Bitcoin buying SPAC venture Twenty One lists 76 risks. Here are some big ones

The new venture backed by Tether, SoftBank Group, and Cantor Fitzgerald has a singular purpose: to buy up billions of dollars worth of Bitcoin.

While the strategy seems simple enough, the investment prospectus lists an appendix outlining dozens of risks, and many are beyond the boilerplate industry pitfalls like the volatile nature of crypto and an uncertain regulatory landscape.

The venture, dubbed Twenty One, offers shares of the listed company to ride gains in its stash of 42,000, or $3.9 billion’s worth, of Bitcoin.

But it does so via a publicly listed venture with no real operations. Shareholders won’t have much actual ownership like pure Bitcoin holders do, nor do they have any say in how the company operates.

There’s also big competition, another risk Twenty One acknowledges.

Michael Saylor’s MicroStrategy has soared even in rocky markets, while about a dozen Bitcoin exchange-traded funds run by giants including BlackRock and Fidelity have lured billions from a range of new investors.

“What’s the value-add here?” asked Bloomberg ETF analyst Eric Balchunas on X. “Why buy this new stock?” over other offerings.

Below are some of the biggest, and most unusual, risks Twenty One highlights.

What’s the mission again?

It’s an unusual business model.

Twenty One says its mission is to “accelerate Bitcoin adoption and Bitcoin literacy” among both pros and the masses. It wants to make money from these efforts as well. So the company’s fortunes aren’t driven solely by Bitcoin’s price but also by getting clients to pay for ancillary services such as education.

And that’s a risk.

“We have not previously engaged in the business of online learning programs and educational content, and growing these operations could be difficult for us, including, without limitation, due to operational challenges and significant competition.”

Also: “If we fail to attract and retain customers for our educational business segment, our operating results may suffer.”

Howard Lutnick

The involvement of Cantor Fitzgerald in the venture deepens ties with the Wall Street firm and crypto industry.

Brandon Lutnick, the son of Howard Lutnick, the longtime Cantor CEO who recently stepped down to become the secretary of Commerce in the Trump administration, is spearheading the new venture.

It’s not clear how much Howard Lutnick owns in Cantor, but the holdings are big enough to be a risk.

“In connection with his confirmation as the 41st Secretary of Commerce, Howard W Lutnick has stated his intention to divest his interests in Cantor and its affiliates to comply with US government ethics rules. We cannot predict the consequences of this divestiture.”

Lutnick has 90 days from his confirmation to dump the relevant holdings. In an ethics agreement, Lutnick said he “will not repurchase any asset I was required to divest without consulting with my agency ethics official and the US Office of Government Ethics.”

He said the same goes for his wife and “minor” children, which presumably excludes adult son Brandon.

Insiders win

Twenty One says it hopes to qualify as a controlled company, meaning a small group or entity owns more than half of the voting power for the election of directors.

Twenty One thus “expects to avail itself of applicable exemptions from the corporate governance requirements.”

Also, holders of the company’s Class A Common Stock have no voting rights. The statement says holders “will not have any ability to influence stockholder decisions.”

Tether

The company says it will rely on Tether International S.A. deCV, an affiliate of Tether Investments, which “will have a controlling interest” in the new venture.

Tether, the company behind the world’s most widely traded cryptocurrency, has come under fire for its lack of transparency — it reports attestations in lieu of the same level of audits most financial firms undergo.

This is why the company continues to be dogged by questions about what instruments it uses to back its USDT stablecoin on a one-to-one basis.

It’s also not a US company. It was founded in 2014 in Hong Kong, but plans to establish a headquarters in El Salvador. Moreover, Tether has opted to not comply with crypto regulations in the European Union, which has prompted exchanges to delist USDT.

Then there’s the popularity of USDT with organised crime and drug traffickers. US members of Congress have decried the stablecoin’s use for financing the movement of fentanyl.

In 2021, it settled an investigation with the New York State Department of Financial Services over misleading claims about its reserves.

Through its voting control of Twenty One, the statement says Tether is “in a position to control actions that require shareholder approval and may make decisions that are adverse to other shareholders.”

How regulators will scrutinise an opaque foreign company’s control over a publicly listed US stock is unclear.