The convergence of traditional finance and crypto is accelerating, and nowhere is that more evident than in the emergence of Twenty One, a new Bitcoin-focused entity preparing to go public via a SPAC backed by Cantor Fitzgerald.
With reputable players like Japan’s SoftBank involved and more than $4B in BTC set to anchor its treasury, Twenty One positions itself as the next evolution of MicroStrategy’s BTC accumulation playbook. But can it live up to the hype and high premiums?
Some see this as a breakthrough moment for BTC adoption on corporate balance sheets, and while the public market is already valuing this opportunity at 3x the worth of proposed BTC holdings, others cite concerns about a complex capital structure, asymmetrical incentives, and stark implications for retail investors.
Today, we’re unpacking the Twenty One investment opportunity. 👇
What is Twenty One?
Superficially helmed by CEO Jack Mallers – who previously founded a BTC payments application called Strike in 2017 – Twenty One advertises itself as a “singular vehicle for Bitcoin exposure” that will conduct “pro-Bitcoin advocacy” and “explore future expansion into Bitcoin-native financial products.”
While Twenty One’s abstract headline mission statement may appear confusing at first glance, this company is extremely similar to Michael Saylor’s MicroStrategy in that it will be a BTC accumulation vehicle intended to grow the number of bitcoins attributable to individual shareholders.
According to an investor presentation filed with the SEC, much like MicroStrategy, Twenty One will acquire bitcoins through the issuance of debt and equity. Deviating somewhat from its predecessor, Twenty One also intends on producing BTC educational content (YouTube videos, for example) and engaging in a “range of Bitcoin-related activities,” including Bitcoin-related financial advisory services and lending its BTC.
Twenty One’s pro forma assumptions have it launching with a treasury of 42k BTC – worth slightly more than $4B at current market prices – and while Mallers is the company’s figurehead, he certainly does not stand alone in this venture…
Stablecoin issuer Tether and crypto exchange Bitfinex, both subsidiaries of British Virgin Islands-registered holding company iFinex, will fork up 36,213 BTC to the company. In exchange, the pair will collectively receive 58.8% ownership in Twenty One and 71% voting power; Tether alone will control a 51.7% voting power supermajority.
Nearly one-third of the Tether/Bitfinex BTC contribution will be made on behalf of Japanese tech-focused investment conglomerate SoftBank, who is expected to pay Tether $462M for the privilege to own 24% of Twenty One. This transaction value represents the market price of SoftBank’s indirectly contributed BTC and should enable the group to book automatic profits, assuming Twenty One shares trade at a premium to their net asset value as expected.
No deal has been closed at this time, but it is expected that Twenty One will be acquired by Cantor Equity Partners, a special purpose acquisition company (SPAC) that has been trading on the Nasdaq under the ticker symbol “CEP” since mid-August 2024 and is associated with U.S. commerce secretary Howard Lutnick’s financial services firm Cantor Fitzgerald (which owns 5% ownership interest in Tether via convertible bond).
The SPAC process allows Twenty One to essentially merge into an existing publicly traded stock, lessening the SEC oversight burden required for Twenty One to go public. In exchange for Cantor Equity Partners contributing $100M of cash to the joint balance sheet, CEP shareholders will receive 2.7% of Twenty One ownership, but no voting rights.
Additionally, participants in an initial convertible note offering will receive 7.1% ownership interest for contributing $340M, and private investment in public equity (PIPE) investors will receive 5.4% ownership at preferential terms (i.e.; they get to purchase their shares at the BTC NAV value, unlike public SPAC shareholders who must purchase CEP stock at market prices). Approximately $500M of cash is expected to be raised from these two categories of sales, which will be funneled to Tether for contributing BTC on behalf of these investors.
In its role as deal “sponsor,” Cantor Fitzgerald will receive $45M worth of convertible note bonds and 3.8M shares, representing a combined 1.9% ownership interest in Twenty One.
Many in the Bitcoin community have heralded the launch of Twenty One as a pivotal moment, one that could mark the beginning of widespread adoption of BTC on corporate balance sheets, particularly considering the involvement of SoftBank, a globally renowned venture firm known for identifying transformative trends (like AI) before they catch fire among investors.
In its SEC filings, Twenty One positions itself as a superior BTC accumulation vehicle to MicroStrategy. For investors looking for an easy route to passively stack sats, the smaller-sized Twenty One might be able to more easily raise capital to buy bitcoins, all points directly expounded upon by Twenty One’s investor materials.
Cantor Equity Partners (CEP) had a $317M market capitalization as of market close on Thursday, April 24 against its cash balance of $100M, and while it may feel comforting to see increasing BTC adoption among big financial players, the preferential terms received by institutional investors who were able to participate at-cost have made critics suspicious.
Ultimately, Tether appears to be the biggest winner in this arrangement; the stablecoin issuer stands to receive nearly $1B in cash and a multi-billion dollar stake in Twenty One for offloading BTC into a SPAC. In doing so, Tether efficiently extracts funds from institutional players hoping to distribute bitcoin-backed shares at a premium onto retail investors, without ever having to sell tokens on the open market.
SPACs have earned the unenviable reputation of being among the worst stock market investments of the past decade, and while creating value by simply taking an idea public might be lucrative for insiders and sponsors, the math rarely works out that way for secondary market retail investors. This class of investments has experienced consistently poor returns no matter the industry since 2009. Longer-term oriented retail investors in Twenty One may find their returns challenged by majority shareholders looking to exit the investment.
The Cantor/Tether/SoftBank BTC SPAC (Twenty One) announced today is an elegant way for Tether and BitFinex to “wash” a couple of billion of profits.
Tether and Bitfinex are contributing 25,713 BTC at an avg price of $84,846 ($2.2B – $1.6B from Tether and $600M from BitFinex) to… pic.twitter.com/RbWWFw4yjd
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Not financial or tax advice. Bankless content is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.
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