Topic: MicroStrategy Buys $250M in Bitcoin, Calling the Crypto ‘Superior to Cash’ - page 35. (Read 14591 times)

Yes.  Of course, you are amazing.  Humble, too.   



Oh wow.  Learn something new everyday.  It is only possible to hedge an asset by choosing/using a less volatile asset.  That makes a lot of sense.



It is unknowable and nearly irrelevant.

One thing that is almost guaranteed with bitcoin is that it is going to be volatile for a considerable amount of time.  You could almost bank on bitcoin being volatile, rather than it not being volatile.



What a lame theory.  But hey, peeps have rights to their theories and they can strategize and allocate their finances in accordance with their theories, and see how it plays out.

By the way, sometimes someone might have a lame theory regarding why bitcoin is not a good investment asset (opinions vary of course), and then if that someone decides to NOT invest in bitcoin because of such lame theory, that would be worse than just reducing their allocation.  So, frequently we talk about getting off zero, when it comes to bitcoin, and personally I suggest that beginners consider a 1% to 10% allocation, and then as they are investing and working towards reaching their BTC investment allocation target they can study their own personal financial and psychological circumstances as well as studying bitcoin and thereafter tweak their BTC allocation in accordance with what they learn or begin to believe about bitcoin as an investment.. .accordingly, concerns about volatility would be a reason to reduce allocation towards bitcoin, gravitating more towards the lower end of the 1% to 10% allocation or perhaps taking certain kinds of trading actions rather than justifications to go to zero in their BTC allocation.... 

Right, it would be interesting to know if MSTR was not able to gin up interest in the bonds with convertible securities or if they didn't want to offer convertible notes of their own choosing.  It the former, it further illustrates that debt investors are weary of MSTR's reliance on bitcoin and just want their guaranteed interest payments.



He pontificates in every post and his posts are usually idiotic, so I don't respond to him anymore because I've learned it's a waste of time.

In response to your post, my point was that bitcoin's value as a "long term hedge" is undefinable because bitcoin has an extremely limited operating history and therefore a "long term track record" has never been established because it hasn't been around long enough to have one.  What we do know unequivocally is that bitcoin's volatility is many magnitudes greater than the dollar's and that makes it a poor hedge.  You can't hedge the volatility of an asset by moving into an asset with higher volatility, that defeats the purpose of the hedge.  If you want to argue that eventually bitoin will prove to be less volatile than the dollar, fine, but I'm not interested in that speculation because it's unknowable. So like I originally said, bitcoin won't be an effective hedge until the dollar's volatility is greater than bitcoin's, which would likely not be until the dollar experiences hyperinflation.

Of course, attempting to analyze any financial instrument is going to differ in terms of from which point of view it is being looked at.  The company is surely in the cat's bird seat in terms of designing various kinds of financial instruments, and of course, if the company ends up miscalculating the terms then they could undermine their own position in regards to the "generosity" level of the financial instrument that they ended up offering.


I personally believe that jaysabi chose to take my post personally in order to avoid responding to the substance of it and my assertion of how ridiculous his position is.  Accordingly, does anyone really believe that a hedge has to be inversely correlated in order to serve as a hedge (whether she are referring to long term or not), and of course, if we are assessing a "hedge" utility matter in terms of selectively choosing some self-serving period in order to make some kind of nonsense claim that bitcoin is not a good hedge because its price went down, then seems that we are living in a fantasy land rather than either attempting to assess what is actually going on or to even attempt to account for actual considerations that institutions or individuals might be making when the choose to allocate some portion of their overall investment portfoloio to bitcoin (whether we are referring to some kind of modest hedge amount, such as 1%-10% that I recommend for beginners) or some kind of more aggressive approach, like Saylor/MSTR .. holy shit does not seem very prudent to be allocating so much proportion of an investment portfolio to bitcoin, and then he further double/triples down in terms of using a variety of debt instruments. 

So, sure maybe Saylor/MSTR graduated from hedging to speculative betting, but that seems to be a matter of degree to me rather than a matter of kind.  In that regard, each individual or institution should be in a position to assess the totality of their own circumstances to attempt to figure out how much they want to allocate towards bitcoin in comparison to other assets and investments that they have and then if they want to attempt to use debt to bolster their BTC investment position, then surely they are UPping the level of their game - and maybe their hedging might graduate into speculation, but we can still consider what they are doing as a form of hedging.. whether BTC is a relatively small percentage of their holdings or becomes a very large portion of their holdings - which also sometimes could end up happening due to oversized BTC price appreciation rather than taking an initially large allocation into bitcoin...

Maybe we end up devolving into semantical arguments at some point when we try to figure out how much is being allocated into bitcoin in contrast to other assets and investments, and of course choices are also made in terms of whether to go harder (higher) in terms of initial investment sizes and whether to let winners ride (in terms of considering whether reallocation from time to time is a prudent practice - and also in terms of what might have started out as a hedge investment graduates into a vast majority of the HODLings of the individual or the institution.

I appreciate that now I am making quite a bit of a different point from jaysabi's assessment that if some asset is moving down in the short term that it cannot serve as a hedge because it is NOT providing any value security or whatever other nonsense assertion that he was making that seemed to get caught up in short-term assessments rather than appreciating some kinds of real dynamics that may well end up continue to happen in bitcoin.. even considering some kind of short term such as between September 2020 and April 2021 in which we end up experiencing a 6.5x price appreciation (from $10k to $65k) in our potentially hedging asset (I.e bitcoin) and even with the 53% correction, we still have a price appreciation that is bouncing in the 3.75x arena (current with our BTC price of $37,500 as I type this post), and to me it seemed that jaysabi wanted to focus (or would we call it whine?) about a recent 53% price correction rather than accepting actual facts on the ground that should not be so difficult to recognize or to appreciate... and such facts become even more apparent if we zoom out 8-9 years when bitcoin began to establish its price.

And, so yeah, seeming to be in an ongoing exponential s-curve in regards to BTC price and adoption does also skew some bitcoin price discovery in a quite UPpity direction and even the appreciation of the strong BTC "fundamentals" dynamics can allow for ongoing appreciation that bitcoin remains a great hedge in regards to almost any other asset class - even if BTC seems to be unfairly advantaged in terms of quite decent likelihoods of still going through relatively early stages of exponential s-curve adoption.


I believe that I am trying to talk about substance and I give little shits about personalities.. but I do believe that sometimes strong language might be necessary to attempt to make certain substantive points - and maybe sometimes the strong language gets in the way of attempting to resolve differing perspectives, and it seems that some peeps get emotional and believe that something personal is going on when it is not.

Surely, you have the right to label my framework attempts as "maximalism" hostility or non-endearing, yet I consider my approach as attempting to call a spade a spade rather than any kind of attempt to frame my ideas based on getting attached to any hoped-for one outcome versus another. If my ideas about hedging are off or incorrect, then I am open to hearing about that.  I still stand by the positions that I had already attempted to make in regards to what appears to be jaysabi's inadequate and inferior ways of attempting to consider hedging, and sure if I misunderstood what I considered to be largely lame-ass points, then please let me know what that misunderstanding might have been.  I have no attachment to having to be correct, even if I may well not apologize if I ended up taking a tone that was considered to be too strong by some members who might have thought that a more delicate approach might have been more appropriate.

Surely, we can differ in our assessments regarding where we believe BTC related investment dynamics might be going whether we are referring to the investment motivations of institutions, individuals or governments might be going, and some of our beliefs of where we are at might also affect our ways of attempting to frame or understand current dynamics - whether we are referring to price direction or the motivations of individual, institutional or even countries.

No need to be surprised as the two offerings seem to be different from the announcement. Those earlier ones were "Convertible senior notes". Buyers are eligible to convert them to MSTR stocks. (with some complicated terms that I did not try to understand). These present ones are "Senior Secured Notes". The interest is their selling point.

You probably are refusing to address JJGs post because the communication got personal. 

Talking about the "Hedge", it is all good to take the academic definition in account like you said. Still, Bitcoin's long term hedge against "inflation" or "dollar" can't just be based on contemporary understanding of economics. When countries and companies start adopting, it also becomes about not being left behind. This has been one of the fundamental strengths of Bitcoin that if one group wants to regulate or ban it, there maybe another group more interested in benefiting from it. We are at that inflexion point where IMF and BIS are actually taking cryptocurrencies into view.

Now if the small MERCOSUR countries, island nations like Tonga choose to differ, who is to say that the decentralized future won't continue to be promising. If it remains promising, then Bitcoin is your hedge. If you feel that it doesn't stand any chance against centralized policy, well then why are we even discussing this.

That, I believe, is the line of thought JJG is trying to push through, though in that typical non-endearing way that maximalists have. So, lets chill out and not let personal differences cloud over the end goal of a larger, well-functioning Bitcoin economy.

Yeah, I didn't address your post because there was nothing in there worth responding to.



Regulation S is an offering to sell securities to foreign investors, and a Rule 144A offering is to domestic investors, so you're right that they're offering a total of $500m split between offerings targeting two different investor bases.  Not sure what you mean about  segregating domestic investors from "unregulated, suspicious traders on smaller bets."

What's most interesting to me is that they need to offer more than 6% interest on these debt instruments to entice investors into buying, whereas the earlier offerings were extremely low or no interest instruments.  This indicates to me that Microstrategy has to offer the higher interest rates because the risk of the bonds is increasing in the eyes of investors.  Very interesting change to the earlier offerings.  Also interesting that they have to target foreign investors for the debt now, suggesting they can't find enough domestic support for the bonds to raise as much as they want.

Oh my jaysabi.  I don't want to be patronizing, but you are nearly asking for it.

My post, right below your above-referenced The Pharmacist post largely responds to the concerns raised by The Pharmacist and also you jaysabi, seem to be reiterating The Pharmacists points without even attempting to account for the ideas contained my response.

I surely am not claiming to be any kind of genius on the topic, and also it could be that I have not made my points very well, but it still seems that you should attempt to account for the points of my post before just ill-informedly reiterating and even almost amplifying a kind of dumb that suggests that a hedge (such as bitcoin) has to be completely oppositely correlated (to the dollar in this case)  - even on a short-term basis, in order to serve as a hedge. 

By the way, this post is not meant as a personal attack, even though i use strong language.. I am talking about the ideas contained in your post, not you specifically.

No, not even close.


No, this would be my argument too. The value as a hedge is directly inversely proportional to the volatility. At the point the volatility drops the asset below your cost basis in USD terms, you can no longer argue it's an effective hedge because it hasn't protected the value.  It could be that bitcoin hasn't had a long enough track record to establish itself, but currently nothing in its history suggests to me it's ever going to be stable enough to be a hedge to the dollar unless the dollar starts experiencing hyperinflation.

I am not an accountant,  but I am pretty sure as Macrostrategy is legal entity fully owned by Microstrategy it it possible to “consolidate” their asset in the parent company. Hence the value of bitcoins could be easily transferred to the parent company to service the debt.

We were having similar discussions on the viability of these investments and what Michael Saylor is doing. @Stompix and @Tytanowy Janusz, you should be here..LOL..
It started off with TJs post on investors sentiment toward Microstrategy. We are getting to the conclusion that:
It is interesting that with this 3rd offering, the interest rate being offered is pretty high for a planned raise of 488 Million USD. And those will be backed by Microstrategy and its assets, which will not include the 92K BTC held by Macrostrategy. What i am wondering is that whether Saylor can use the returns from Macrostrategy to service the debt of Microstrategy??

Thanks for this excellent thread fillippone. It'll be interesting to see what Michael declares on the 14th when this latest offering closes.

Monady the last bond of Microstrategy will be issued.
Microstrategy will collect the money and will start buying the coins.

When will they announce the end of the buying?

Well, let's look at the past.



On the first debt issue, they bought 65 mios daily and announced the end of the buys 10 days after the value date.
With the second issue, they were so much more efficient, and snapped 210 million daily and announced the results after 5 days, even if the issued amount was so much bigger.

This time I expect them to be at least as efficient as they were lat time: so I expect them to complete the buys in a couple of days, with announcements made public late Tuesday Wednesday.

From my Spreadsheet, we have an idea of that:



At the moment MSTR is roughly 86% Bitcoin.

This is way too much for an industrial company, and way too little for an ETF-like firm.

I am still rooting for them, of course, but they are far from perfect as an investment vehicle.

Because buying their stock isn't a pure play on bitcoin (like simply buying bitcoin would be).  They're a corporation that does other things; they just happened to purchase a ton of bitcoin in addition to everything else they do.  Remember, MSTR had investors well before they ever got involved with crypto.

And just for everyone's information, MSTR's 6-month stock price chart looks like this:



The stock had been growing pretty steadily up until February of this year, right up until that peak you can see.  After that it's been steadily declining.  I'm not sure how much of that has to do with their bitcoin dabblings and how much is due to their core business.  I'm still rooting for them, though.

Yes, but don't forget that is a bond issued by Microstrategy, a semi-dead company (before Bitcoin).
6% Yield is the reward for taking the risk of Microstrategy not defaulting before the maturity of the bond.

I think it's the 6% interest or yield. Where else can one get that without investing directly into bitcoin or other cryptocurrencies? (or indirectly through apps ...)

Many investors simply cannot get long BTC. Either or their investment mandate don’t allow that, or they have technological, legal, or reputational issue. So they resort buying highly BTC correlated assets, like those bonds.
This is by far from ideal, but until Bitcoin is better integrated in the financial system, it remains the only options.
 

Now, I dont think why investors buy MSTR bonds. I'm just really confused, what is the strategy behind MSTR's finance decision. First, I guess that BTC can store the value so this will give many advantages for them if they buy BTC with their own cash. But, now this really suprised me that they buy BTC with their debt. This is too risky, and regarding Michael's statement that they will keep BTC for long term and will not sell them ? Now, how they can earn profit to pay the coupon without sell option in their speculation.

Exactly: if you see I was astute enough to link those two instruments to two particular buys, as they used the proceeds of the bond sale, net to a few hundreds basis points (a few %age points in value), to buy bitcoins.


Well, honestly that puzzled me a bit. The reality is that the SAME 500 million DOLLARS will be split into two issues, the same issue will be traded with to different ISIN codes, and then different prices and yields. This has been done to segment domestic investors from unregulated, suspicious traders on smaller bets.
This means that the first two rows are actually only one, and the proceeds amount coming from these sales cannot be summed.

I don't claim to understand much of that seeming mumbo jumbo on the chart, but it does trigger me into asking a couple of questions.

first is to clarify that the first two debt instruments caused MSTR to receive $650million and $1.05 billion respectively?

and

second, is MSTR issuing two additional debt instruments for $500 million each on June 14?  I had thought that they were issuing only one, but from your chart it appears that they are going to get double the amount of dollars  (and therefore double the amount of bitcoin) than I had previously thought that they were going to be getting.

Finally I delivered:




Here you have the list of every MSTRT Bond, linked by to the relative BTC buy.

Some interesting mumbling for this table.
But I tend to exclude this pump is MSTR buying, for at least two reasons:

• They are becoming efficient at buying smoothly, without moving the market
• Even tough time between debt issuing and buys is shrinking, they still haven't even got a single dollar from investors. So definitely premature.

I agree with you, my other thought is why they buy bonds issued by MTSR because they want to invest in the crypto world but have minimal risk, this is the best step.  Provide debt to MTSR by buying bonds which will later be used to buy other BTC.  The risk of default is minimal but they still receive coupons for granting their debts.  I see the real form of the issue that has been developed in the forum.  Whether investing with BTC using debt is an interesting thing and here is the answer.  Buyers of MTSR bonds are whales who are a little afraid of risk, so the choice of instrument is MTSR bonds.  The risk of default is minimal, coupons are still accepted according to maturity.  And the big risk will be borne by MTSR who dares to invest that much in BTC.