Bividend! |
Oh I think you’re going to see more of this:
BTCS Inc. (Nasdaq: BTCS) (“BTCS” or the “Company”), a blockchain technology-focused company, has announced the first-ever dividend payable in Bitcoin by a Nasdaq-listed company, which the Company refers to as a Bividend. ...
“We want to reward our long-time shareholders for their continued support and encourage financial freedom by providing the means to enable direct ownership of Bitcoin and other digital assets,” stated Charles Allen, Chief Executive Officer of BTCS. …
Allen continued, “Now, we are the first Nasdaq-listed company to pay a Bividend, a dividend payable in Bitcoin at the option of our shareholders. This is a moment we have long anticipated since the Company purchased the domain, bividend.com, in February 2015. BTCS is now in the financial position required to execute on the Company’s vision.” With BTCS’ year-end 2021 stock price of $3.14 per share representing a 12.6% discount to the Company’s digital asset holdings and cash position of $3.56 per share, or $37.8 million, this is an ideal time to reward our shareholders with a non-taxable return-of-capital Bividend.
Sure. BTCS is a somewhat unloved micro-cap company; yesterday it closed at $3.03 per share for a market cap of about $31 million, on volume of about 94,000 shares. As of 11 a.m. today it had traded 18.9 million shares and was up 52% to $4.61. I have often argued in this column that if you are a small public company you should talk a lot about crypto and memes and stuff to increase shareholder value. BTCS is a crypto company anyway, but you can always talk more about crypto. A bividend is a terrible name but an obviously good meme-y crypto stunt to increase attention. BTCS will pay about $500,000 in bividends, which bought it about $15 million of market cap. Just a good trade!
More interesting than the announcement, though, is the little form you have to fill out to get your bividend. (It’s also filed with the SEC.) I think you’re supposed to do it online (there’s that website), but if I were a BTCS shareholder I’d be tempted to print a copy, fill it out in pen, mail it to BTCS’s main address and see what they do. (I bet it’d work! Boy is that not investing advice!) You write down your name, Social Security number, phone number and email, and then you write down your Bitcoin wallet address, and then you write the Bitcoin wallet address again to confirm that it’s right. (“Bitcoin transactions are irreversible it is advised that you cut and paste your wallet address into this field,” says the form, suggesting that pen-and-paper is not the preferred method, though I suppose you could print your Bitcoin wallet address and then use literal scissors and paste.)
My broader point here is that the system of stock ownership runs on different rails from the system of crypto ownership. For instance, it is pretty unusual, in the U.S., to actually own stock in your own name. Most stock is owned in the name of a thing called “Cede & Co.,” a “nominee” for the Depository Trust Co., the big U.S. stock clearinghouse. And then DTC keeps a list of the brokers who “really” own its shares, and those brokers keep their own lists of the customers who “really” own their shares. So if you buy a share of stock through your broker, what you own is a notation in the broker’s database saying that you are entitled to one share, and what the broker owns is a notation in DTC’s database saying that it is entitled to one share. DTC/Cede, meanwhile, actually owns the share, which is to say that Cede owns a notation in the issuer’s transfer agent’s database saying that it is entitled to one share. Actual share ownership — “record” ownership — means being on the transfer agent’s list.
This can seem like a rickety system, though it mostly works pretty well. (There are some gaps!) In the long run it is an obvious improvement over the prior system of, like, everyone owned paper stock certificates and had to cart them around to settle trades and if you lost your certificate you were out of luck. But the DTC system is decades old at this point and it is not hard to imagine a simpler system. Sometimes the people who go around imagining simpler systems imagine blockchain-based systems. “We’ll have one ledger of share ownership, and [the big banks and brokers][DTC][an open system of crypto miners] will maintain that ledger reliably,” is the thinking there.
But here we are in the actual world of 2022, where most people own stock through their brokers. This creates problems for bividends. When a company pays a cash dividend, it pretty much wires the money to DTC, which wires the money to brokerage firms, which deposit the money in their customers’ accounts. But owning crypto is still sort of fraught for brokerages and DTC: There are regulatory custody obligations and capital requirements for holding crypto yourself, and you can’t deposit crypto in a customer account unless you let your customers hold crypto in their accounts, which is sort of a momentous decision for an old-school retail brokerage.
So if a company said “we’re going to pay a dividend in Bitcoin” it … kind of … wouldn’t … work? Like, it would have to send the Bitcoins to DTC’s Bitcoin wallet, and DTC would have to send them to the brokerages’ wallets, and some of them would not have wallets and would get pretty upset. For that matter a lot of investors would get pretty upset: If you run a stock mutual fund, you might invest in the stock of BTCS, but your mandate might not allow Bitcoin investing, you might not have a Bitcoin wallet, and you might have trouble complying with your own custody obligations.[1] So a Bitcoin dividend would cause a lot of havoc for the intermediaries in the financial system.
This is sort of a known thing, to the point that a selling point of crypto dividends is sometimes “let’s cause havoc for the financial system by doing a crypto dividend.” Overstock.com Inc. tried it in 2019 to hassle short sellers, and last month I half-jokingly argued that AMC Entertainment Holdings Inc. should do a crypto dividend to create some pleasing havoc:
This would have three benefits. First, it would be fun for enthusiastic retail shareholders ...
Second, it would be incredibly annoying for institutional shareholders. … This one does not sound like a benefit, but I feel like for AMC there might be some pleasure in irritating institutional shareholders and driving the stock further into the hands of retail? Possibly not. Possibly this one is just a disadvantage. ...
Third, this would be incredibly, incredibly annoying for short sellers.
And honestly if your goal in being a crypto company is to accelerate the move from the traditional financial system to the blockchain, to disrupt incumbent financial intermediaries and usher in a future of direct ownership of assets on the blockchain, maybe you want havoc.
BTCS does not,[2] though, and its bividend is well-behaved. It is 5 cents a share, payable in dollars in the regular way. You can get it in Bitcoin, but you have to opt in, and open your own Bitcoin wallet, and, crucially, transfer your shares to be held in your own name with BTCS’s transfer agent, so that your broker doesn’t have to worry about passing Bitcoins along to you.[3] Nobody is forced to deal with crypto if they don’t want to. It is a gentle step toward crypto dividends. But there will be more.
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