Bond holder chooses repayment. They either convert the bond to stock or to cash. If the stock goes up they'll take stock in repayment. If the stock goes down they will demand cash payment and MSTR will either need to have cash on hand or sell BTC to fund the repayment.


You give me $100. I give you a convertible bond that matures in 5 years. My stock is $5/share. It gives you the option to convert to 20 shares of stock. I buy BTC with the $100. If BTC goes up, my stock goes up, it's now valued at $10/share 5 years later. You convert the bond, get 20 shares, turn $100 into $200.

BTC goes down 50%, my stock goes down to $3/share (20 shares = $60 = less than you loaned me), you choose the cash repayment. I only have $50 cash and $50 equivalent BTC. I have to liquidate the BTC to raise funds to pay back the $100 I owe you.

Thank you

tysker said:

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Signel said:

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Still cracks me up that there are folks on here that are staunchly against BTC. I'll never forget telling my financial advisor to buy all of it he could with my cash back around 2019... He failed me. This was before the SEC said ok to the ETFs and Trump said he was going to buy a bunch as a strategic reserve, mind you.

I'm sure in 5 more years there will still be doubters on here.

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I doubt there was a way for your financial advisor to purchase BTC on your behalf back in 2019

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We were discussing Bitcoin Futures on CME that day. I was pushing them to eventually get BITO/Grayscale and other eventual ETFs because I knew they were in the works. They are friends and I was trying to show them the way.

I was worried that the federal regulations companies weren't going to get involved. We had proof that they were actively going after (or mistreating) Brian Armstrong, the Coinbase CEO. He was always complaining that all he wanted was an answer as to what crypto IS in their eyes.

However, I knew that all the rich folks in this country wanted an alternative asset class. They wanted market volatility in light of the economic pooshow in the country. Once that hit, I knew it was never going away. Once the SEC said yes, it was on.

But Bitcoin is a supply constrained asset class =). There are only 21 million total with around 19m mined so far.

You can't inflate it like the dollar on a 2% target per year like our Fed wants to be at....

Can Saylor force a conversion into shares?

Signel said:

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But Bitcoin is a supply constrained asset class =). There are only 21 million total with around 19m mined so far.

You can't inflate it like the dollar on a 2% target per year like our Fed wants to be at....

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It still participates in market sentiment. And for those that believe in the cycles, you have to also believe that it will have another 60-80% 1-2 year drawdown once this cycle completes.

Oh, there will be drawdown and cycles. That is what everyone wants.

Signel said:

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Oh, there will be drawdown and cycles. That is what everyone wants.

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The amount of insane bullish posts I see on twitter reminds me that this time is no different than the rest. And many many people are levered to a point that it would crush them should a drawdown of such magnitude occur. In fact, the entire financial system of the world is rising to leverage levels that are unsustainable and will end in catastrophe, if not full financial meltdown. So I'm not sure it's what everyone wants. It's what the smart people want. The dumbs are going to get crushed again.

This cycle has played out very predictable just like previous cycles. My favorite chart to look at is the btc to gold. For me it makes a clear picture through the fog of inflation where we are at exactly. And we when you see that chart this cycle is repeating to a T like the previous cycles.

So ya there's going to be a down cycle too. The question is how high do we go and how low do we go. 100k could be the bottom of the next bear

Heineken-Ashi said:

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Signel said:

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But Bitcoin is a supply constrained asset class =). There are only 21 million total with around 19m mined so far.

You can't inflate it like the dollar on a 2% target per year like our Fed wants to be at....

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It still participates in market sentiment. And for those that believe in the cycles, you have to also believe that it will have another 60-80% 1-2 year drawdown once this cycle completes.

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I agree. But a 5 year bond from today would have been purchased when MSTR was paying what, $7,000 a bitcoin? Even if you were worried about a bond purchased at Bitcoin's peak $69k last cycle you are talking about a bond that wouldn't expire until April of 2025. The vast majority of those bonds are purchased well below that cost, and most people will still make significant money on them, and might even buy another round once they are paid off. I'm sure eventually there will be a few bag holders who bought at the worst possible time, but do those few cause the the entire company to die? It just seems like a FUD doomsday scenario that's really not grounded in reality, like arguing banks are dangerous because one day everyone might get tired of the dollar devaluing and pull out to invest in gold, causing a run that creates a mass failure event.

Some of them are seven year bonds too.

The one that makes me nervous is he's proposed a fixed income security of 7%. That's the one to me that could get him sideways.

Signel said:

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tysker said:

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Signel said:

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Still cracks me up that there are folks on here that are staunchly against BTC. I'll never forget telling my financial advisor to buy all of it he could with my cash back around 2019... He failed me. This was before the SEC said ok to the ETFs and Trump said he was going to buy a bunch as a strategic reserve, mind you.

I'm sure in 5 more years there will still be doubters on here.

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I doubt there was a way for your financial advisor to purchase BTC on your behalf back in 2019

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We were discussing Bitcoin Futures on CME that day. I was pushing them to eventually get BITO/Grayscale and other eventual ETFs because I knew they were in the works. They are friends and I was trying to show them the way.

I was worried that the federal regulations companies weren't going to get involved. We had proof that they were actively going after (or mistreating) Brian Armstrong, the Coinbase CEO. He was always complaining that all he wanted was an answer as to what crypto IS in their eyes.

However, I knew that all the rich folks in this country wanted an alternative asset class. They wanted market volatility in light of the economic pooshow in the country. Once that hit, I knew it was never going away. Once the SEC said yes, it was on.

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Did you remind your broker friend that BTC futures and BTC ETFs are securitized versions of BTC and not actual BTC? The only reason a broker would offer those products is to make markups and commissions on BTC derivative vehicles?

Signel said:

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But Bitcoin is a supply constrained asset class =). There are only 21 million total with around 19m mined so far.

You can't inflate it like the dollar on a 2% target per year like our Fed wants to be at....

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If you can't inflate it, then where does the growth come from?

Yukon Cornelius said:

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Can Saylor force a conversion into shares?

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The converts can be called into cash or equity.

https://www.ft.com/content/738546c5-a3f8-4d2a-ad49-ec1627dea1f7

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Convertible bonds are the capital market equivalent of a mullet serious business in the front (debt), party in the back (equity). They start life as plain old debt but come with a kicker: the option to convert into shares at a pre-determined price. For bondholders, this means downside protection (ie. you're supposed to get more money back) with upside potential. For companies, the embedded call option allows them to borrow at lower interest rates, as it sweetens the deal for investors.

In this case, MicroStrategy has essentially created a financial instrument that's part loan, part lottery ticket. How could it raise $3bn at a zero-per cent coupon and a conversion price of $672.40 per share when the stock was trading at $433? The answer lies in the stock's explosive volatility, driven by and magnified through its bitcoin holdings. This volatility significantly enhances the value of the embedded call option in the bond, which, in turn, offsets the cost of the bond itself. As a result, the company is able to borrow at rates far below those of conventional debt.

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eta: here is the discussion/scenario when MSTR would need to sell BTC

Quote:

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Another looming risk is that MicroStrategy's five previous convertible bonds now deeply in the money, with conversion prices between $143.25 and $232.72 might ultimately not convert if bitcoin's price (and, by extension, MicroStrategy's stock price) plummets. What happens then? How would MicroStrategy manage up to $6.2bn in bond repayments if the tide turns and the principal on the bonds comes due at maturity?
....
The company's options would be stark. Its lossmaking software business generates no cash, and its treasure chest of 402,100 bitcoins, currently valued at $39bn, would offer little solace. Selling bitcoin to raise cash would likely be a last resort, but by then, the price of bitcoin would presumably have dropped significantly, exacerbated by the impact of any sales themselves. While convertible bondholders hold a senior claim to these bitcoin assets over stockholders in the event of bankruptcy, the actual "coverage" may prove far thinner than it appears.

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Yukon Cornelius said:

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As I understand it Saylor can force the bonds to be converted to shares not having to come up with any cash or am I wrong?

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Yes, you are wrong. Saylor can't issue shares at a convertible price higher than where MSTR is trading at maturity, or "force a conversion to shares". That's like exercising an OTM call. That option in the bond becomes worthless and bond holders are then obligated to get their cash back instead. (see hph example again, then again, til you understand)

Yukon Cornelius said:

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I am reading yours. You reading mine? I said 10k not 10%

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If you think a 10% and 10k drop are different things for $100k BTC, you may continue to struggle to understand Saylors convertible bonds.

Yukon Cornelius said:

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Btcers on one end say there is zero risk to Saylors strategy. On the other end you have jaded bitter no coiners saying Saylor is going to get liquidated and wind up in prison.

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Most Btcers on YouTube are following father Saylor and BTC scripture. They praise the MSTR leveraged mvmt on way up, but consider the possibility of its collapse as blasphemy. They can't fathom the MSTR doomsday scenario I already laid out, multiple times.

Saylor only goes to jail if he makes illegal mistakes out of desperation. He is protected from personal liability otherwise.

I don't think Saylor has a stop loss or risk strategy to manage downside. He talks like an evenagalist selling you eternal salvation thru bitcoin. Youtube is full of his disciples calling the convertible bonds "risk free" or "a money glitch", as faithful followers.

BTC was invented to become a decentralized payment and banking system currency, not merely a store of value asset like "digital gold". It's become that bc gov wanted it to. They want it nowhere near disrupting the USD or fed reserve monetary powers. Modern bitcoiners don't know that, or don't care, bc it continues to go up, which is all that matters. It's use case (per Saylor) has become "hold and buy more, never sell, and you will be rich forever".

I think there is an expectation BTC will ultimately become a widely held gov reserve asset, and then at that point, the currency narrative will sneak in the back door to dethrone the USD as global reserve currency. If that were to happen, the Fed becomes useless without printing money and manipulating rates. Our gov and society has become dependent on MMT, one crisis at a time.

Within next few years I predict those gov forces will claim BTC is a systematic risk to the financial system and ultimately national security. Not sure when, but that's likely where things go bullish to bearish. IF before then Saylor can't weather a +50% BTC correction, they will point to that downfall as an example of the risk. Saylor goes from hero spokesman to banished bitcoin villan.

As I already pointed out on this thread, Powel has made very recent statements about BTC being too speculative and volatile to be a store of value, and that there needs to be a consumer protection element. He will certainly be in the ear of Trumps new Treasury Sec.

The only real route I see for BTC to succeed longterm is for our economy, debt servicing, retirement, and foreign policy to all be weaned off MMT, then for the Fed to be abolished. That would be amazing, I hope it happens, but wouldn't bet on it.

Quote:

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The only real route I see for BTC to succeed longterm is for our economy, debt servicing, retirement, and foreign policy to all be weaned off MMT, then for the Fed to be abolished. That would be amazing, I hope it happens, but wouldn't bet on it.

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I would argue the opposite. The best BTC bull case is MMT to the moon.
A balanced budget and austerity are negatives for BTC as an inflation hedge

tysker said:

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Quote:

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The only real route I see for BTC to succeed longterm is for our economy, debt servicing, retirement, and foreign policy to all be weaned off MMT, then for the Fed to be abolished. That would be amazing, I hope it happens, but wouldn't bet on it.

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I would argue the opposite. The best BTC bull case is MMT to the moon.
A balanced budget and austerity are negatives for BTC as an inflation hedge

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If success is defined in nominal dollar terms, I would agree. If success means killing the fiat monetary system, I do not.

tysker said:

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Quote:

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The only real route I see for BTC to succeed longterm is for our economy, debt servicing, retirement, and foreign policy to all be weaned off MMT, then for the Fed to be abolished. That would be amazing, I hope it happens, but wouldn't bet on it.

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I would argue the opposite. The best BTC bull case is MMT to the moon.
A balanced budget and austerity are negatives for BTC as an inflation hedge

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So MMT turbo charge blowing the engine on our economy, defaulting on debt, and great depression type scenario to allow BTC to come in to replace central banking?

I think we are saying same thing. Central banking needs to be moved out of the way. Whether that is through a libertarian type mvmt in gov using legislation and courts. Or running the printing press to failure and hoping natural market forces prevail instead of more gov, like last great depression.

Yukon Cornelius said:

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This cycle has played out very predictable just like previous cycles. My favorite chart to look at is the btc to gold. For me it makes a clear picture through the fog of inflation where we are at exactly. And we when you see that chart this cycle is repeating to a T like the previous cycles.

So ya there's going to be a down cycle too. The question is how high do we go and how low do we go. 100k could be the bottom of the next bear

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More likely we go somewhere between $120k and $180k (huge range, I know, tough to pinpoint tops) and the next drawdown is somewhere between $15k and $50k depending how high this cycle runs.

Commence rage replies.

That's in line with prior corrections, but may be a bit steep as there is more liquidity and derivative products these days.

On the other hand, you got companies starting to double their share count and borrow $7B to buy bitcoin. So margin call selling may exacerbate.

FobTies said:

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That's in line with prior corrections, but may be a bit steep as there is more liquidity and derivative products these days.

On the other hand, you got companies starting to double their share count and borrow $7B to buy bitcoin. So margin call selling may exacerbate.

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Precisely. For that reason, when the masses realize a major correction is in progress, there are far more ways to sell and far more holders who will sell from far more avenues than crypto exchanges. There's also considerable leverage already, and if this bulls up to $150k-$180k, the leverage unwind will be spectacular to witness.

Cash is still king.

USD.

When global markets get spooked, everyone flees to cash USD. Not Bitcoin.

Bitcoin also goes down in times of fear.

As far as a "store of value"… few people, even among Bitcoin holders, would save for a home purchase in Bitcoin instead of cash.

Bitcoin can't replace cash because the network can't scale its transaction rate without layers, the layers have to be centralized which undermine the entire purpose of its existence which is decentralization.

Bitcoin price is based on human sentiment and perception. Really doesn't matter how stable the Bitcoin network is, human sentiment can and will change. Just takes some war and western governance to outlaw the Bitcoin exchanges.

With know your customer and every transaction being recorded on the blockchain, government tracking and enforcement of Bitcoin ban would be all too easy.

Bitcoin's literally only value proposition is was a currency for black markets. For activity not sanctioned by government. But that was fine until the open block chain became a liability for the black market.

That's why truly anonymous blockchain currency like Monero is banned from a lot of exchanges.

I'll be honest, I'm surprised Bitcoin has reached the prices and acceptance it's at today.

But Bitcoin price isn't a reason to invest in it.

What is a fair value for a Bitcoin? There isn't anything comparable to it to compete on price. That's why its price swings wildly.

Bitcoin doesn't solve any problems except for black market transactions, which is no longer applicable.

But a whole cottage industry now exists of miners, and ETFs, YouTubers, etc, all making $USD money on its existence and belief that Bitcoin solve some problems that it actually can't solve.

Bitcoin can't fix government or human nature. Bitcoin global reserve isn't going to save the world from war. It's not going to make everyone rich and eliminate poverty.

Humans will still find things to war over, the power hungry will still become dictators, the bad money managers will still be poor.

Yukon Cornelius said:

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Can Saylor force a conversion into shares?

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He can't. Saylor gets a low interest rate on the debt (0-1%) in exchange for the bond holder having the option to convert to stock (upside potential for bondholder) and the bond holder gets priority debt position, meaning they get paid back before other debt holders, who get paid back before equity holders.

BTC stays the same price, Saylor sells BTC, loses the interest on debt.
BTC appreciates, but under the execution price of the stock price, Saylor sells some portion of the BTC purchased with debt, keeps the rest, bond hold makes interest and gets made whole. (this is my understanding, haven't mathed it out)
BTC falls a little, Saylor sells more BTC than purchased using debt, repays bond holder who gets initial plus interest as return.
BTC falls a lot, Saylor sells a lot of BTC (more than he bought with debt), maybe liquidated/bankrupt.


Saylor gets to buy a lot of BTC today with low interest rates on debt with the expectation that BTC will not be down over the issuance to maturity of the bond, because he's issuing 5+ year long terms and any 5 year term for the foreseeable future is going to have at least one halving. Saylor believes BTC over any sliding 4 year term that BTC will be higher at the end of the term than at the start of the term for this reason, meaning he may have poor timing on maturity of the bond (down market), but will generally return some BTC on the transaction.

Bondholder gets the upside on BTC and is mitigated on the downside (they are priority debt holders), only losing their initial issuance if BTC falls significantly between purchase and maturity or Saylor doesn't trade in/out of BTC to take advantage of run ups/stock pile cash (not sure that's in his plan).

Ok that answers my question. Thank you. So at time of maturity if the share price is below the value of the bond the bond holders gets cash.

I'm not sure why you keep trying to insult me. I said drop TO 10k. As In the price of bitcoin is 10,000 dollars.

I did not say a drop OF 10k. Yet you misread it and are trying to insult me by your own mistake.

I'm pro bitcoin but also becoming increasingly skeptical of Saylors approach. I want to know exactly the doomsday scenario to frontrun it.

Got it. Makes sense. I think he can survive the down year potentially with the long bond.

Have you see. The 7% fixed income Security he has mentioned potentially offering?

Ok fair enough. My bad on the 10K comment.

I don't know if there is a way to front a potential MSTR collapse. If there is a major BTC +50% correction, I would see if MSTR finds some support allowing put IV to settle down. Then I would buy OTM puts on any pops. There could be some type of Saylor announcement on averaging down with more BTC, instead of selling some, with total confidence in MSTR future (queue Iraq general everything is ok gif). At that point, MSTR may get targeted. And ch11 is on table.

However, if Saylor sells some BTC on way down, like a stop loss to protect their capital structure/debt obligations, I prob wait to see how BTC price reacts to him distress dumping. (he won't do that on his own, big stakeholders would force him)

State and federal gov not adopting BTC in a meaningful way, or a big macro S&P correction would be 2 scenarios to possibly change sentiment enough to trigger a short raid death spiral on MSTR.

FobTies said:

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Ok fair enough. My bad on the 10K comment.

I don't know if there is a way to front a potential MSTR collapse. If there is a major BTC +50% correction, I would see if MSTR finds some support allowing put IV to settle down. Then I would buy OTM puts on any pops. There could be some type of Saylor announcement on averaging down with more BTC, instead of selling some, with total confidence in MSTR future (queue Iraq general everything is ok gif). At that point, MSTR may get targeted. And ch11 is on table.

However, if Saylor sells some BTC on way down, like a stop loss to protect their capital structure/debt obligations, I prob wait to see how BTC price reacts to him distress dumping. (he won't do that on his own, big stakeholders would force him)

State and federal gov not adopting BTC in a meaningful way, or a big macro S&P correction would be 2 scenarios to possibly change sentiment enough to trigger a short raid death spiral on MSTR.

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If you have the stomach for an inverse 2x ETF, MSTZ is a great way in small doses. But I surely wouldn't just buy and hold. I scalped it this morning for 10% gain and might re-enter tomorrow.

I did about 15 minutes looking into his strategy and that's my 30,000 ft take on it. I don't know much more than that.

They are aware... very aware, and more aware that they missed the jump from 8k to 108k regardless of who owns the coins.

tysker said:

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Signel said:

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But Bitcoin is a supply constrained asset class =). There are only 21 million total with around 19m mined so far.

You can't inflate it like the dollar on a 2% target per year like our Fed wants to be at....

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If you can't inflate it, then where does the growth come from?

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Reverse Inflation?

Satoshis

A Satoshi is the smallest unit of Bitcoin, equivalent to 0.00000001 BTC. This tiny fraction of a Bitcoin can be bought and traded, making it possible to own a portion of the cryptocurrency without committing to a full coin.

Reply to all:

Not sure Larry Fink shilling Bitcoin is what Satoshi had in mind? https://t.co/pVaF36BOW7

— George Gammon (@GeorgeGammon) December 19, 2024

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Launched in January, IBIT has now topped $50 Billion in assets as investors are increasingly using the ETP to get efficient exposure to bitcoin's price.

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There is a big difference between owning BTC and getting 'efficient exposure to the price of BTC' through a bank/broker-sponsored derivative product


eta: And I think that tweet from George Gammon may be sarcastic. IIRC, George is more of a gold bug and is more skeptical about BTC

Blackrock isn't speculating or investing in BTC. They bought to control it. There is no other entity that has benefited more from central banking than Blackrock. The last thing they want is a world where their pet governments cede power to the people. Being excited about Blackrock being the biggest owner of BTC is like being excited about China owning our debt.

Not really.