Wall Street is buzzing. It’s a second Bitcoin play going public, offering to make its investors wealthy beyond imagination and to change the way finance works. Backed by Tether and SoftBank, Twenty One is on a mission to become the next MicroStrategy. They aim to use a huge Bitcoin treasury to create the most shareholder value in history. Realism, though, deserves to be injected before you climb on the celebratory bandwagon. Is this true innovative finance, or simply the next house of cards erected on unstable crypto?

Bitcoin Price Appreciation Only Strategy?

Twenty One's strategy hinges on one thing: Bitcoin's continuous price increase. Their business model is based entirely on the hope that Bitcoin prices will continue to go up, and up, and up. What happens when it doesn't? Remember 2018? Or even 2022? Bitcoin is subject to the whims of the speculative market and can crash – and crash hard. Banking the value on appreciation alone is a risky bet, the kind of bet that’s especially perilous when you’re doing so with shareholder dollars.

Think of it like this: imagine a company whose entire business plan is buying and holding Beanie Babies in 1998. Sure, for a while, prices skyrocketed. Then came the bubble’s inevitable popping, dumping any optimistic investors onto mountains of valueless virtual stuffed animals. Bitcoin is not Beanie Babies, but the principle is the same: speculative assets can be incredibly risky. What do you think will happen to Twenty One’s stock price when Bitcoin corrects 30%, 50% or worse?

While Jack Mallers' leadership and influence are undeniable, his deep involvement in El Salvador's adoption of Bitcoin, while commendable to some, highlights the risks of tying a company's fate so closely to a single, volatile asset. Although still ongoing, El Salvador’s experiment with Bitcoin has had many failures, but also success. It underscores the problems that arise when crypto is used on a large scale.

Tether's Shadow Looms Large

Tether, the issuer of the USDT stablecoin, is the twenty one’s majority owner. Let that sink in. According to the suit, Tether has been under increasing scrutiny over the backing of its USDT stablecoin. Simultaneously, it still manages a firm that possesses a gigantic Bitcoin stash. This introduces a significant level of risk.

Remember the anxiety surrounding Tether's reserves? The concerns about its transparency? These questions have not disappeared, and now they loom over Twenty One’s lawmaking process. In other words, any regulatory action against Tether could dramatically hurt the value of Twenty One’s stock. Second, a collapse in confidence in USDT would put a dent in their Bitcoin holdings as well.

SoftBank's involvement offers a veneer of legitimacy, but let's be honest, SoftBank's investment history is... colorful. She’s right, for every one of their successes they’ve had some spectacular flameouts. Is their investment in Twenty One an indication of a real long-term conviction in Bitcoin? Or maybe it’s just another one of those risky speculative bets on future short-term profits. It's a question that needs asking.

Trump's Bitcoin Interest Enough?

Twenty One is taking the Trump administration’s previous interest in Bitcoin as an encouraging omen. And they cite, in support of their prediction, Trump’s 2018 executive order establishing a U.S. Bitcoin mine and the former president’s frequent exhortations for regulatory frameworks. Let's be realistic. A previous administration’s “interest” is far from a promise of continued regulatory backing. Political winds can blow one way today and what was a lead story yesterday slips under the waves at lightning speed.

Beyond that, assuming the current administration did suddenly fall in love with Bitcoin, what would that support consist of anyway? Would it be the kind of light-touch regulation that Bitcoin maximalists have been dreaming about? Or would it be a heavy-handed and proscriptive approach that might kill innovation in the crib and crush the entrepreneurial spirit? The regulatory uncertainty is a huge risk, not just for Twenty One, but for the entire cryptocurrency industry. Coming up with solutions based on past political non-committal rhetoric, however, is a fool’s errand.

The comparison to MicroStrategy is telling. While Michael Saylor's company has seen its stock price soar alongside Bitcoin, it's become inextricably linked to the cryptocurrency's fate. A Bitcoin crash of any significance would almost certainly cause MicroStrategy’s stock to crash. Is that the type of portfolio volatility you’re looking for?

Ultimately though, Twenty One is an example of a high-risk, high-reward proposition. It would be a monumental piece of legislation, paving the way for a new frontier of Bitcoin-backed capital markets. Or it may turn out to be a great flop, a warning tale of the perils of speculative exuberance.

Before you invest, ask yourself: are you prepared to stomach the volatility? You must be okay with the risks of Tether’s participation. Oh, and are you really that sure Bitcoin’s price will continue to rise indefinitely? If you answered “no” to even one of these questions, think again about jumping on the Twenty One bandwagon. Just be sure that you’re all in before you jump! Don’t allow wonder at the shiny and new to blind you to what’s dangerous. Do your own research, and invest responsibly. The fate of your portfolio could hinge on it.