Supreme Court rejects Nvidia appeal of investor lawsuit tied to crypto mining: CNBC Crypto World

Today, Bitcoin reclaims $100,000. And a day after Microsoft shareholders voted against adding Bitcoin to its balance sheet, Gracie Chen of BitGet explains why she says the practice could be a time bomb for the largest corporate shareholder of Bitcoin, MicroStrategy. Welcome to CNBC's Crypto World. I'm Katie Tarasov. Crypto markets on the rise this morning. As of noon Eastern, Bitcoin jumped four and a half percent, crossing back above the $100,000 level. XRP also made big moves, surging 15 percent after a pause from last week's rally, which brought the token near $3. This move follows Ripple CEO Brad Garlinghouse sharing on X last night that New York state regulators approved the firm's new stablecoin, RLUSD. Okay, a quick update on a story we've been watching. The Supreme Court has tossed a case connected to Nvidia's sales to crypto miners. For background, a group of shareholders argued that Nvidia engaged in securities fraud. The claim, the chipmaker misled investors about how much of its sales came from the volatile crypto market back in 2017 and 2018. After a lower court allowed the lawsuit to proceed, Nvidia appealed to escalate the case to the Supreme Court. Well, this morning SCOTUS dismissed that appeal, leaving the lower court's ruling to stand. An Nvidia spokesperson told CNBC that the company would have preferred a decision on the merits affirming the trial court's dismissal of the case, but that it's fully prepared to continue its defense. As of noon Eastern, shares of the stock were up nearly 2.5 percent. All right, let's jump to our main story. MicroStrategy has been among the biggest beneficiaries of Bitcoin's monster year-end rally. The largest corporate holder of Bitcoin bought its stash at an average price of around $60,000 and isn't slowing down. Executive Chairman Michael Saylor has announced a number of new buys to the tune of billions of dollars. But just this week, Gracie Chen, the CEO of CryptoExchange BitGet, has voiced concern about the ballooning Bitcoin reserve, saying it could be a time bomb if prices were to crater like they did at the end of 2022. That letter came just as Microsoft shareholders considered adding Bitcoin to the tech giant's balance sheet. That proposal was rejected. CryptoWorld's Mackenzie Segalos spoke to Gracie Chen about her article and the rising trend of corporations considering Bitcoin for its reserves. Gracie, thank you so much for being here. So you penned this article calling MicroStrategy a time bomb based on its buying spree of huge sums of Bitcoin as a reserve asset. Now lay out why you think that this risk exists for MicroStrategy. Is it simply because of how much Bitcoin they're holding or because of something specific to their business, such as how they're buying it and using debt? Yeah, I think it's both. But the major risk I want to highlight here is the concentration risk. So first of all, I want to emphasize that the fact that MicroStrategy is a buyer and holder for the long run since August 2020. It's actually a positive thing for crypto industry. We all love holders. We also love big companies like MicroStrategy, which is listed on the US market and is very, very bullish on Bitcoin in general. However, the risk that we think exists and probably a lot of people underestimated is that first of all, MicroStrategy owns more than 2% of the total supply. And this is also influencing the decisions of other institutional investors who follow the buy when MicroStrategy buys strategy and sell what they may sell when MicroStrategy sells. So this is what I mean by a very strong concentration risk. And we've already seen that coming and happening already. So if you look at the historical correlation between some crypto related announcement or actions by MicroStrategy, it's actually highly volatile and also has a strong correlation with the Bitcoin price. So a slowdown or like the current, not slowdown, but I think they just announced another round of continued Bitcoin purchase. This can cause very broad cryptocurrency market to react to their action. And also keep in mind two things. Number one, it's not just MicroStrategy. It's also those institutional investors who are following them that we mentioned. And number two, that 2% is not just 2% of total supply. It's probably like much more than 2%, probably 5% of the circulating because there are lots of Bitcoin which are dormant or so-called lost Bitcoin early days. So I think I do have that data, like about 5% are in Satoshi Nakamoto's wallet, which have never moved. And another 15% or 16% are so-called lost Bitcoin. At least this is the data in early 2024. So this 2% of MicroStrategy is holding is actually more than 2% in terms, if you look at the circulating Bitcoin. MicroStrategy has become one of the largest holders of Bitcoin, as you were just pointing out, roughly 2% of the world's circulation. And that's been seen for years as a benefit to the company and for investors who want exposure to Bitcoin through the company as a proxy. So is the benefit for MicroStrategy diminishing, though, as more people have more ways to buy Bitcoin through ETFs, more exchanges like your company, et cetera? I would say it's probably still a very important role. Whether it's diminishing depends on the exact investor's profile they're looking at. For example, if you look at the traditional financial industry, and if you compare, for example, centralized exchanges like us versus the spot ETF, Bitcoin spot ETF users, they actually very different group of people. And then if you look at MicroStrategy, I think there are probably more overlaps between MicroStrategy's investors versus the Bitcoin spot ETFs investors. But when Bitcoin spot ETF is highly regulated and also highly influenced, very much like packed to Bitcoin in a way, it's also different that MicroStrategy has very strong leverage. We did a comparison in terms of their book value of the versus MicroStrategy's current market value. There's actually a four times difference. So that's what I mean by highly leveraged. So the user's risk profile, at least even if it's just one user when they are investing in Bitcoin spot ETF and MicroStrategy, either convertible bonds or equity, what they are taking in terms of risk or at least the risk tolerance level can be very different. So this I want to highlight that MicroStrategy is highly leveraged. Michael Saylor is pushing hard for more companies to add Bitcoin to their balance sheets. Microsoft just held a shareholder vote yesterday to determine whether it would buy Bitcoin. That proposal was not approved. But what does that signal to you as major companies look to do something like MicroStrategy? Is that risk that you mentioned earlier, you know, one that other companies have to watch out for as well? Yeah. So if we look at Microsoft, so they declined the proposal earlier yesterday that there are multiple reasons. It's also I want to highlight it's declined by the Microsoft shareholder rather than the company itself. So it's more of those like board of directors and shareholders who made that votes. And I think their concern is largely due to cryptocurrency's high volatility and how they think it's unsuitable for Microsoft to include Bitcoin in a corporate treasure. And if you look deeper into the effects or some of the reasons, actually, number one, the Microsoft's founder, Bill Gates, has been a long being a critic of cryptocurrency. I think back in 2021, he also mentioned that, in his opinion, Bitcoin mining consumes too much electricity and thereby harms the environment. And also, number two, I want to highlight that the shareholders of the current Microsoft, many of them are also funds, and those funds didn't invest in Bitcoin or even Bitcoin ETF. So the risk profile and how they think of their financial strategy, I think this is highly different from MicroStrategy. However, MicroStrategy and also Michael himself have been doing a great work persuading and talking to some big companies. I think he also mentioned he was invited to Microsoft to educate and to talk about Bitcoin strategy in general and what MicroStrategy has been thinking about using, investing or purchasing so many Bitcoins. So that's a very interesting dynamics that if you look at all the different corporations in the U.S. and in the world, there are very aggressive investors such as MicroStrategy that are also much more conservative corporate institutional investors like Microsoft. Let's talk about your business. You recently said that you were looking at a U.S. strategy. Now, you currently don't operate here, but what would a U.S. expansion mean for you? And are you waiting for a change in Washington come January when Trump takes the White House? Yeah, we are observing. So I want to highlight that we haven't made any decision yet. So I am in conversation with a few friends who are more operational in the U.S., including centralized exchanges and some other Web3 groups to see if there is a way. But it seems that right now, everything is still very ambiguous. And that's why we want to make this decision right. So at this stage, we don't have anything concrete yet. OK, that's all for Crypto World today. We'll be back again tomorrow and we'll see you then.