Oddbean

Agree. I noticed where in Dec 2022 at the bottom he had to sell 700 BTC. I assume there was effectively a margin call due to drawdown. He’s doing alluded to this in the Saif podcast too. He’s doing it well but people don’t fully understand the inherent margin risk even when you do it well. Seems to me that at this point $MSTR is a lot like GBTC was when that arb was a “no brainer”. All the HFs and funds that abused the arb ended up blowing it up due to their leverage. This could easily be the case, seen again, after the fact?? Based on estimates there is about $78 of bitcoin per MSTR share. The company stock (pre-#bitcoin) typically traded at $10-$16 a share (for pretty much 20 years). Adding $78 of BTC would get you to about $94-95 bucks per share. Also, Saylor has been pretty vocal that MSTR pre-Bitcoin was dead in the water. So, it would seem investors probably shouldn’t assign much value to the company then, right? Granted, I do think his play is to turn it into a bitcoin bank, lend off the stack and convert the software to BTC software and analytics, so there could eventually be hidden value there.

so many things wrong with this post... but we'll start with "dead in the water" which is not even close to true. Microstrategy was netting 100 million a year before they adopted Bitcoin. Pretty far from dead.

Saylor himself said multiple times over the last few years MSTR was a dead company. It wasn’t innovating and he was trying to figure out how not to have to wind it down or just let it die a slow death or sell. His earliest mentions were when framing around what he noticed with FANG and he saw it again with Bitcoin so he bought it as a means to save the company… I.e. “dead in the water”.

yes his company was going to have a hard time competing with Microsoft. But he had decades of runway left. Saying it was a dead company is a massive exaggeration he uses to justify his bitcoin purchases. It was highly profitable when he started buying Bitcoin and still is today based on it's business-intel software

next thing wrong with it is "people don’t fully understand the inherent margin risk". Not a lot of risk when your leverage is 0% over a long time period when your business cashflow can more than cover it and/or it converts to stock. It's not even really fair to call this leverage. This is just normal use of debt that any public corporation uses, the only difference is they are using it to buy bitcoin instead of expand their business or do an aquisition.

I don’t disagree. However, Saylor himself said they were close this last bear and had to move some Bitcoin around. Additionally, you can see a 700 BTC sell around that time (12/22/22). Just putting 2 and 2 together. Borrowing to buy (converts is still a form of leverage). I’m not 💩 it. Just pointing out it still takes planning. https://youtu.be/k7XhzXMSAPo https://treasuries.bitbo.io/microstrategy/

Sell 704 on the 22nd and buy back 810 on the 24th? that doesn't make much sense. If you are actually cash strapped enough to sell your bitcoin, then you won't have it all straightened out 2 days later. Hrm, not sure what's going on with that.

Another good one that will get skimmed over; people will miss all associated leverage that’s discussed/shed light on. Around the 45 min mark Saylor discusses all the easy to see associated risk. Before that, the discussion around premium equity and issuing premium converts at premium equity, is a key point. The *potential* risk is the 6 year mark. Not sure if that’s an actual number or just an example. But, he walks through it all. At 1:05:ish he calls MSTR a “levered” Bitcoin play. And goes over a few examples MSTY and MSTX + options which are additional ways of levering MSTR (a Bitcoin derivative effectively). So these are effectively two and three derivatives of spot. That’s a lot of leverage and a lot of ways to break - see GBTC; the arb and premium discount issues. Putting it altogether brings some of the points we went back and forth on, to light. Additionally, it exposes the reasoning why (IMO) MSTR trades at a premium to NAV. The MSTX and degenerate TradFi options/leverage is not all that dissimilar to the GBTC arb trade that eventually broke once the NAV got out of whack and the trade became crowded. When interest waned and big players stepped aside or actually realized the risk, the trap door opens and exponentially declined as a bear unfolded. It’s totally fine and happens in securities but people don’t always understand the risk and think NgU until they are “blindsided”.

GBTC was just fine. Traders got upside down but the trust was just fine. Likewise MSTR will be just fine. They way they are using debt is extremely same, and extremely smart. I'd do the same if I could get 0% money like they do. You'd be a fool not to

I would encourage you to go back and read the legal docs of Genesis and Grayscale. The BTC held was not perceived to be an issue the borrow/lend relationships that encumbered it was an issue and did cause problems, specifically when the broader market got tight. This is typical during liquidity events, regardless of the asset class.

Did not cause any problems for the trust. Indeed it still exists, now as an ETF. Everything was just fine. Those people who tried to arb trade it, locking their funds in it for 6 months, got burned but that's part of the risk of being a trader. People might get burned going leveraged long on MSTR but Microstrategy will be just fine.