RE: Crml btc22 Jan 2025 10:25
THE_CHAIN
So having had a rethink on CRML’s announcement yesterday, it seems on the face of it an odd diversification. I am always very wary of companies whose focus suddenly pivots from one asset class to another.
Consider two random asset classes, say gold and oil. By definition, one of those will provide better returns for its participants than the other. When a company shifts its focus from 100% gold to 50% gold, 50% oil it tells us two things about its view of the future.
1. It believes an oil investment gives it the best chance of positive returns. It could have picked platinum or cereals.
2. It believes oil is a better bet than gold. If it thought gold were a better bet than oil it would have stayed 100% gold.
So until recently, CRML believed that critical metals were where it its unique expertise had the best chance of delivering positive returns for its shareholders. It now believes bitcoin is a better bet.
This presents two issues for equity investors present and future.
Present investors who have bought the critical metals story may not want or need the exposure to bitcoin. They may already have enough exposure to it in their portfolio or they may (like me) see it as a speculative counter prone to wild volatility and not in any way a store of original value.
Future investors who like the exposure to bitcoin may not want or need the exposure to critical metals. They may already have enough exposure to it in their portfolio.
With this development CRML have painted themselves into the middle of a very niche Venn diagram – those equity investors who like the prospects for both critical metals and bitcoin.
So why do it?
Think about the parties’ motives and suddenly it becomes clear.
This deal has been done for the benefit of the lender, the bondholder. If they are a pure BTC play and are going cool on the prospects for BTC (a contrarian view, but go back to the top for the thinking) taking some funds out of BTC and putting it in critical metals gives them a hedge. If bitcoin falls by 20%, their portfolio will only fall by say 18% which, if they are measured against a pure BTC benchmark, means they outperform the benchmark. Bonuses all round.
If BTC rises by 20%, their portfolio may only rise by 18%, but that is still a rise. More funds under management. Commissions (and probably bonuses too, that’s the way banksters roll) all round.
Of course in a zero sum game anything that benefits the debt holders is detrimental to the equity. That ought to be why Mr Market is cool on it. Buying it back up to $10 is irrational. The bondholder will sell their warrants at $7 and make a killing.
But hey, if you lot are already making a killing off Mr Market’s irrationality and ‘bigger fools’, why listen to an old duffer who is happy if his SIPP yields 4% and returns low double digit capital growth. Fill your boots with both TM1 and CRML!
Just make sure that the last owner of your shares, the big
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