The MSTR thing is super weird, and I agree with Sven that it should be trading at/below parity regardless of how volatile btc is.
Basically you have a choice:
Do you want to buy a bag of bitcoin for X (by just buying bitcoin)?
or
Do you want to buy exactly the same size bag of bitcoin for substantially more than X (by buying MSTR)?
It’s not like Saylor has some super special vehicle that allows him to manufacture or buy bitcoin at bargain prices - he’s just constantly issuing debt and equity and using the proceeds to buy bitcoin at market prices. (To be clear, this is exactly what he should be doing given the premium that MSTR is trading at.)
The obvious trade is to buy bitcoin and short MSTR and wait until the inevitable convergence to parity, but whoooo boy have a bunch of people already gone broke doing that.
i heard via reddit the interest in mstr was bc certain entities/institutions have restrictions on buying btc directly so they get exposure via mstr, have no idea who these entities are or if its even true or not
Yes, I can easily imagine there are circumstances (e.g., mutual funds) where the explicit mandate is that they can buy equities, so they view MSTR as a loophole to get bitcoin exposure through a “normal” stock. But c’mon, the price is ridiculous.
I’m supposed to be working, but this is more interesting, so I’m going to procrastinate by quickly seeing what the current condition is.
As of 2 days ago, MSTR held 386,700 bitcoins. At a current price of ~$92,874, that’s a total value of about $35.9 billion. They purchased those bitcoins at an aggregate $21.9 billion ($56,761/bitcoin). That means they’re sitting on a gain of roughly $14 billion, which at a 21% tax rate would lead to tax bill of about $2.94 billion, and an after-tax value of $32.98 billion. (You could argue that the tax piece is more complicated, because these gains allow them to realize some relatively small amount of otherwise-unlikely-to-be-realized tax benefits, but the dollar amounts are pretty trivial.)
They have roughly 266 million shares outstanding, which gets you to an after-tax value of $124 per share. That is, for every share of MSTR you’re buying, you’re getting $124 worth of bitcoin. But you’re paying $353 per share for that!
What else are you getting when you buy a share? I guess you’re technically getting an operating company. But that operating company sucks - for the first 9 months of 2024, they generated $343 million of total revenue (a decline from last year) and an operating loss of about $53 million (before their impairment charge). And that’s before interest expense - they’ve got several billion dollars of debt outstanding. So I feel pretty comfortable saying their operating company is worth ~$0, and that anyone buying this stock is effectively buying a pot of bitcoin.
I don’t know, it seems pretty hard for me to understand why it’s smart to pay $350 per share to buy ~$124 worth of bitcoin. And I’m confident that the relative gap will converge, but I’m definitely not willing to put my own money at risk on that bet.
Man, I’d happily bet $100 against this (elimination of taxes on crypto gains), but I don’t know how we’d definitively resolve it.
Doesn’t really change anything meaningfully, though. Instead of buying $124 worth of bitcoin for $350 per share, you’re buying $135 worth of (tax free!) bitcoin for $350 per share. Seems bad either way!