Totally agree with you Geo! The only thing I can think of as a counter (and it’s the very obvious counter) is that ultimately it boils down to the amount of confidence in BTC and markets acceptance or not of Saylors vision of BTC ( and thereby MSTR)…everything else then becomes conjecture.
Yes, confidence in BTC remains high and could propel further MSTR gains (and therefore more issuance)...however the more he issues and the more BTC he buys, the harder the crash will be when the inevitable crypto bear market happens.
The premium to nav will never go below 1. It will always increase! Just buy calls. But seriously agree with your thoughts. Implied vol is almost at 200. I think we are getting close to a top , for the option monkeys at least
I remember the Grayscale GBTC Trust (before it converted into an ETF) used to trade at a huge 50-100% premium to NAV during the previous bull market. People could subscribe to it at NAV by contributing spot BTC, and theoretically sell the trust to capture that premium, but the catch was that there was a lockup period of 6 months (initially 12) to sell. During that lockup period the NAV closed and eventually became a discount. Very few subscribers got to close out their trade at a premium, and many had to sell at a discount (which got down to under 30% in the bear market). Longs (such as 3AC and Blockfi) were trapped and had no choice but to either sell at a discount, or pray and hope the trust would get converted into an ETF someday (fortunately it did).
There are parallels to MSTR today. It trades at a premium because the market sees it as a superior way to get exposure to BTC, but when the market turns, market forces could flip that premium into a discount. And if that happens, there is almost nothing that Saylor can realistically do to close that discount.
As an aside, in this blog I highlighted buying GBTC at a 10-15 discount to NAV prior to the ETF launch in Q1 of this year...that ended up being a great trade because I got that extra 10-15% kicker on an asset already rocketing higher.
The reflexivity on the way down hinges on Microstrategy being a forced seller of BTC as its share price or the price of BTC decreases, as you point out: "resulting in the issuance remaining as debt (and therefore leverage) instead of share issuance."
However, the latest convertible notes document seems to give Microstrategy, at its sole discretion, an option as to whether it redeems the convertible notes with cash or with equity. In a worst case scenario, it just issues more equity -- while it will be dilutive to existing shareholders, it can avoid a spiral-down effect where it has to sell BTC (or raise more debt that will make it a forced seller of BTC in the future if it doesn't recover).
Anyways -- I most definitely have not read all the other convertible notes documents in detail, and may be wrong on this.
So the point i'm just trying to make is -- we need to make sure we understand the fine print in all these convertible note / debt docs to really understand the reflexivity on the way down, as these aren't simple crypto-like margin loans where BTC price / Microstrategy share price necessarily results in a deleveraging death spiral like we saw with FTX and LUNA / UST.
Enjoyed that read. Very punchy. I originally thought Eigenlayer would be the beast that ends the cycle, but that was too small minded of me. MSTR can tap tradfi cap markets in a scale that dwarfs anything from the OTC lenders in 2021 (and termed out over years too). Another angle to your reflexivity point is if it somehow does get included in S&P500 and is subject to passive flows. This would give it a massive boost upon inclusion, but any kind of broader equity market weakness would be a headwind.
Totally agree with you Geo! The only thing I can think of as a counter (and it’s the very obvious counter) is that ultimately it boils down to the amount of confidence in BTC and markets acceptance or not of Saylors vision of BTC ( and thereby MSTR)…everything else then becomes conjecture.
Yes, confidence in BTC remains high and could propel further MSTR gains (and therefore more issuance)...however the more he issues and the more BTC he buys, the harder the crash will be when the inevitable crypto bear market happens.
Excellent stuff as usual.
The premium to nav will never go below 1. It will always increase! Just buy calls. But seriously agree with your thoughts. Implied vol is almost at 200. I think we are getting close to a top , for the option monkeys at least
I remember the Grayscale GBTC Trust (before it converted into an ETF) used to trade at a huge 50-100% premium to NAV during the previous bull market. People could subscribe to it at NAV by contributing spot BTC, and theoretically sell the trust to capture that premium, but the catch was that there was a lockup period of 6 months (initially 12) to sell. During that lockup period the NAV closed and eventually became a discount. Very few subscribers got to close out their trade at a premium, and many had to sell at a discount (which got down to under 30% in the bear market). Longs (such as 3AC and Blockfi) were trapped and had no choice but to either sell at a discount, or pray and hope the trust would get converted into an ETF someday (fortunately it did).
There are parallels to MSTR today. It trades at a premium because the market sees it as a superior way to get exposure to BTC, but when the market turns, market forces could flip that premium into a discount. And if that happens, there is almost nothing that Saylor can realistically do to close that discount.
As an aside, in this blog I highlighted buying GBTC at a 10-15 discount to NAV prior to the ETF launch in Q1 of this year...that ended up being a great trade because I got that extra 10-15% kicker on an asset already rocketing higher.
Looks like the WSJ is also reading your write ups Geoff! Good points for sure
Geo coming in clutch
The reflexivity on the way down hinges on Microstrategy being a forced seller of BTC as its share price or the price of BTC decreases, as you point out: "resulting in the issuance remaining as debt (and therefore leverage) instead of share issuance."
However, the latest convertible notes document seems to give Microstrategy, at its sole discretion, an option as to whether it redeems the convertible notes with cash or with equity. In a worst case scenario, it just issues more equity -- while it will be dilutive to existing shareholders, it can avoid a spiral-down effect where it has to sell BTC (or raise more debt that will make it a forced seller of BTC in the future if it doesn't recover).
Anyways -- I most definitely have not read all the other convertible notes documents in detail, and may be wrong on this.
So the point i'm just trying to make is -- we need to make sure we understand the fine print in all these convertible note / debt docs to really understand the reflexivity on the way down, as these aren't simple crypto-like margin loans where BTC price / Microstrategy share price necessarily results in a deleveraging death spiral like we saw with FTX and LUNA / UST.
his plan is to become too big to fail before the bubble pops.
it will cost a lot less to save his stock/confidence than to save BTC from cascading forced liquidations of mstr treasury.
therefore he will be saved by the community.
Enjoyed that read. Very punchy. I originally thought Eigenlayer would be the beast that ends the cycle, but that was too small minded of me. MSTR can tap tradfi cap markets in a scale that dwarfs anything from the OTC lenders in 2021 (and termed out over years too). Another angle to your reflexivity point is if it somehow does get included in S&P500 and is subject to passive flows. This would give it a massive boost upon inclusion, but any kind of broader equity market weakness would be a headwind.
The good news is that new debt is always issued due 5 years out
We could absolutely see the premium turn to a discount well before, but the true "death spiral" probably won't happen much sooner