 |
Something doesn’t add up here: MicroStrategy, MSTR, has been known as the most popular “levered” Bitcoin play of the year. Meanwhile, over the last month Bitcoin has gained +2% while MSTR is currently down nearly -50%. What is happening? Let us explain. Here’s a comparison of MSTR vs Bitcoin since November 20th. Bitcoin has traded almost completely flat on a net basis, even after rising as much as +16%. Meanwhile, MSTR is down ~36% and continues to widen the gap between the two assets. Why is this happening? If MSTR is really just a levered #Bitcoin play, why is there such a large divergence. Here’s the S&P 500 ETF, SPY, compared to a triple levered S&P 500 ETF, SPXL. Since November 1st, SPY is up ~3.5% while $PXL is up ~9.8%. This makes sense as it is TRIPLE levered. For most of the year, the correlation between MicroStrategy and Bitcoin was incredibly strong. However, something began to shift over the last month, particularly as the company took on tons of debt. Then, MSTR suggested raising the authorized share count by 10 billion. Through a series of convertible note and debt issuances, MSTR took on TONS of leverage. In fact, they now hold ~$42.3 billion of Bitcoin, or 446,400 coins. Now, to continue buying, the company needs to issue more debt/equity which is where the 10 billion shares come in. Markets appear to be concerned over the potential approval of raising authorized share count by 10 billion. Total share could would rise from 330 million to 10.33 BILLION if it is approved. The problem is, it has left the company in a “lose-lose” situation for now. Why do they need the ability to do this? Because it’s their entire “business model:”
Here’s why it puts them in a “lose-lose.” If the plan is approved, bears will say that this is a highly dilutive move for existing shareholders. However, if it is not approved, then MicroStrategy will be unable to continue buying Bitcoin on leverage. Buying Bitcoin is obviously an integral part of $MSTR’s strategy. So, on one hand, investors will be upset over share count dilution when authorized share count is issued. On the other hand, if the plan is not approved, then MSTR can no longer purchase Bitcoin on debt. This has put both Saylor and shareholders in a difficult situation. In reality, the odds of the share count approval being raised are high. Why so? Because Michael Saylor himself currently holds 46.8% of the voting power. If just ~4% of remaining shareholders approve, then it will pass which is highly likely. Markets are pricing this in. Sum it all up and the double levered MicroStrategy ETF, MSTU, is down ~70% from its high. However, the ETF is up 257% over the last 6 months. Is this the start of a major crash or a buying opportunity? submitted by /u/XGramatik |
Give Biden his due, he has been one of the best presidents of our time
submitted by /u/Burlekchek [link] [comments]