MSTR -- To get out or not...

[johnarb]

I have no opinion of the short MSTR/long bitcoin trade, but I am in the middle of that recent episode with Preston on MSTR that you link above, and I have to say, I'm a bit uncomfortable with how excited him and his guest are about getting yield and explaining that this is one good way to get yield on bitcoin. They seem to glorify the potential of being able to lend out your bitcoin, and hence never having to sell it, and I just can't help but think how badly this will all turn out one day. Paying yield is really only possible in an inflationary currency, and if you lend out bitcoin, how do you expect anyone to ever pay it back with interest considering that the price of bitcoin will forever go up and supply go down? Maybe I'm missing something here, but if the idea is that MSTR has a ton of bitcoin that they will one day be able to lend out and hence this is why its valued at a multiple of bitcoin, then I am hesitant to jump on board with this idea.

You might want to re-watch the section on the video, Punter Jeff was the person excited about a yield through the use of mstr, heard the use of covered call, but also lending out the shares (to the shorts?)

Also Punter Jeff mentioned if the supplies of bitcoin becomes extremely scarce, i.e. Blackrock and other spot etf's have bought much of the circulating supplies (we're talking years), mstr can be like a bank and lend out bitcoins to provide liquidity, like a prime broker, at perhaps 120% overcollateralized loans

If Celsius actually followed on their advertised parameters, it would not have blown up, but all of the bitcoin (crypto) lenders got trapped into breaking all the rules when shits hit the fan, all brought about by the biggest pairs-trade that blew up everyone, gbtc high premium turned high discount, and none of the lenders followed up on the liquidation, and some of the lenders did not even have collateral due to chasing the yields (Voyager via 3AC)

This is the reason none of the defi bitcoin (crypto) lending platforms blew up, smart contract don't care, it will liquidate, when prices hit and margins got called, which is why SBF was paying the loans on AAVE same with other TradFi players, while they were declaring bankruptcies to not pay their liabilities on the TradFi world

Sorry a lot of useless info, not what you asked, but Punter Jeff was for it, in a hyper-bitcoinized world, for mstr to lend out the bitcoins, but as I said, if you re-watch the video, Preston is against this, not even 10 years from now

 

[newwurldmn]

You might want to re-watch the section on the video, Punter Jeff was the person excited about a yield through the use of mstr, heard the use of covered call, but also lending out the shares (to the shorts?)

Also Punter Jeff mentioned if the supplies of bitcoin becomes extremely scarce, i.e. Blackrock and other spot etf's have bought much of the circulating supplies (we're talking years), mstr can be like a bank and lend out bitcoins to provide liquidity, like a prime broker, at perhaps 120% overcollateralized loans

If Celsius actually followed on their advertised parameters, it would not have blown up, but all of the bitcoin (crypto) lenders got trapped into breaking all the rules when shits hit the fan, all brought about by the biggest pairs-trade that blew up everyone, gbtc high premium turned high discount, and none of the lenders followed up on the liquidation, and some of the lenders did not even have collateral due to chasing the yields (Voyager via 3AC)

This is the reason none of the defi bitcoin (crypto) lending platforms blew up, smart contract don't care, it will liquidate, when prices hit and margins got called, which is why SBF was paying the loans on AAVE same with other TradFi players, while they were declaring bankruptcies to not pay their liabilities on the TradFi world

Sorry a lot of useless info, not what you asked, but Punter Jeff was for it, in a hyper-bitcoinized world, for mstr to lend out the bitcoins, but as I said, if you re-watch the video, Preston is against this, not even 10 years from now

if that happens where MSTR is the primary “bank” of bitcoin, you have recreated TradFi but with all the worst qualities and none of the good qualities.

 

[NoahA]

You might want to re-watch the section on the video, Punter Jeff was the person excited about a yield through the use of mstr, heard the use of covered call, but also lending out the shares (to the shorts?)

Also Punter Jeff mentioned if the supplies of bitcoin becomes extremely scarce, i.e. Blackrock and other spot etf's have bought much of the circulating supplies (we're talking years), mstr can be like a bank and lend out bitcoins to provide liquidity, like a prime broker, at perhaps 120% overcollateralized loans

If Celsius actually followed on their advertised parameters, it would not have blown up, but all of the bitcoin (crypto) lenders got trapped into breaking all the rules when shits hit the fan, all brought about by the biggest pairs-trade that blew up everyone, gbtc high premium turned high discount, and none of the lenders followed up on the liquidation, and some of the lenders did not even have collateral due to chasing the yields (Voyager via 3AC)

This is the reason none of the defi bitcoin (crypto) lending platforms blew up, smart contract don't care, it will liquidate, when prices hit and margins got called, which is why SBF was paying the loans on AAVE same with other TradFi players, while they were declaring bankruptcies to not pay their liabilities on the TradFi world

Sorry a lot of useless info, not what you asked, but Punter Jeff was for it, in a hyper-bitcoinized world, for mstr to lend out the bitcoins, but as I said, if you re-watch the video, Preston is against this, not even 10 years from now

I will absolutely watch again and report back if a light-bulb clicks. I honestly do consider myself quite smart, but all of this options stuff doesn't come nearly as intuitive to me as other trading or macro concepts.

 

[NoahA]

@NoahA

Illiquidity cuts both ways; it isn’t inherently valuable, and actually markets usually discount the price of a collectively illiquid position slightly. For example a $10mm single family rental portfolio sold all at once will go for slightly less than the sum of its components, thus implying a higher yield.

Trade some nanocap stocks as an experiment if you want to understand this more clearly. Very easy to build a position showing positive unrealized PnL but much harder to close out the whole position and retain it. You need exit liquidity. Which coincidentally exists for MSTR in the form of retail rhetoric cheering them on and pouring more $$ into the NAV premium as the company itself sells deltas and fades it.

If real value was being added then actual yield on assets, or even BTC/share would have been going up over the past years. There’s usually always some emotionally compelling yet fundamentally unsound ideas accompanying a new hype, and I don’t have much confidence they can be dispelled until the hype is over. Better to come back to this in a year or two and review with more levels heads when we see whether MSTR did or didn’t reach $20,000/share.

Thank-you for trying, but nothing stuck... LOL... Is the entire trade about liquidity? I thought there was a more fundamental reason for this.

As an example, when GBTC was selling at a discount to the amount of BTC their own, it made sense because people either wanted to get out of the trade, so they were willing to sell for a slight loss vs. waiting to get the price it should be based in bitcoin holdings. And there was also the chance, if I recall properly, that GBTC maybe didn't have all the bitcoin. This was at a time when everyone was blowing up, so it made sense to question bitcoin holdings.

So I understood that dynamic, but I still don't understand the 2x MSTR premium, except for how John mentioned lending out bitcoin to the shorts. To me though, if you're truly lending, and hence giving up private keys with simply an IOU, its incredibly dangerous.

I think Lynn Alden said it best that the reason bitcoin doesn't have yield is because it doesn't need it. Its designed to appreciate forever. Fiat needs yield because holding it is a guaranteed loss. But I will for sure listen to the key parts in the podcast again.

 

[NoahA]

And here’s the catch-22. If mstr’s 200k bitcoin did allow it to corner the market then bitcoin as a currency has failed.

I think about this part quite a bit. Bitcoin needs to be constantly moving and available if it is to reach its full potential.

But I think there is no problem here. Every owner has a price at which point it is attractive to them to sell. We just need to reach that equilibrium point. The people holding now have taken on the risk and deserve the reward, even if it means another 100x from here. Even though MSTR has accumulated so many coins, its actually hugely diversified amongst the shareholders. Same thing for the ETFs. I didn't have any bitcoin before 2021, and now I have a substantial position as a little shrimp. So even though I'm late to the game, I have added to the expanding reach of bitcoin.

Your phrase of cornering the market makes me think of the Hunt Brothers and silver. If they truly did corner the market, and if silver was accepted as a monetary tool, and any games used to manipulate the price were broken, then perhaps we wouldn't even have needed bitcoin. But the rules were changed, and their scheme fell apart.

With bitcoin, when we get to the point where it seems like the market is cornered, where little supply is available, there will be two choices. Either there will be a massive crash where everyone leaves because they are mad they can't get a piece of bitcoin for a price they like, or the very late comers realize that they need to own a piece at any price and are willing to pay up. Those of us that are holding will happily provide the supply and then we can do whatever we want with "fuck-you" money.

The reason why I think it will be option number 2 is because everyone will realize that the truth of bitcoin will be worth paying up for. Absent some volatility spikes, which people will learn to accept, trust in the government will be seen as the worst possible choice. Trusting the currencies of other countries will be just as bad. Maybe there will be a bit of a move to go back to gold, but then everyone starts wondering how much there really is and who has it, so nobody will go back to playing this game when a digital ledger will be proven to be superior.

So I guess my point is that the last person will submit. Nobody will want to pay $10m for 1 bitcoin, but what will be an even worse proposition will be to continue the fiat system. Medicare and social security will have perhaps collapsed by then (I think they both only have 10 years left), so there is no way the dollar will be anything more than just a method of exchange vehicle. I'm sure by then the US government will also be heavily accumulating. (there is literally no plan for cutting deficits, or reducing the debt, or fixing the gross under funding of the social programs, so everyone is just waiting for the collapse, and there is no plan..... except bitcoin!)

For me, bitcoin goes all the way or dies. There literally is no in-between. The only in-between right now is the equity market, gold and real estate. RE is quickly losing ground if you ask me. Sure prices are still up, but maintenance fees and property taxes and insurance and delinquent renters are all showing the fragility of RE as a store of wealth vehicle. Gold hasn't moved for a decade, and is incompatible with the digital future. And equities will crash given the deteriorating conditions in the US. Of course some stocks will continue to shine, but in general, I do think we need a major market crash. The boomers are dying and the kids want to spend that money. So I think there will be major outflows eventually.

 

[johnarb]

I will absolutely watch again and report back if a light-bulb clicks. I honestly do consider myself quite smart, but all of this options stuff doesn't come nearly as intuitive to me as other trading or macro concepts.

You and me both! At times something clicks inside my brain I'm able to understand a little bit (not deep, heck no), I used to read many of the options discussions many years ago, atticus, riskarb, Maverick74...

I'm reminded of the prayer "Grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference" wrt options

So I understood that dynamic, but I still don't understand the 2x MSTR premium

2x premium mstr marketcap ($30B) vs bitcoin treasury holdings ($15B)... even higher premium when taking into account the mstr liabilities

if that happens where MSTR is the primary “bank” of bitcoin, you have recreated TradFi but with all the worst qualities and none of the good qualities.

I disagree, but point is moot, since the idea is from someone who's not an mstr employee nor insider

If real value was being added then actual yield on assets, or even BTC/share would have been going up over the past years. There’s usually always some emotionally compelling yet fundamentally unsound ideas accompanying a new hype, and I don’t have much confidence they can be dispelled until the hype is over. Better to come back to this in a year or two and review with more levels heads when we see whether MSTR did or didn’t reach $20,000/share.

Unfair

mstr went from a small cap mature company with no growth with a $500M cash treasury to a company with $15B worth of treasury assets

A company that can command terms on debt no other public company can, not even the US govt, 85bips, and still get oversubscribed twice in the last 3-6 weeks

but the most unfair of all is the very high bar you set for mstr.. really $20,000/share within 2 years or mstr is a failure and the hyped up investors have lost out?

Why the deadline (it can reach $20,000 split-adjusted, but maybe take 5 years or longer)?

What if mstr only reaches $8,000/share after 2 years, is it such a big disappointment as there are many other stocks that would easily go up 400% in the next 2 years?


image below credit to @louishliu on Twitter

And here’s the catch-22. If mstr’s 200k bitcoin did allow it to corner the market then bitcoin as a currency has failed.

Bitcoin is not a currency, it's a store of value asset

something that is a much bigger market, risk-free assets (world) government debt have been put on notice, with what happened in the past 3 years, causing chaos in the UK when interest rates went up and pension funds went bankrupt (GILT's crash), something the US banks are grappling with and saved by the BTFD as their risk-free collateral US treasuries have turned toxic assets

Anyway, I can buy a lot more goods and services with bitcoin versus gold that has not been used as a currency in hundreds of years, but it doesn't stop gold from being bought by central banks and others as a store of value

 

[themickey]

Those of us that are holding will happily provide the supply and then we can do whatever we want with "fuck-you" money.

.....we can do whatever we want for 5 minutes with fiat "fuck-you" fucked money.

 

[NoahA]

Sorry a lot of useless info, not what you asked, but Punter Jeff was for it, in a hyper-bitcoinized world, for mstr to lend out the bitcoins, but as I said, if you re-watch the video, Preston is against this, not even 10 years from now

So I just finished it, and its funny that in the last 10 minutes, the feel of the episode changed. I see now how Preston really didn't want to spend too much time on outrageous scenarios. I understand now the liquidity issue because Jeff estimates the liquid supply of tradeable MSTR shares at 17 million while GME had 70 million. So his entire thesis rests on a trade with a huge multiple and very low liquidity. Its almost sad that he is just waiting for a big payout based on a one time event.

I am constantly thinking about this next cycle. On the one hand, I could see how we get a huge rise, but not the crash. I think its somewhat possible to reach hyperbitcoinization in this cycle given how pathetic the macro environment works. I just don't know if there is the ability to deflate and re-inflate this thing one more time. I know Arthur Hayes predicts a massive bull run and then the mother of all crashes, so who am I to go against the views of a veteran, but I truly believe that if its the mother of all crashes, and given the amount of knowledge out there now, people will run towards that life raft during the crash. This then makes everyone run towards bitcoin and not fiat. And if the bitcoin price isn't dropping fast enough, then maybe the OG's and whales think twice about selling. We are all trying to avoid another 80% drawdown, but the last thing we want is to be underexposed for the omega candle. But if the whales don't sell, there will be very little supply. So I think an entire system crash can be the catalyst for explosive bitcoin growth.

 

[johnarb]

So I just finished it, and its funny that in the last 10 minutes, the feel of the episode changed. I see now how Preston really didn't want to spend too much time on outrageous scenarios. I understand now the liquidity issue because Jeff estimates the liquid supply of tradeable MSTR shares at 17 million while GME had 70 million. So his entire thesis rests on a trade with a huge multiple and very low liquidity. Its almost sad that he is just waiting for a big payout based on a one time event.

I am constantly thinking about this next cycle. On the one hand, I could see how we get a huge rise, but not the crash. I think its somewhat possible to reach hyperbitcoinization in this cycle given how pathetic the macro environment works. I just don't know if there is the ability to deflate and re-inflate this thing one more time. I know Arthur Hayes predicts a massive bull run and then the mother of all crashes, so who am I to go against the views of a veteran, but I truly believe that if its the mother of all crashes, and given the amount of knowledge out there now, people will run towards that life raft during the crash. This then makes everyone run towards bitcoin and not fiat. And if the bitcoin price isn't dropping fast enough, then maybe the OG's and whales think twice about selling. We are all trying to avoid another 80% drawdown, but the last thing we want is to be underexposed for the omega candle. But if the whales don't sell, there will be very little supply. So I think an entire system crash can be the catalyst for explosive bitcoin growth.

Yea, I'm afraid he's more interested in mstr going up a lot, even if going against Bitcoin ideologies, on one of the Twitter threads, he snapped at someone wanting to cash out the big profits amassed on mstr to buy bitcoins

mstr and bitcoins are not a competition, a lot of bitcoiners have a small side bet on mstr, granted for me and others it has blown up in a good way, but anyway, bitcoin first and always the best

As far as the crashes, if it happens this cycle, just make sure you cash out enough fiat, but always think of bitcoins as long term forever hold,

 

[llIHeroic]

The problem I have with the call spread is that the alpha leg is MSTR. It will sell off 50percent before bitcoin rallies 100.

You're right, short call spread pnl will disappoint a little if/when a snap repricing occurs, unless there's enough time until that occurs to rack up some decent premium. I can't tell whether vol is too high or not, and whether a shock repricing of the premium to median levels will happen sooner or later.

I was close to just buying puts a few months out instead of call spread. I initially thought it might snap back shortly after the news that fund got forced out of the trade, and that turned out not to be the case so I am more wary of it's resilience now. After this chat maybe I will buy a few puts as well and get closer to a risk reversal hedged with long BTC. I do like the fixed risk structuring because of margin and also because I have time to think if a trade goes awry.