Source: Why Twenty One Capital Is More About Volatility Than Bitcoin

Compiled & Translated by: Daisy, ChainCatcher

Editor’s Note:

This article is compiled from an in-depth conversation on the crypto podcast Unchained, hosted by Laura Shin, featuring two guests—Jeff Park (former investor at Jump Trading, now Chief Investment Officer at 21Shares) and Mark Palmer (analyst at Bitwise). The discussion focuses on the new Bitcoin holding company 21 Capital, co-founded by Tether, SoftBank, Bitfinex, and Cantor, which aims to enhance Bitcoin per share (BPS) and Bitcoin return rate (BRR), seen as a new attempt at the "corporatization" of Bitcoin following MicroStrategy.

The conversation revolves around four core themes: the behavioral logic of strategic investors, Tether and the global capital structure reconstruction, Japanese capital and U.S. Treasury arbitrage paths, and whether Solana has the potential to replicate Bitcoin's financialization model. The content covers various aspects such as macro-financial trends, capital structure design, differences in investment preferences, and narrative capabilities.

The following content is a compilation and translation of the interview.

TL;DR:

1. Strategic investors focus on volatility rather than profitability; the pricing logic of 21 Capital's stock is based on volatility realization.
2. The establishment of 21 Capital marks a new phase in the corporatization of Bitcoin, initiated by several international institutions.
3. Tether benefits from dollar arbitrage, while SoftBank represents long-suppressed Japanese capital; both achieve global arbitrage through Bitcoin.
4. The shift in the U.S. regulatory environment is driving institutional entry, with stablecoin and digital asset legislation seen as a key window.
5. Investors' choices are based not only on product structure but also reflect values and narrative preferences (Saylor vs. Mallers).
6. Solana's financialization path has structural differences; its inflation mechanism, staking model, and asset credit are not comparable to Bitcoin.

Strategic Companies Focus on Volatility, Pricing Based on Volatility

Laura Shin: Tether, Bitfinex, SoftBank, and Cantor Equity Partners have jointly established the Bitcoin holding company 21 Capital, operating similarly to MicroStrategy. The company initially holds 42,000 Bitcoins, valued at approximately $4 billion, making it the third-largest Bitcoin holder globally, aiming to enhance Bitcoin per share (BPS) and Bitcoin return rate (BRR). What was your first reaction upon hearing this news? Jeff, please share first.

Jeff Park: My first reaction was shock. The institutional background of 21 Capital is very unique, symbolizing the convergence of multiple global forces—political, economic, capital, and social capital—around Bitcoin. Led by Jack Mallers, this is a significant cross-generational and cross-sector collaboration, marking a key moment in the reconstruction of the financial order around Bitcoin. Currently, many strategic investors do not focus on profitability; financial reports have limited impact on stock prices. Investors buying CEP stock at a threefold premium are more concerned about returns from volatility rather than traditional profit models.

Laura Shin: Mark, what do you think?

Mark Palmer: This affirms Michael Saylor's strategy. He was the first to raise capital through the capital markets to buy Bitcoin in 2020, and although he faced skepticism, he has now become a paradigm in the industry. New players like 21 Capital can learn from MicroStrategy's experience, avoiding its financing mistakes while continuing effective practices to further evolve their strategies.

Tether, SoftBank, and Bitcoin: A Global Arbitrage Game

Laura Shin: Tether may be the company with the highest per capita profit globally, with profits reaching $13 billion in 2024. In the context of potentially declining interest rates, it may have reached its peak profitability. Now being the largest shareholder of 21 Capital, does this indicate a change in its strategic direction?

Mark Palmer: It is a reasonable choice for Tether to promote revenue diversification. Although the new business is not directly related to stablecoins, considering the potential stablecoin regulations in the U.S., this transformation is forward-looking. Tether has indicated it may establish a new business unit for the U.S. market. It is wise to seek a more favorable operating environment amid regulatory pressure and global expansion.

Jeff Park: Tether is a new beneficiary of dollar hegemony, earning interest by holding U.S. Treasuries without having to pay interest to fund holders, which can be seen as a currency loophole. Its combination with Bitcoin reflects the global capital demand for safe assets outside the U.S. system, and the structure of 21 Capital embodies this. Tether is also advancing projects like Plasma, attempting to expand stablecoin functionality based on Bitcoin. This is an important step towards diversification, with the ultimate goal of achieving true financial utility through Bitcoin standards, reinjecting profits into the Bitcoin ecosystem, which has profound significance for the entire community.

Laura Shin: Jeff, you mentioned in the investor memo that Tether is the Eurodollar of the 21st century. Can you briefly explain the historical and geopolitical context behind this judgment in relation to SoftBank's involvement?

Jeff Park: The collaboration between Tether and SoftBank forms an ideal capital structure. SoftBank represents long-suppressed Japanese capital, accustomed to seeking growth through high-risk investments like AI, ARM, and WeWork. Masayoshi Son refers to it as a "300-year plan." Tether, on the other hand, is the largest beneficiary of global financial repression, profiting from U.S. Treasury arbitrage. The combination of the two represents a collaboration between capital-exporting countries and capital-harvesting entities, with Bitcoin as their common bridge. In the future, similar "public-private partnership" structures will increase, integrating sovereign capital while avoiding political risks. The triangular structure formed by Tether, SoftBank, and Cantor is an efficient and flexible model of capital collaboration.

Laura Shin: You mean that Japanese capital seeks overseas growth, while Tether can provide dollars to these demanders, and the key is that it is not subject to U.S. regulation, right?

Jeff Park: Exactly. Both Tether and Japan are major buyers of U.S. Treasuries, but their profit-making methods differ: Tether earns interest directly, while Japan relies on interest rate differentials to allocate global assets. Bitcoin becomes a common strategy for both under expectations of declining interest rates. Tether needs to find new profit sources, while SoftBank needs to release long-suppressed capital, and Bitcoin just happens to meet the needs of both. MicroStrategy opened the leverage financing channel for Bitcoin, and bringing in low-interest funds from Japan to invest in Bitcoin would be a form of global arbitrage, a path that Saylor has yet to realize.

Laura Shin: Mark, what do you think of Jeff's analysis?

Mark Palmer: I completely agree. The core of global finance is matching capital seeking returns with assets capable of generating returns. Whether Tether can connect with Japanese capital depends on whether institutions are willing to enter the market. The crypto market has been dominated by retail investors in the past, with institutions waiting on the sidelines due to unclear regulations. If the U.S. passes stablecoin and digital asset legislation, institutional funds will flow in. This is a critical moment for global capital to position itself in crypto.

Saylor vs. Mallers: Are You Investing in Bitcoin or Belief?

Laura Shin: Some believe that SoftBank's return to the crypto market may signal a top, especially considering that Masayoshi Son lost $130 million in Bitcoin investments in 2017. What do you think?

Jeff Park: Many first-time entrants into the crypto market experience losses, but this often makes them more resolute in the future. Masayoshi Son is a typical macro trader; the Vision Fund itself is a macro platform. His early failures do not mean he won't succeed now. Today, top global macro investors like Druckenmiller and Dalio have entered the Bitcoin space, and the market environment is vastly different from 2017. SoftBank excels in leverage operations, and if it combines its capabilities with Bitcoin, the potential is enormous.

Mark Palmer: Exactly, the market in 2017-2018 was immature, and many people lost money. Now, institutional participation is more rational; Bitcoin still has speculative aspects, but its fundamentals have greatly improved.

Laura Shin: Finally, let's talk about Cantor. What do you think about its strategic role in listing and financial operations?

Mark Palmer: Cantor's involvement reflects Wall Street's changing attitude towards crypto. In the past, they were hesitant due to unclear regulations, but now the policy has turned friendly, allowing banks to participate more confidently while safeguarding client interests. The change in the regulatory environment has created opportunities for them.

Jeff Park: I completely agree. Cantor serves as a bridge connecting U.S. and global capital. In the context where both Tether and SoftBank are not subject to U.S. regulation, Cantor has achieved the binding of U.S. interests. This is also one of the reasons why Tether chose to collaborate with Japan's SoftBank. As important allies, the U.S. and Japan, through the triangular structure of Tether, SoftBank, and Cantor, closely integrate the financialization of Bitcoin with geopolitical strategy.

Laura Shin: We have discussed geopolitics, regulatory changes, and market phases. What do you think about the timing of 21 Capital's entry? How does it differ from when MicroStrategy launched?

Jeff Park: MicroStrategy's entry into Bitcoin in 2020 coincided with heightened concerns about the pandemic and inflation, with institutions like PayPal entering the market and the rise of DeFi, making it an ideal time. Bitcoin's significant rise in 2021 validated that decision. Now, with the U.S. regulatory environment about to change, institutional funds are expected to enter, making it a very favorable time for 21 Capital to enter the market.

Mark Palmer: The pandemic and loose policies in 2020 triggered people's unease about fiat currency, prompting Saylor to turn to Bitcoin. Japan is now experiencing a similar awakening. Despite long cooperating with the global order and maintaining yen depreciation, it has been accused by the U.S. of manipulating exchange rates, leading to domestic resentment and policy reflection. Bitcoin has once again become a hedging tool, and this shift is reminiscent of the past.

Laura Shin: While this does not constitute investment advice, how do you view the suitability of products like Bitcoin spot ETFs, MicroStrategy, and 21 Capital for different types of investors?

Jeff Park: The key lies in whether one accepts leverage risk. MicroStrategy and 21 Capital offer leveraged exposure to Bitcoin, providing higher returns during price increases but greater volatility during declines; ETFs are closer to spot and exhibit less volatility. Investors who are firmly bullish on Bitcoin may consider leveraged tools for higher returns.

Mark Palmer: Investment choices depend not only on the products themselves but also on values. Some resonate with the American ideals represented by Saylor, while others prefer the technology-driven and youthful vision embodied by Jack Mallers. With international capital backing 21 Capital, it may not be seen as a "purely American company." As the return differences narrow, cultural identity and ideological alignment often determine the final choice.

Can Solana Financialize? Difficulties in Replicating the Bitcoin Model

Laura Shin: Among the various Bitcoin-related companies, which strategies or companies do you think are more likely to succeed?

Mark Palmer: The winners will be those companies that create the greatest volatility with the least capital. In a highly structured financial era, the market favors volatility. MicroStrategy has a more complex capital structure, while 21 Capital focuses on a simpler structure; if it can deliver higher volatility, the market may prefer it.

Jeff Park: I agree. Volatility is key, but the paths can differ. MicroStrategy expands its financing channels to cater to different investment preferences, such as convertible bond arbitrage funds. In contrast, 21 Capital opts for a more straightforward structure. Ultimately, it depends on which leader investors are willing to follow—Saylor or Mallers. Jack Mallers possesses both technical and financial capabilities, along with the influence of a "preacher."

Mark Palmer: In today's market, the ability to tell a story is crucial. Saylor excels at using language and metaphors to resonate with people, which is an important factor in the company's success. Many projects based on Solana are beginning to recognize this as well; I often ask them, "Who is your Chief Meme Officer?"

Laura Shin: How do you view Solana's potential to replicate Bitcoin's equity investment model? The differences in asset structure are significant; will this model perform differently on Solana?

Jeff Park: Solana and Bitcoin have essential structural differences. Bitcoin has a fixed supply, while Solana has an inflation mechanism and supports staking and validator node operations, which can provide returns and flexibility. The core issue is that the attributes of the asset itself determine its value measurement methods.

Laura Shin: So you believe that Solana's inflation mechanism may make such investment tools less attractive compared to Bitcoin, correct?

Jeff Park: It depends on investor preferences. Solana offers direct staking returns, while Bitcoin achieves compound growth indirectly through holding, representing two different return models.

Mark Palmer: This can be viewed from three aspects: first, credit adaptability—Bitcoin is easier to assess as collateral, while Solana's risk rating is still unstable; second, volatility—Solana is more volatile, which can actually benefit certain financial instruments; third, asset productivity—Bitcoin ETF structures are clear, while Solana relies more on actively managed companies to unlock its ecological value, especially when the staking mechanism is not yet clear.

Laura Shin: So you believe that even if an asset has value, lacking a Chief Meme Officer makes it difficult to spark market enthusiasm, correct?

Mark Palmer: I completely agree.

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