雙重懷疑，比特幣的價值和MSTR的價值

sec2100

https://seekingalpha.com/article ... ow-you-could-profit

sec2100

MicroStrategy Incorporated (NASDAQ:MSTR), over the last few years, has seen a dramatic shift from being a software company to now mainly fulfilling their duty as a "bitcoin treasury company". In some sense, by looking at the overlap of Bitcoin and MicroStrategy at first sight looks like it behaves like a leveraged Bitcoin ETF.

But underlying this rally lies a complex structure of raising capital, including convertible debt that's often used as an arbitrage to Gamma trade, which we will explain in depth. We also explain how we see MicroStrategy being a greater fool theory reliant on another greater fool theory, or greater fool theory squared, and what our stance is on the current speculative frenzy.

We also highlight how investors can additionally profit from a cross-asset class arbitrage, using a combination of both MicroStrategy and a regular Bitcoin ETF, taking advantage of MicroStrategy's premium to its Bitcoin NAV. Finally, we highlight some key risks currently underpinning the cryptocurrency ecosystem and subsequent rally with Bitcoin nearing $100,000.

Software Is Secondary In This Story
Prior to 2020, when MicroStrategy launched its strategy as a “bitcoin treasury company”, the software business was at the center of the company's valuation. Recently, however, the software story seems to be secondary as the software component appears to be losing money from an operating income perspective.

In the third quarter of 2024, the software business generated $116.1M on a GAAP basis, down from $129.5M for the same period last year. GAAP operating income also fell from $9.1M to a loss of $18.5M. Suffice it to say, this software component is not the main reason the company reached a market capitalization of $100 billion last week.

sec2100

This is even more evident in the earnings presentation, where the focus is on the Bitcoin holdings and the perceived “Bitcoin yield” that the company is generating. If we overlay the Bitcoin chart and MicroStrategy stock, we can see that MicroStrategy is trading more like a leveraged Bitcoin fund than a software-based company and has a very strong correlation.

sec2100

The Convertible Bond Arbitrage
This brings us to the crux of this story, which is that MicroStrategy has the largest corporate balance sheet in terms of Bitcoin holdings and is able to raise capital from the equity and debt markets to purchase additional Bitcoins.

Similar to a traditional Bitcoin fund, MicroStrategy can issue more shares through debt or equity offerings when it trades above its net asset value (NAV) as it trades at a premium to increase its Bitcoin holdings and close the gap to NAV. Below are some of MicroStrategy's capital raising targets, which are illustrative and subject to change, but show that the company plans to have a 50/50 mix of equity issuance and fixed income issuance.

sec2100

However, in recent days, there has been some confusion about MicroStrategy's convertible bond issuance as they have been issued at a 0-coupon or near 0-coupon with a high conversion price, which raises questions as to who would buy these types of bonds and why.

In our opinion, what could be the case with MicroStrategy is that a portion of these buyers may be engaged in a type of arbitrage with convertible bonds where the arbitrageurs of these convertible bonds are making money by employing a delta neutral, gamma trading strategy. In a sense, from an options perspective, a convertible bond behaves like a normal bond with a call option attached to it. Capital allocators such as hedge funds can trade around this option, which is essentially a very “out of the money” (OTM) option, by taking a “delta neutral” position. In other words, when these arbitrageurs buy the convertible bond, they simultaneously short a certain amount of the company's shares, making them delta neutral.

Let's assume that these convertible bonds are issued with a delta of 0.5. To achieve a delta-neutral position, the hedge fund would short $500 worth of MicroStrategy stock for every $1000 worth of convertible bonds owned. As MicroStrategy stock rises and the option is more “in the money” (ITM), the hedge fund sells more MicroStrategy stock to remain delta neutral. When the convertible is well in the money, the delta for these traders typically approaches 1. At this point, the hedge fund is typically long $1000 worth of convertibles and short $1000 worth of MicroStrategy, which basically cancels out to 0.

The opposite is also true because when the stock falls, the hedge funds cover more of their short shares or buy shares to maintain their delta-neutral position. In this sense, these hedge funds are buying low and selling high, trading around the volatility of the stock and simply being long-gamma. This is probably also the reason why the short interest is so high at 14.41%.

sec2100

In fact, we would go so far as to say that these convertible bondholders probably don't care about Bitcoin or where MicroStrategy shares are trading when conducting their arbitrage, as long as there is enough volatility to trade around. Remember that these capital allocators are likely delta neutral but net long gamma.

Another aspect to keep in mind is that the delta of these hedge funds right now is likely very close to 1, as many of the converts previously issued, as can be seen above, are now deep in the money, meaning they are long $1000 worth of convertibles and short $1000 worth of MicroStrategy, and are fully hedged. Rather, they are likely waiting for their old bonds, which are deep in-the-money to be called and waiting for the next round of convertible bond issuance so they can continue to trade around volatility with a net long gamma position. Alternatively, these convertible bondholders don't mind if the price falls sharply below the conversion price, as they can then start buying back shares and continue trading as if they had entered into a synthetic put option.

The risks these convertible bondholders are taking are primarily that they are not making enough profits from trading this volatility to cover the transaction and lending fees on the stock they are shorting, which is quite low. Even if these bonds are unsecured and collateralized, they are still “senior”, meaning they are still senior to equity.

There are also certain acceleration clauses and other things to protect convertible bondholders. Another way of managing risk in this case is for the lenders to set a floor at a certain delta, e.g. 0.4, above which they will no longer cover their short sales, thus protecting themselves in the event of a default. In this way, although they lose part of their capital, they are still protected by the shares held short in the event of a default.

Cross-Capital Structure Arbitrage
The arbitrage mentioned above is arbitrage “within” the capital structure, i.e. between equities and convertible bonds. However, another type of arbitrage that we see emerging and in which retail investors could become more involved is cross-capital structure arbitrage.

Earlier this week, MicroStrategy's market capitalization traded at more than three times the underlying bitcoin as MicroStrategy's market capitalization exceeded $100 billion. According to the latest news this morning, MicroStrategy owns 386,700 Bitcoin, which at the current price equates to a Bitcoin value of $37.13 billion, while MicroStrategy's market capitalization stands at $82 billion.

sec2100

Although we must consider the debt on MicroStrategy's balance sheet, its long-term debt was only $4.21 billion at the time of its last earnings announcement, suggesting that the company is likely still trading at two times its NAV in terms of its Bitcoin holdings.

Traders can offset this delta between MicroStrategy's Bitcoin holdings/NAV and the underlying Bitcoin price by taking a long position in Bitcoin and a short position in MicroStrategy, as this delta should converge back to 1 in rational markets over the long term. One way to do this would be to take a long position in the iShares Bitcoin Trust ETF (IBIT), which should trade very close to its net asset value, and, for example, buy long-term put options on MicroStrategy shares. The risk here lies in when or how quickly this delta between MicroStrategy's Bitcoin NAV and the underlying Bitcoin closes. Investors should also assess how far this delta could widen before it converges, as shorting shares still represents a huge risk given the unlimited downside investors could face if this delta ends up widening.

Investors would likely want to take a significantly larger long position in the dollar equivalent of IBIT versus MicroStrategy puts/shorts to mitigate the risk of this delta between the underlying NAV and the premium for MSTR shares blowing out even further. Another issue that could arise here is the fact that there is typically a significant time lag between announcements of how much Bitcoin MicroStrategy has actually acquired with the debt/equity issued, which can lead to a sudden collapse in this premium to NAV.

For example, this weekend, MicroStrategy purchased an additional 55,500 bitcoin for approximately $5.4 billion, slightly reducing the premium to NAV, while the shares did not trade over the weekend. You will likely need to monitor the situation closely and hedge your position as new information on MSTR's Bitcoin holdings are released.

Greater Fool Theory Squared (GFT²)
We personally and also some renowned financial and economic experts are of the opinion that Bitcoin or cryptocurrencies in general is most likely to be assigned to the “greater fool theory”, which according to Investopedia states that:

You can make money from buying overvalued securities because there will usually be someone (i.e. a greater fool) who is willing to pay an even higher price. Eventually, as the market runs out of fools left, prices will sell-off.

And thus by proxy, we would state that if Bitcoin is a greater fool theory, the people who would be buying MicroStrategy at extreme prices above its Bitcoin NAV could be categorized as a greater fool theory within a greater fool theory, or greater fool theory squared (GFT²). To start with why Bitcoin is likely a greater Fool theory, let's first look at several surveys that have been conducted over the years asking why people care about Bitcoin and why they own it.

In these numerous surveys, and we encourage everyone to look for even more surveys, one of the surveys by Morning Consult pointed out that “63% of crypto owners said the main reason is that they simply want to make money.” Another survey by Bakkt showed that the “long-term return” is by far the most attractive thing about cryptocurrencies, with a significant number of respondents stating that fear of missing out (FOMO) is also a factor. The vast majority of respondents also indicated that they either know nothing or very little about cryptocurrencies.

In virtually all the polls and surveys we analyzed, it was clear that the main reason for owning cryptocurrencies is to make money, or because people find the historical returns attractive, rather than buying cryptocurrencies for the technological/financial benefits that the underlying asset perhaps offers. In other words, the expected financial gains of buying cryptocurrencies far outweigh the "underlying benefits" for most, which is why we see Bitcoin as a greater Fool theory at its core.

sec2100

With MicroStrategy, the greater fool theory comes into play, as the further the company moves away from NAV, the more speculative it becomes. For example, at a 2x premium to NAV, shareholders are likely hoping that MicroStrategy can either raise capital immediately or issue shares at that inflated valuation, adding more bitcoin to its balance sheet, resulting in a higher NAV and a lower premium to NAV. Or investors may be betting that someone else will be willing to pay more than double the premium to NAV, keeping the “greater fool” theory alive.

This is all happening while investors can also buy Bitcoin at the NAV of a regular ETF like IBIT and not risk the shares collapsing to the NAV, which could be well below the price of MicroStrategy shares today. In a recent CNBC interview, Michael Saylor said that they are “selling dollar bills for $3,” which is probably true, but only in the sense that the people buying the common stock are willing to pay $3 for $1 bills because the greater fool theory mentioned above continues.

Sir Thomas Gresham Is Still Alive
There is a theory in economics that says that throughout history, “bad money” has generally displaced “good money”, an idea named after Sir Thomas Gresham. This idea has been around for quite some time, and was very present in the days when we had a gold/silver/metal standard with coinage.

The idea is that when an economy deteriorates and the currency is debased, e.g. by using less pure metals in coinage (i.e. 70% silver instead of 80% silver), the “bad money” usually displaces the “good money”. Simply put, because people dealing in coins knew that the value of the older, purer coins was intrinsically higher than the value of the new, diluted coins, they kept the old coins and stored them, while transacting mainly in the newly debased coins.

Something that hasn't really been emphasized yet is the fact that this theory might still hold true in the cryptocurrency space, especially in the stablecoin space. If we look at the market capitalization of the most well-known stablecoins, including Tether (USDT-USD) and USDC (USDC-USD), we can see a strong divergence between the market capitalization of both, which will become even more pronounced in early 2023. If the delta between the two continues to widen, we believe this could signal a deterioration in the underlying collateral.

sec2100

In this sense, we believe that the “bad money”, i.e. Tether, is likely to displace the “good money”, i.e. USDC, with Tether being the most circulating money, as would be the case with Gresham's Law. Throughout history, Tether, which basically serves as a central bank in the land of cryptocurrencies, is in our opinion even less transparent than the Federal Reserve and ECB, given it only publishes "attestations" of what assets they hold. Tether has not undergone an audit, the results of which have been made public, while at the same time receiving a $41 million fine from the CFTC for claiming that its Tether stablecoin was fully backed by US dollars.

On the other hand, the “good money”, which we believe to be the USDC, publishes a list of the specific assets it holds and most importantly the CUSIP of the government bonds it holds, so it is indeed transparent. Tether has also come under fire in the past for holding large positions in commercial paper.

Economic journals have also criticized Tether, with some researchers arguing in the famous paper “Is Bitcoin Really Untethered?” using data and algorithms that the patterns in the 2017 bull market are most consistent with a supply-based hypothesis of unbacked digital money inflating cryptocurrency prices. As for us personally, Tether still remains a wild card in terms of its influence on the pricing of Bitcoin and the underlying structure of current cryptocurrency markets.

"Bitcoin Solves Everything"
Furthermore, one can question whether Bitcoin is actually “decentralized”, as studies suggest that 75% of cryptocurrency volume is on exchanges, while at the same time there is a large concentration/centralization among miners and developers.

Although little is known about where MicroStrategy buys its Bitcoin as of recent, MicroStrategy did previously buy Bitcoin and actually used a centralized exchange, Coinbase, to broker the deal. Which is quite interesting given these exchanges are heavily regulated in terms of the Know Your Customer (KYC) law, if not more so than traditional banks are scrutinized by the SEC and other regulators.

sec2100

As a store of value, we believe they are particularly problematic as they are highly volatile and merely complement other hard assets such as real estate, land and metals (and even equities) to hedge against devaluation. These hard assets should maintain their economic viability over the long term, regardless of how much a currency devalues or a new currency is introduced, as they are still productive assets. Bitcoin has a limited supply, but so does land (and to some extent gold). In addition, land doesn't need GPU infrastructure and a lot of energy to sustain itself.

Bitcoin is not widely used in everyday life, can only handle 5–7 transactions per second and has significant fees compared to a normal SEPA transfer here in Europe, which is usually free, or even to a Visa/Mastercard transaction. Also, a currency usually has a flexible supply, as we experienced in 1929 and 2008 in the event of a severe economic downturn. Furthermore, Bitcoin is not meant to scale, as early adopters and developers refuse to increase the block size, which would make Bitcoin viable as a means of transaction, but would end the speculative frenzy. Bitcoin Lightning has been launched, but adoption remains low.

Even as a “safe haven” during a panic like 2020, Bitcoin plunged from around $10,500 at its peak in February to around $4000 in March during the depths of the ongoing financial panic. This drop of more than 60% far outpaced the decline in stocks and gold, disproving its “safe haven” status at the time. On the contrary, we see Bitcoin as a pure “speculative asset”, or practically the opposite of a "safe haven asset". So, we ask the question: what problem does Bitcoin actually solve, other than speculation?

The Bottom Line
Similar to hedge funds and other capital allocators arbitraging MicroStrategy's convertible bonds, there is a second type of arbitrage involving MicroStrategy's premium to Bitcoin NAV. There is a way investors stand to gain by arbitraging this premium to Bitcoin NAV by buying the underlying asset, in this case bitcoin, and going short/ buying puts on MicroStrategy, betting on markets becoming rational and efficient in the long term, collapsing this premium to NAV to 1 again.

Although this strategy does involve certain risks, we believe that with prudent risk management some alpha stands to be gained, when limiting exposure to the short side/ puts bought on MicroStrategy and gaining sufficient exposure to the underlying. As for where fair value lies for MicroStrategy, we believe it to be somewhere between its underlying Bitcoin NAV and the premium it's currently trading at, depending on how fast MicroStrategy is able to raise capital at a premium to buy Bitcoin. In general, we're skeptical of Bitcoin and wouldn't go long the asset itself, but would still, in our view, be worth the arbitrage when combining it with buying puts/ going short MicroStrategy to capture the cross-asset class arbitrage embedded in MicroStrategy's premium to NAV.

On the other hand, investors engaging in this arbitrage would need to hope on markets becoming rational over the long term, and MicroStrategy's premium to NAV not to blow significantly out of proportion. We believe the Wall Street Journal concluded our thesis pretty well, saying that:

To go long MicroStrategy’s stock is to wager that bizarrely inefficient markets will become even more so. (WSJ)