Summary The underwhelming US Strategic Bitcoin Reserve is positive, pushing Bitcoin to prove its value independently and encouraging US companies to innovate. Fold Holdings offers Bitcoin rewards through banking services but faces challenges scaling beyond Bitcoin enthusiasts due to competitive cash-back alternatives. Fold's future business lines, like Bitcoin-based loans, are intriguing, but current revenue growth expectations seem overly optimistic. Fold's convertible note deal appears more PR-driven than beneficial, making FLD shares a 'hold' rather than a compelling investment today. With the recently announced US Strategic Bitcoin ( BTC-USD ) Reserve now in the rear view mirror, it turns out that the 'big money printing bidder' that many expected to enter the Bitcoin frenzy isn't doing so any time soon. This is perhaps an underwhelming development for those who were hoping taxpayers would be pumping Maxi bags. Such is life. But, I'm of the view that the 'do-nothing' SBR is actually a good thing for Bitcoin. This network is going to have to stand on its own two feet and provide value to the world without the backstop of the very currency con that it was created to eliminate. My view is US-based companies have been given the green light to try things out. It's good news. And as investors, we can now look beyond narratives and try to find companies that are actually using this stuff. Perhaps one such company is the newly public Fold Holdings Inc. ( FLD ). Fold's Business Model Simply put; Fold Holdings offers banking and credit services to consumers, with the ability to generate Bitcoin rewards as the primary hook. During an IPO-day interview with Schwab Network in February, Fold's CEO Will Reeves described the business in this way: The way it works for Fold rewards is every time you swipe our credit card or our debit card, Fold receives income revenue from the Visa networks. We then go and convert that into Bitcoin on behalf of our users as a form of full Bitcoin rewards. As Reeves explains it, Fold's rewards are designed to appreciate in value, while competing programs from companies like airlines could see those rewards devalued. On the surface, that certainly makes some sense. But I can't help but wonder if a standard cash back rewards card will ultimately be the better product for BTC acquisition over time. Given Fold is essentially generating revenue from the same interchange that other rewards programs generate revenue from, I think scaling this business beyond a few strong Bitcoin supporters is likely going to be a challenge. Credit Card Pricing (Fold) Keep in mind, Fold's upcoming credit card will offer 1.5% back to free tier users. To get the 2% cash back reward, users have to pay $100 annually to join the Fold+ tier. There are other benefits to this tier, including the elimination of fees for users who buy, sell, or convert a direct cash deposit to Bitcoin. And frankly, users don't have to spend all that much annually on the card to make the Fold+ fee worthwhile. But when I see products like this, my natural instinct is to assess how compelling I think it is to switch from what people are already likely using. For me, I already have a cash back rewards card that pays 2% on everything without an annual fee. So if I was so inclined, I could just continue to use my Fidelity credit card, take the cash back and buy Fidelity Wise Origin Bitcoin Trust ( FBTC ) shares with those rewards if I want Bitcoin exposure with cash back from my credit card. This admittedly requires an extra step and can't be withdrawn, but I don't have to open any new accounts and go through KYC/AML. I'm not sure I'm a huge fan of this business segment, to be honest. January Investor Deck, Slide 22 (Fold) That said, I do think some of Fold's longer term business lines are quite interesting. During his appearance on the Schwab Network, Reeves mentioned business loans and home ownership utilizing Bitcoin. Essentially, putting the Bitcoin to work is something that I think could conceivably make Fold more compelling as an investment, specifically because the company's 575k user base is generally higher net worth. After generating $24 million in top line revenue last year, Fold is guiding for $61.6 million for 2025. This year will also see Fold's expansion into custody and trading beyond banking and payment services. Bitcoin Holdings & Convertible Note At a market cap of $300 million, FLD trades at nearly 5x forward sales. It's clearly a growth company, and, based on that metric alone, perhaps isn't as 'overvalued' as it could be. Despite the enthusiasm for projected revenue growth, I'd be very cautious about some of these expectations: January Investor Deck, Slide 21 (Fold) Consider that 2024, a year in which Bitcoin appreciated by 135%, Fold's revenue was still below that of 2022. Boosting marketing spend up to 25% of operating budget is probably necessary to get more users into Fold's funnel. And in addition to cross-selling current users more financial services, the company appears to be joining Michael Saylor's convertible note party . FLD Bitcoin Holdings (BitcoinTreasuries.Net) After announcing a 475 Bitcoin acquisition following an early-March convertible note sale, Fold now holds 1,485 BTC on the balance sheet and is a top-20 listed company based on BTC holdings. At a BTC price of $81k, Fold's Bitcoin Treasury has a market value of $120.3 million. However, the devil is in the details and that 475 Bitcoin came following a $46.3 million security sale to SATS Credit Fund LP. The deeper specifics of the arrangement are quite interesting and not necessarily as good a deal as is perhaps believed by the company's supporters. Per Fold's 8-K earlier this month: Fold has agreed to hold the Subject Bitcoin in its treasury and may not use it for operational or any other purposes unless and until released to Fold upon conversion of the Note’s principal into Conversion Shares. Any Subject Bitcoin that is not released to Fold on or prior to the Maturity Date in connection with the issuance of Conversion Shares will be repaid to the Investor on the Maturity Date as payment of the principal outstanding under the Note. Essentially, this isn't Fold's Bitcoin. It still belongs to the convertible note investor. And while that note doesn't mature until 2030, the coupon is 7%. In order for SATS Credit Fund LP to relinquish the entirety of the BTC to Fold, the investor will be paid quarterly interest through common stock valued at $12.50 per share. Automatic conversions trigger based on the following: Principal Common Shares FLD Reference Price $4.6 million 370,000 $15 $4.6 million 370,000 $20 $4.6 million 740,000 $25 $9.3 million 740,000 $30 $9.3 million 740,000 $35 $9.3 million 740,000 $40 Source: Fold 8-K Thus, 60% of the principal requires a share price of $30 or higher for automatic conversion to trigger. While this has been presented as though it's the same playbook that has been used by Saylor, I don't see this really being the same kind of deal that MicroStrategy ( MSTR ) has been getting. Frankly, it appears - at least to me - to be more of a PR tactic since BTC held through corporate treasury has generally been getting rewarded by the market. Closing Thoughts For me, Fold is an interesting company but not one that I feel compelled to invest in today. I'm not generally a huge fan of the rewards business, and I think the convertible note is an attempt to 'sell the sizzle' through BTC Treasury optics rather than outright owned assets. I'll call FLD shares a 'hold' today.
