Been thinking about Saylor's current position all morning, here's a thread (just musings, not financial advice and may not all be entirely accurate):
For those who haven't been following: a brief rundown on the current situation. Saylor's strategy in recent years has been roughly, Sell equity or equity like debt instruments when stock trades at a premium to mnav, use proceeds to buy bitcoin and mark up current book
As copycats have proliferated, mnavs have dropped across the board and bitcoin has traded extremely heavy, Saylor has started pivoted to debt like instruments STRF STRC STRE STRK STRD less directly tied to equity price to avoid pressuring MSTR price/mnav further.
Of particular note is STRC which is the one most heavily being pushed to retail investors as a stablecoin like yield product. The board sets a rate intended to stabilize the price around $1.
There is reflexivity here, people fear not getting paid --> price goes down --> yield must go up --> financial position gets worse --> people fear not getting paid even more.
But you can also see the attraction for someone eager to restart the flywheel. If you have to sell stock (or worse, BTC) to fund your purchases in full, you will move market down more than if you can print and sell STRC and only sell enough stock/btc for short term interest.
I've previously resisted the LUNA/UST comparisons, but STRC far more resembles it than previous MSTR offerings. When you see shilling that looks like this, it's hard not to get some flashbacks.
Anyways, the way I see it, there are about 3 possible outcomes from here:
A) minimum ponzu
B) deus ex machina
C) maximum ponzu
In scenario A, at some point shortly, Strategy pivots to a lower leverage strategy, doesn't issue much more preferred equity or debt, possibly stops selling shares (or possibly keeps selling even at a discount). They likely will resist selling their BTC for as long as possible.
In effect, this is admitting defeat and more or less accepting MSTR trading a significant discount to mnav for the forseeable future. This means it will be hard to raise by selling more equity without crushing MSTR price terribly.
Worse, the collapse in dreams of a massive premium returning will kill option volume and implied volatility which also makes it harder to sell convertible debt or other embedded call options which was a large part of their capital raising strategy for the last few years.
Needless to say, this would be incredibly painful for MSTR holders and Saylor in particular. So I don't think it is particularly likely to play out this way.
It's worth noting that even if BTC remains on the balance sheet indefinitely, the loss of the massive Saylor bid of the last few years is likely to be felt. And to an extent the market will start to price in an increasing likelihood of some/all of the BTC being sold, i.e. GBTC
In scenario B, we get some sort of a exogenous force acting on BTC price, possibly Fed liquidity or other politics/macro related that bails out Saylor, at least temporarily.
If there is a return to exuberance, Saylor can escape the trap for a while. It seems likely that he would go back to the playbook of the last few years and continue issuing more stocks and convertible debt in order to buy even more BTC at the new higher prices.
This would buy him time certainly, but probably just delays the ultimate outcome of Scenario A or C. The nature of Saylor's inflows make it difficult for him to do anything but Buy High (hence how he is barely above water today despite being "right" so far)
Obviously this is the best outcome for BTC price, at least in the short term. And there's some potential Saylor could be spooked enough to derisk slightly and make the situation more manageable next time.
Scenario C is the scariest. It involves basically a rapid levering up via printing and selling STRC or similar products. Somewhat reminiscent of the massive UST printing spree that occurred starting in October 2021 (The supply increased from 3b in Oct 2022 to nearly 20b shortly before the collapse)
In theory, you may want to try to print just enough to stay alive and avoid Scenario A (and I think this has largely been the strategy so far). But the trouble with this approach is that it takes more and more energy just to keep running in the same place.
To be clear, there is currently "only" 3b of STRC in circulation and 7.7b in total preferred equity (paying roughly 10%). And it's backed by a stronger balance sheet than LUNA's ever was, of course. Regardless there are still potentially very dangerous reflexive mechanics at play
This scenario can be distinguished from Scenario B if we start seeing STRC total outstanding going up rapidly, (possibly) BTC having very strong performance relative to other risk assets, and probably a very strong push to retail investors to invest in STRC as pros head for exit
How would it unwind? Well, they essentially tell us. Right now they have to pay ~$750m in dividends yearly. If they go max ponzu mode, it will be on the order of billions or tens of billions.
Not having to sell stock or BTC now gives them a better chance at avoiding the immediate spiral and getting the flywheel back going for a bit. But eventually the bill will come due.
And the more USD denominated debt they have to pay especially to core retail believers, the more likely BTC eventually gets sold to fund it. Naturally this kind of deleveraging would be especially traumatic to the market
Again, LUNA was different and inextricably linked to UST in a way that BTC obviously isn't to Saylor. But if it plays out anything like Scenario C, we are in for some serious pain (possibly with one more chance to sell 🙏)
Reality will probably end up being somewhere between these 3 scenarios so it may not be nearly as cut and dry. But I hope it's been some useful musings.
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