Fri. Jan 21st, 2022

The author is an FT contributing editor

BTCS, a public crypto firm, this week offered its investors what it called a “dichotomy”- a one-off payment of five cents per share, payable in either dollar or bitcoin.

It is a small company that was only elevated to the Nasdaq last year. You can look at the bividend as a stunt, a clever bit of investor relations with a Twitter-friendly brand. This is a possibility that BTCS CEO Charles Allen happily acknowledges. He wanted people to see the value in the company and read his files. Success!

Behind the bividend is a bet that, if correct, can have far greater consequences. Allen offers to pay investors partly in bitcoin because BTCS has 90 bitcoins on its balance sheet that have value but have no productive purpose. Bitcoin, according to Allen, is an unproductive asset, “just literally sitting there”. It might appreciate. But it does not generate revenue, which has historically been the goal of a publicly listed company.

BTCS was founded as a pure cryptocurrency company in what now looks like the Precambrian era in 2013. It started in e-commerce, selling products for bitcoin. It switched to bitcoin mining, suffered by what Allen calls a “crypto winter,” and then spent some time buying bitcoin and ethereum and thinking about what to do next. According to her last quarterly submission, the company now holds two types of cryptocurrencies, which sit on different parts of its balance sheet.

Together with dollar cash and prepaid expenses, the company holds $ 3.2 million in “digital assets / currencies”. These are the 90 bitcoins that sit and do in the treasury. . . nothing. The company also has $ 8.8 million in “digital assets / currencies”, at the heart of its new strategy. The currencies involved are mostly ethereum. They have a job and generated $ 1.2 million in revenue last year (the number is unaudited, but is consistent with the company’s audited quarterly reports).

Again, these are small numbers. What matters is the distinction. The ethereum has a job. The bitcoin does not. BTCS has started placing ethereum and a few other cryptocurrencies in a kind of digital sponsor, competing for a chance to verify a ledger of transactions. The more coins you put in, the more likely you are to verify the ledger. The reward is a fee of more coins. The company also operates so-called validator nodes – strike pools that will bring in others’ coins from outside its balance sheet.

The bitcoin protocol is not designed for strike. Bitcoin, by design, is supposed to just sit there, hopefully more valuable, transferable if needed. It’s good if you like bitcoin and are optimistic about its future. However, it is bad if you are a publicly listed company trying to figure out how to generate revenue. The bet on bitcoin in particular has always been that the more people like it, the more useful it will become. However, there is a difference between “like” and “useful”.

The dividend is not, strictly speaking, a non-profit dividend, which is paid out to shareholders. It is rather a return on capital. Convenient for shareholders, it makes the bividend tax-free. It also makes it a bit like a stock buyback, a tacit confession that says here, you take it because we have no plans for it. If BTCS is right, bitcoin is heading for a strange twilight. It’s not quite ready cash. Nor is it a productive asset.

After BTCS made its announcement, Hanno Lustig, an economist at Stanford Graduate School of Business, pointed out that the company was part of a long tradition of paying dividends in kind. In the 17th century, he wrote, the Dutch West Indies Company paid out dividends in navels.

Other early modern joint stock companies used the same model. England’s Royal African Company paid out its dividend in gold coins that only became known as guineas over time, named after the African coast from which the gold came. Guinea was first a dividend, and only became a unit of account over time. The joachimsthaler, the large silver coin that served as a model for speaker and daler Coins around the Baltic Sea – and eventually what was known in the US as the Spanish dollar – were originally also a dividend paid to Saxon joint-stock investors in a bohemian silver mine.

But that’s not quite what BTCS does. All of these early-modern joint stock companies paid their in-kind dividends from income. The Royal African Company exported gold from Africa – the gold itself was an income. The West India Company exported cloves. The Saxon joint stock companies mined silver. However, BTCS’s revenue comes in the form of ethereum, or the other coins on its balance sheet that it can deposit. In its actual business, it does not earn bitcoin. According to Allen, the company could pay out real dividends in ethereum in the future. But for now, it simply pays a dividend – a return on capital in the form of bitcoin, an asset that has value but no purpose.

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