Elon Agonistes & the Bull Case for Crypto

Elon Musk
Tesla C.E.O. and would-be Twitter owner Elon Musk. Photo: Diego Donamaria/Getty Images
William D. Cohan
June 19, 2022

On Thursday, Elon Musk convened Twitter employees for a virtual town hall to discuss his pending takeover of the company, which he agreed to purchase for $44 billion in April. Since then, of course, he has careened publicly through extreme optimism about Twitter’s financial future, promising to triple ad revenue; extraordinary contempt for its employees and culture; and buyer’s remorse at having offered a sizable premium to take Twitter private amid a tech stock meltdown that has likely cut Twitter’s fair market value in half but for his offer. He has threatened to walk away from the deal (which he cannot do, at least not without a lawsuit, or five, and a $1 billion breakup fee) over the existence of bots and other fake accounts on the platform.

The mere existence of the all-hands meeting caused Twitter’s stock to rise ever so slightly, indicating to some optimists a marginal improvement in the likelihood that Elon will close the deal. But this remains wishful thinking. Elon has made no new filings with the Securities and Exchange Commission since June 6. It’s been a quiet stretch, especially since it’s still not clear whether he still wants Twitter under the current market conditions, despite having signed a merger agreement on April 25 that commits him to close it. In its description of the meeting, The New York Times reported that it was the first time Elon acted like he was the owner of Twitter and that the town hall, in which he appeared 10 minutes late, by cell phone video, “suggested he was set on closing the blockbuster acquisition.” 

I’m not sure either assertion is true. Far from demonstrating how he would operate Twitter if he closes the deal, Elon only reiterated his vague assertions that Twitter should be a haven for free speech, that he wants to make the algorithm open source, and that China’s WeChat app could be a model for future product growth. Nor am I convinced that the town hall provided any further insight into whether he intends to actually close the deal, or not. The Twitter stock price has been pretty much locked in for the past month or so, at around $37 per share, some 32 percent below the $54.20 in cash he has agreed to pay Twitter shareholders. That difference presents a meaty upside opportunity for arbitrageurs with a high tolerance for risk. (This is not investment advice.) I’m glad the Times is more confident that Elon will be closing the Twitter deal, but on the whole, Twitter shareholders don’t seem to think it will happen. 

The biggest positive step Elon could take toward closing the deal at this point would be to address the $33.5 billion equity bucket he has promised to fill as part of the financing for the $44 billion deal. As far as I can tell, he’s accounted for $13 billion of that $33.5 billion, including his own contribution of his existing Twitter stake and the rollover of the $2 billion stake owned by Prince Alwaleed of Saudi Arabia. While that’s a mighty accomplishment for a single individual, it still leaves Elon $20 billion short. That’s why it’s so disquieting that he’s had no S.E.C. filings since June 6. If he made additional steps towards raising the $20 billion, or even said how he was going to do it, I think a greater degree of confidence that he actually intends to close the deal would be warranted. Until then, based on his flaky behavior since the merger agreement was signed, I’m still pretty skeptical this deal will happen in its current form.

On the Crypto Crash

I like to think of myself as relatively open minded when it comes to new ideas in finance, and about crypto currencies, in particular. I’ve interviewed many crypto bulls (Michael Saylor, Anthony Scaramucci) and a variety of crypto skeptics (Jamie Dimon, Peter Schiff, Stephen Diehl) in the course of my reporting at Puck. I’m also working on a documentary, with director Matthew Miele and producer Tucker Tooley, about Bitcoin’s mysterious founder and the future of the crypto market, which has introduced me to dozens of curious and impressive technologists building new companies on the blockchain. I spent a fascinating afternoon in Bushwick interviewing Joe Lubin, one of the founders of Ethereum, and another morning in Los Angeles interviewing Fred Ehrsam, the co-founder of Coinbase. At the moment, some of these entrepreneurs are probably feeling the pain of lost wealth as the market for Bitcoin, Ethereum and cryptocurrencies more generally continues its meltdown. (These fellows are still likely plenty wealthy, just a little less so.) What happens now is an interesting question. 

The swift fall of the crypto market, beginning in November and accelerating in the past few weeks with mass liquidations and the implosion of so-called “stable coins” underpinning the broader crypto ecosystem, is both a moment of reckoning and Rorschach test for the industry. The true believers in crypto and in Bitcoin, in particular, are hard to dissuade. You are not seeing The Mooch or Michael Saylor, at Microstrategy, capitulating, or expressing doubt about the asset class. In fact, they are probably loading up the dump truck with more (and cheaper) Bitcoin. For those on Wall Street with more objectivity, the ongoing Bitcoin meltdown is being perceived as vindication for an asset bubble that was based, in their opinion, on pure speculation and finding a greater fool to buy digital tokens at an ever increasing price. Which is not to say that many people who knew better didn’t also get greedy when the $3 trillion opportunity became too big to ignore.

Wall Street, generally speaking, likes to see cash flows, and positive cash flows at that, or real EBITDA, as the way to value a company or an asset. Bitcoin doesn’t generate any cash flow. Nor do most crypto projects, except through levered bets that prices will continue to increase as more people buy into their networks. It’s just something to buy and possibly hold on to until someone else comes along willing to buy it from you at a higher price. It’s hard to be excited about crypto if you paid $69,000 for a Bitcoin last November and it’s now trading below $20,000, a greater than 70 percent drawdown. You know what I mean?

The clichéd historical parallel is, of course, the Dutch tulip bulb insanity of the 1630s. Like Bitcoin today, tulip bulbs back then were just a way for people to speculate, hoping for a greater fool to come along and buy the bulbs for a higher price than what they paid. It works until it doesn’t, sort of like repeatedly doubling down on bets at the casino, hoping you’ll make back what was lost and instead finding that your losses have exploded exponentially. Planting a tulip bulb, rather than speculating on it, does have a nice payoff in the form of an annual flower that is quite beautiful. Same with Bitcoin to be honest. If everyone just took a deep breath, stopped the mindless speculation and simply appreciated Bitcoin for what it is—a new form of decentralized digital currency with a twist of clever and useful blockchain technology—then its long term prospects would brighten considerably. We’re not there yet but we’re close. The same goes for smart contracts and DAOs and the myriad other fascinating concepts that will surely make their mark on the world of finance, even if they never topple the world order. Let’s give our friend Andrew Ross Sorkin the last word today, on Father’s Day. “If it is any consolation,” he tweeted the day before, “tulips still are around. And as the flowers go, they are still pricey.”