Snobdds
Elite Member
Saylor is so leveraged that if bitcoin goes down 20%, MTSR will go down 50%.
People do not understand leverage.
Is it too soon to talk about Crypto yet?
- Thread starter MinnesotaEric
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Saylor is so leveraged that if bitcoin goes down 20%, MTSR will go down 50%.
People do not understand leverage.
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MinnesotaEric
Super Member
The people buying the 2x and 3x versions of MSTR don't understand slippage and leverage, but again, MSTR's method is pretty well understood.
When Microstrategy sells equity to raise money to buy Bitcoin, that dilutes the shareholder's value only if Bitcoin pulls back significantly, then shareholders are losing net asset value. But where the problem happens is the new buyers of the equity through convertible bonds.
Specifically the video below does a very good presentation of the risks of the math. I pick it up right where the people coming in last are losing net asset value.
There are three very good observations in the comment section of this video, which I'll simply quote:
Very clever, especially the part where you built the pyramid shape.Two points:
1. convertible bonus desks love this product since it has the volatility there looking for; so far they’re performing better than BTC.
2. Pyramid schemes historically have hidden from buyers what they’re really all about. These guys are sophisticated buyers, fully know what they’re doing, and don’t end up holding shares in the end anyways. They’re most likely to cash out after the conversion threshold and buy new round of MSTR convertible bonds. No bad deal, no buyers remorse, just an unending appetite for more …
The "loser" in Meldrum's thesis is the next buyer of convertible debt, however, that buyer has an incentive to purchase the debt as a hedge to other market actions they want to take on the stock. For the spot buyer/holder of the stock, the opportunity cost is just buying spot bitcoin, but they choose to buy Microstrategy stock because of its unique business position and business strategy and perhaps also as a bet on a future increased mNAV. So both the convertible debt buyer and the spot buyer are assuming risk, but they see unique benefit in the instrument they are purchasing, and in some sense their risk tolerance is a reflection on what position they believe Bitcoin is at in its adoption curve and how they can best capitalize on that position.
Enjoyed the video thank you for the analysis. Two things I notice about this: 1 you didn’t discuss that bitcoin over time has continued to appreciate so it’s not just the btc per share that’s increasing but also the value of the btc per share. 2 the institutions buying this convertible debt are going through MSTR because they cannot purchase btc directly. And since there is a lot of demand MSTR is able to set generous terms for itself.
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MinnesotaEric
Super Member
About two hours ago X got wind through an SEC notice that Microstrategy is asking shareholders to vote on allowing the company to raised the cap on the number of shares to 10B, thereby allowing Microstrategy to ATM for more Bitcoin well into the future. This will further accelerate the global adoption of Bitcoin as a reserve currency in a digital gold rush. Meanwhile, for their part Microstrategy has been upfront about their goals.
Saylor is playing an elaborate shell game where he is trading stock shares of his otherwise mostly worthless company for dirty fiat and BTC. He's pocketing the fiat and using the BTC buys to pump the value of MSTR and BTC.
The liquidity of BTC is low enough that a couple of whales can move the value quickly plus there's a ton of front running and other schemes that are illegal in actually regulated markets that artificially inflate the price. So basically by buying BTC he's increasing the entirely made up "market cap" of an asset that does nothing and serves no useful non-criminal purpose which increases the value of his shares which he then issues more of and then uses that to buy more BTC (skim off some fiat..) which increases the value of BTC which... It's not a pyramid scheme, no clearly not because there's no pyramid.. its a room with one whale and a bunch of suckers, it's to flat to be a pyramid.
Look around the room.. do you see the sucker? Check for a mirror.
The whole premise is "line go up", but I don't think he actually even believes that, he's just pumping the coin and fleecing the rubes along the way (or at least didn't originally maybe he's delusional as well now as well).
As to why I'm not shorting one of the BTC vehicles or MSTR I'll just say that the market can remain irrational longer than I can stay solvent and there are very clearly criminal purposes and people with a lot of power who enjoy leveraging those criminal purposes who can keep this grift going for quite a while. How and when it implodes? No idea.. it'll be fun when it does though.
Did you also invest heavily in AMC in June of '21?
The liquidity of BTC is low enough that a couple of whales can move the value quickly plus there's a ton of front running and other schemes that are illegal in actually regulated markets that artificially inflate the price. So basically by buying BTC he's increasing the entirely made up "market cap" of an asset that does nothing and serves no useful non-criminal purpose which increases the value of his shares which he then issues more of and then uses that to buy more BTC (skim off some fiat..) which increases the value of BTC which... It's not a pyramid scheme, no clearly not because there's no pyramid.. its a room with one whale and a bunch of suckers, it's to flat to be a pyramid.
Look around the room.. do you see the sucker? Check for a mirror.
The whole premise is "line go up", but I don't think he actually even believes that, he's just pumping the coin and fleecing the rubes along the way (or at least didn't originally maybe he's delusional as well now as well).
As to why I'm not shorting one of the BTC vehicles or MSTR I'll just say that the market can remain irrational longer than I can stay solvent and there are very clearly criminal purposes and people with a lot of power who enjoy leveraging those criminal purposes who can keep this grift going for quite a while. How and when it implodes? No idea.. it'll be fun when it does though.
Did you also invest heavily in AMC in June of '21?
I am not a financial wizard but this discussion is giving me flashbacks to the junk boom crash and burn in the late 1980s, the dot com boom/fall of the 1990s, and the overall banking failure of 2008.
Then again looking at those numbers, we're way overdue for another massive adjustment.
Then again looking at those numbers, we're way overdue for another massive adjustment.
If you want a closer correlation look up the Wildcat banks from the mid 1800's.
Very brief intro: Wildcat banking - Wikipedia
Another favorite most folks in the west probably don't know of is the MMM scam MMM (Ponzi scheme company) - Wikipedia
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MinnesotaEric
Super Member
We did have the four years to set the regulation, but nope, nada. With the incoming Admin we are going to have rules and regulations suggested for the crypto industry, but it will be up to Congress and the Senate to pass them and for the President to sign it into law.
That said, make a pretend trade and we'll circle back in two years and check the result.
As for myself, in 2020 March I was heavy into REITs, and suddenly all my REITs were setting record lows. At the time I thought a hedge fund in the REIT sector was blowing up and getting margin-called so I was buying preferred with a coupon of 21%. Later in the week, I found out the very company I was buying was the company that was blowing up but they got a lifeline through low interest note against their leverage. I collected better than 21% for about a year and sold with a with a gain.
I never touched AMC as by that time my reoccurring thought process was we were getting too far into debt and that got me scar't out of equity markets. That said, I am a member of the original Wall Street Bets. Back when I was an active trader, I used to make insufferable videos aimed at my buddies. Little did I know that a few years after that a guy could build a career doing that same. But for me there wasn't any monetization back then it was just for grins and giggles.
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MinnesotaEric
Super Member
I tend to agree on the broader market. Back during the Great Recession central banks were trading gold slips to each other and we hypothesized that at some point a crash would happen that was so big that the central bankers would need a central bank to bail them out. Roll the global debt bubble forward 18 years and it is Bitcoin.
Oh is it annoying to watch people get rewarded for outlandish risks without suffering any pain. Made a video about that back in the day.... When everything in my investment portfolio keeps going up, I increasingly become scared.
A bubble is a bull market in which you don't have a position
Bubbles arise when the price exceeds the assets value, to the point where no plausible future scenario can justify the price.
In every bulble, there are people trying to burst it by declaring assets have become overvalued.
At first, such skeptic receive respectful attention. But eventually investors turn on them with anger and ridicule.
This is because bubbles don't grow out of thin air, but through misconceptions as to how long growth can continue without decline.
If experts were expert, then they would make a living trading equities and bonds and not by selling advice.
Demographics is the most powerful indicator that allows investors to see around corners.
Inflation rises when more people are entering the workforce than leaving the workforce.
Deflation sets in when there are more people leaving the workforce than entering the workforce.
Right now there are more people entering the workforce than are leaving the workforce.
Investor money always goes where it is considered safe and treated best.
The rest of the world faces political and financial risk leading to increased foreign investment in domestic markets.
Yet as the bull market continues, people increasingly take greater risks for greater rewards seemingly without punishment.
And this speculation continues until enough people blink and the market crashes.
And the fools and their money part ways. If you cannot tell who the fool in the room is, then you're it.
Bubbles arise when the price exceeds the assets value, to the point where no plausible future scenario can justify the price.
In every bulble, there are people trying to burst it by declaring assets have become overvalued.
At first, such skeptic receive respectful attention. But eventually investors turn on them with anger and ridicule.
This is because bubbles don't grow out of thin air, but through misconceptions as to how long growth can continue without decline.
If experts were expert, then they would make a living trading equities and bonds and not by selling advice.
Demographics is the most powerful indicator that allows investors to see around corners.
Inflation rises when more people are entering the workforce than leaving the workforce.
Deflation sets in when there are more people leaving the workforce than entering the workforce.
Right now there are more people entering the workforce than are leaving the workforce.
Investor money always goes where it is considered safe and treated best.
The rest of the world faces political and financial risk leading to increased foreign investment in domestic markets.
Yet as the bull market continues, people increasingly take greater risks for greater rewards seemingly without punishment.
And this speculation continues until enough people blink and the market crashes.
And the fools and their money part ways. If you cannot tell who the fool in the room is, then you're it.
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This isn't strictly true, investor money is largely irrational. There are also semi-rational sections that go where it sees a potential for high returns (otherwise people would only buy blue chips which is clearly not the case). Investor money WILL flee from higher risk when things get dicy, and probably both later and earlier than it should.
I believe that the low interest rates directly drove a lot of the initial adoption of speculative assets like crypto because the more traditional investment vehicles had low gains. Plus you could leverage out effectively free money at near zero interest into potentially high roi but highly speculative stuff.
Now that interest rates are up a lot of the people who invested in that are looking for a exit so they're pumping the bags and trying to dump them, which is hard because there's low incoming liquidity. Some folks have ofc become or always were true believers (if you say something often enough it becomes true) and will hold to zero.
Again how long that will take .. no idea..
Ah yes, back to the "this is all so new that no one could have known things that are illegal in every other market might just be illegal here as well". I would caution that a lot of people have gone to jail believing that line.
The incoming admin is posting a lot of pro-crypto people(and I could speculate as to why but will forbear). I think that's likely to mean lowering interest rates again to enable more "easy money" which will give the bubble another large pump making the eventual pop even more spectacular. Sooo I wouldn't strictly bet against you in the four year timeline, but I also wouldn't put any money on that line either because it's a high risk market and I don't have the time to spend recovering.
As for the nominally egalitarian nature of crypto I would suggest folks look up "gini coefficient", you might be surprised (or not.. the rich do indeed get richer and the smaller and griftier the market the richer they get).