Saylor urges disciplined Bitcoin expansion as Zcash tumbles

Michael Saylor published an essay calling for ‘disciplined expansion’ of Bitcoin through banks, companies, securities, credit and higher-layer applications while preserving the base layer as ‘sacred infrastructure.’ He urged that most product development occur on custody systems, credit instruments and higher-layer networks rather than on the Bitcoin base layer. Strategy sold 32 BTC recently to fund preferred stock dividends, its first sale since 2022.

The essay was released amid heavy outflows from spot Bitcoin exchange-traded funds. Weekly net redemptions in recent weeks were $1.42 billion, $1.26 billion and $1.0 billion in the last three weeks of May, with $1.4 billion in outflows so far in the current week.

A security engineer engaged by Shielded Labs discovered a counterfeiting vulnerability in Zcash’s Orchard shielded pool on May 29 and disclosed it to the Zcash Open Development Lab. Developers deployed an emergency response and activated a hard fork on June 3 to patch the bug, which the team said dated to May 2022 and could theoretically have allowed unlimited minting of ZEC.

Market reaction was swift. ZEC fell more than 30% in 24 hours and was trading around $410 at the time of reporting, with more than $3 billion of market value erased.

Arthur Hayes, co-founder of BitMEX, posted on social media that it was unlikely ZEC had been illegally minted but acknowledged that it ‘cannot be formally cryptographically proved impossible.’ He also wrote that he sold his ZEC holdings and added, ‘The Holy Trinity is dead.’

An analysis of 13F filings by CoinShares found that professional ownership of U.S. spot Bitcoin ETFs fell to about 261,000 BTC in the first quarter from 313,000 BTC, a 17% decline. The combined dollar value of those holdings fell roughly 35% to $17.8 billion, and the share of total U.S. Bitcoin ETF assets held by 13F filers declined to 20.8% from 24.7%.

The sell-off was concentrated among hedge funds and brokerages. Hedge funds cut holdings by about 31,400 BTC, or 39%, while brokerages reduced exposure by about 18,800 BTC, or 53%. Together those groups accounted for roughly 96% of the reduction in professional holdings reported in the filings.

Saylor’s essay proposes embedding Bitcoin into financial infrastructure via banks and capital markets and concentrating technical change on higher layers and custody solutions. The essay, the ETF outflows and the Zcash vulnerability occurred in close timing and were reported during the recent market downturn.