle investor cares about, but I still find it extraordinary — and the shares seem extraordinarily expensive on more standard metrics, too.

The most extraordinary metric, however, is simply the stock’s performance: CRCL shares ended their first day of trading up 180% from the IPO price, and their second day up 247%.

Fortune reports that this makes Circle the best performing IPO of any large stock since 1980 — a genuinely incredible achievement considering that the dotcom boom is included in that large sample size.

But things got even crazier: CRCL subsequently traded as much as 750% above its IPO.

I don’t, however, think the IPO was underpriced.

In their initial research report, analysts at Goldman Sachs (which led the IPO), put an $80 price target on the shares — nearly 60% below current levels.

(Amusingly, Goldman still rates the shares as a “hold.”)

That understandably makes people question why Goldman priced the IPO all the way down at $31 — especially considering that the issue was 25x oversubscribed.

But investment banks don’t unilaterally dictate IPO prices. Instead, it’s mostly a function of what their institutional customers are willing to pay.

And it’s likely the case that while the Circle offer was 25x oversubscribed at $31, it might have been zero times subscribed at, say, $41.

Institutional accounts typically put in for more than they actually want so as to try getting a better allocation, so the “times oversubscribed” statistic is just marketing.

Regardless, the huge IPO pop has instantly changed the perception of Circle as a business.

I think of Circle as an asset manager running a tokenized money market fund — which I might have valued at 10% or 20% of AUM (generously, to account for its good growth prospects).

But the stock market clearly thinks that Circle is a tech stock, which can be valued at anything.

And the stock market is always right.

So even if Circle did leave money on the table, I’d say it was money well spent.

BMNR is up 30x in three days

Shares of BitMine, the latest in an ever-growing line of crypto treasury stocks, are trading at $135 today — three days after raising capital at $4.50.

BitMine aims to be an Ethereum version of MicroStrategy, and it’s off to a great start, so it might well achieve that.

(I’d still probably put my money on SBET, but I think all these things are silly, so what do I know.)

But who in their right mind thinks that paying 30x more for a stock than professional investors did three days ago is a good idea?

It’s hard for me to imagine and I’m not sure what to make of it.

But this, along with Circle, is a reminder that there’s a lot more money in stock markets than there is in crypto markets — and also a lot fewer ways to buy “crypto.”

This sudden mismatch of supply and demand has created a bizarre situation in which stock market investors appear to be far more bullish on crypto than crypto investors are.

Crypto tokens have been flatlining for months, but crypto-related equities are booming.

There’s even a boomlet in crypto-related mergers and acquisitions going on.

IPOs, speculative excess, M&A: The next crypto bull market is here — it’s just not happening in crypto.

Why is it happening on the stock market instead?

Because that’s where the money is.

Traditional investment advisors love crypto now, too

Ric Edelman, the founder of a registered investment firm with $300 billion of assets under management, now recommends that investors allocate as much as 40% of their savings to crypto.

The most conservative investors, he says, should allocate 10%.

Amazing.

In short, Edelman’s reasoning is that 1) with people living longer, even a 60-year-old investor should be investing on a 50-year time horizon and 2) crypto is one of the “exponential technologies” that long-term investors should seek exposure to.

“Thousands of companies in dozens of industries are at risk of obsolescence or massive market decline due to technological advancement,” Edelman warns, before making his case for crypto as a future-proof industry (because of bitcoin and stablecoins, basically).

Having skimmed his promotional PDF (thoughtfully written in a font large enough for 110-year-old investors to comfortably read), I’m a little skeptical that Edelman has studied crypto thoroughly enough to have a strong opinion on the multi-decade trajectory of this brand new asset class.

But, however right or wrong he proves to be (let’s check back in the year 2085), the most telling thing in his presentation may be the “dozens of ways” to invest in crypto that he cites — all of which are different ways to get exposure to bitcoin and ETH on the stock market.

Crypto is the future, he thinks, but I guess he doesn’t recommend using it.

Still, if the kinds of investors that Edelman advises are going to put 40% of their savings into exchange-listed crypto — or 10% even — we’re going to need a lot more exchange-listed crypto.

1,000x leveraged crypto trading is now available

A new crypto exchange on Hyperliquid, opt.fun, offers traders 1,000x leverage on crypto trades “for one minute.”

That seems like a bad idea to me — for one second, even.

1,000x leverage implies an equity margin of 0.1%.

So if you bought something with a bid/offer spread of more than that, you’d immediately be stopped out for a total loss.

That may not be how opt.fun works, I’m not sure.

But I’m reminded of the AI-enabled quant fund that managed to lose all of its assets under management by getting stopped out of a short position in LUNA in the same week that LUNA fell 99.99%.

Even on a zoomed-in chart, you could barely discern the uptick that must have gotten it.

But the AI had shorted with so much leverage that the position was almost immediately stopped out.